Initially, broadband enabled online video. Now online video is growing to become the volume driver of broadband traffic. Analysis of these interrelated markets at different stages of evolution worldwide provides insight to future strategy in both.
Online video traffic is growing rapidly to become the volume driver for consumer broadband services. In this edited extract from our Strategy Report Online Video Market Study - the impact of video on broadband business models, we describe groups of national markets with comparable broadband performance, pricing and penetration to demonstrate how online video markets are evolving worldwide.
Online video makes up one-third of consumer internet traffic today and will grow more than ten times by 2013 to over 90% of consumer traffic overall. For fixed and mobile telcos and other broadband service providers, a large part of future strategic success in broadband therefore rests on understanding how the online video market and ecosystem will evolve and how to interact with it effectively.
(NB: We’ve covered some of the online video industry dynamics in our recent analysis Google - How (precisely) it profits from YouTube, in the briefing Video Distribution 2.0 - Time to re-think the fundamentals, and presented scenarios for market evolution here. )
An explosion of different online video plays has been driven by different combinations of broadband pricing, bandwidth and market penetration.
Figure 1: Broadband Prices versus Speed
Our analysis shows that countries fall broadly into four groups.
The Online Video Market Study examines the customer behaviours and market dynamics in these groups, and includes case studies on key markets to explore the key industry dynamics of the development of broadband and online video usage.
The rise of IP-based online video was driven by two key factors - increasing bandwidth and user penetration of broadband internet.
Penetration drives the attractiveness of the market for service providers that typically assume large user bases can be monetised via advertising, or that offset economics can amortise investment in services. They also assume that a successful start-up service can be sold to a larger player. For example, YouTube’s $1.65bn sale to Google started a rush of online video start-ups.
Streaming video, which emerged in dial-up days, was the first IP media technology to be used. However, video really took off with the arrival of broadband in the early 2000s. Figure 2 shows the relative quality of video media that can be streamed depending on bandwidth.
Figure 2: Quality of media stream by bandwidth
As the available bandwidth increases, it becomes increasingly possible to stream video media. By 3Mb/sec broadband speed, PAL quality standard definition TV is possible. By 8Mb/sec, high definition TV is possible. By 24Mb/sec, any normal-sized household will have full multimedia capability.
Different countries have vastly different average bandwidth, meaning there are major differences in the sort of online services that can be offered. Advanced countries, such as Japan and South Korea, give some insight into how other markets will develop.
The other factor behind the services offered is the value of the market, which is driven primarily by penetration, in essence the number of customers online. The higher the penetration, the more people there are who can buy video services, making the market more attractive to online video companies.
The Online Video Market Study analyses the potential of online video, identifies possible market winners and losers, and sets out three interlocking scenarios depicting the evolution of the market. In each scenario, the role of distributors (primarily telcos) is examined, possible threats and opportunities revealed, and strategic options are discussed.
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The study is an invaluable guide to fixed and mobile Broadband managers and strategists, broadband equipment vendors, and those across the TV and video value chain who are seeking insight into how the online market will develop and the opportunities and threats it presents.