January 2013 | By Brendan Gaffey, Jonathan Dunn, and Kevin Roche
Online video has become a familiar sight on our computer screens. If you peer into your co-workers’ cubicles, you’re likely to catch them sneaking a quick video on YouTube, watching news at CNN.com, or enjoying videos their friends have embedded on Facebook. At home, your kids might be watching the latest episode of ‘The Bachelor’ on ABC.com or new music videos on YouTube. Or maybe they’re streaming entire seasons of old TV shows from your Netflix account.
Established players in the video value chain—production studios, TV networks, pay-TV distributors, brand advertisers, and so forth—have been closely monitoring these behaviors from the start. Yet with the vast majority of their income linked to the television, not the computer, most have felt marginal, if any, impact on their core business.
That is about to change.
The computer on the couch
The first reason for this has to do with tablets. The use of these devices is rising exponentially with no sign of a slowdown. At the beginning of 2010, tablets were all but non-existent. Today over 30 percent of American consumers have access to a tablet computer. This matters because a majority of these people use their tablets to watch video at home, on the couch, with a traditional TV in sight. No longer desk-bound, the computer screen just moved into the living room, and now competes with the TV for eyeballs and attention. And as display quality and user interfaces continue to get better (Apple’s Retina display and Netflix’s iPad app come to mind), the tablet will only become a more formidable competitor.
Brand advertisers currently spend upwards of $60 billion to reach television viewers. Even a small but steady shift in eyeballs away from the TV screen could put those dollars at risk, potentially depriving networks and distributors of revenue and disrupting the foundation of the current industry value chain.
The second reason that online video will transform the status quo is due to the popularity of devices like AppleTV and the Xbox, which help bring all that diverse internet video content right onto the living room TV screen. This “over the top” (OTT) delivery—which occurs when a provider (like Netflix or YouTube) sends their content over the network of a different operator (such as Comcast or Time Warner Cable)—creates new kinds of competition for distribution rights and licensing. It also creates new opportunities for capturing consumers’ time and money. Industry analysts are closely tracking the impact (quite small, for now) on subscription levels, average pricing levels and premium options.
The data from our iConsumer research program, which has surveyed over 12,000 consumers each year for the past 5 years, underscores the trend of Americans watching OTT video on their televisions. Since 2009, the numbers have more than doubled, and now 32 percent of Americans watch on a monthly basis and 22 percent on a weekly basis, as of the end of 2012. As shown below [EXHIBIT 1], the average consumer now views over 28 minutes of OTT video on their TV—enough to fill a typical network time slot.
Seven types of video users
So who, exactly, is this consumer—watching almost 30 minutes a day of internet video on their television screen? Actually, this average hides incredible diversity in usage patterns and cross-device content consumption. Our research has identified seven distinct usage segments, which are based on different attitudes and viewing behaviors across platforms (e.g., TV, DVR, and PC) and content types (e.g., episodic TV vs. movies vs. sports vs. news). The differences between these segments, which are described in EXHIBIT 2, highlight the challenges companies will face in successfully developing and marketing products and services to each of these groups.
Broadly speaking, the population is about one-third what we call “Boob Tubers,” an older, low-tech group that watches a high volume of traditional, linear TV; and one-third “Screen Avoiders,” a diverse demographic that spends very little time watching video on any device. The remaining one-third represents the media viewing future and is spread across a number of important marketing segments, such as “Big Bundlers,” “Sports Nuts,” “YouTubers,” “Movie Nighters” and “OTT Addicts.” All these leading-edge groups differ dramatically in the amount and type of video they watch, as shown in EXHIBIT 3.
The difference between these consumer segments will have profound implications for product design, marketing and pricing strategies. Although “OTT Addicts” make up only 8 percent of the population, they consume almost 65 percent of all the volume of OTT video on TV. “Big Bundlers,” on the other hand, pay for OTT services like Netflix at about the same rate as the whole population, but hardly use them with any intensity. “YouTubers,” who are disproportionately young and enrolled as students, see more video on a computer screen than on a linear television screen, pointing toward a very different potential future for pay TV usage as they age and enter the workforce in larger numbers.
Understanding these nuanced usage behaviors is critical for players throughout the video distribution value chain. As the world of video viewing evolves, companies will need to develop winning strategies for producing, licensing, and distributing OTT video content. It is critical to act now to build video services informed by these consumer segments and usage patterns.
Brendan Gaffey is a Director in the Dallas office, and leads the Consumer Practice for Tech, Media and Telecom.
Jonathan Dunn is an Associate Principal in the New York office, and focuses his client service on the video production and distribution industries.
Kevin Roche is a manager in the San Francisco Office, and leads the iConsumer research program.