Online video sites a forrester content strategy review analysis

June 4, 2009

Online Video Sites: A Forrester
Content Strategy Review Analysis
by Nick Thomas
for Consumer Product Strategy Professionals

Making Leaders Successful Every Day

For Consumer Product Strategy Professionals

June 4, 2009
Online Video Sites: A Forrester Content Strategy
Review Analysis
This is the second document in the “Content Strategy Review” series.
by Nick Thomas
with mark mulligan and Erik Hood

ExECuT i V E S u m mA Ry
Online video is increasingly popular with users, as sites like NBC/FOX’s Hulu and the BBC’s iPlayer
continue to grow in popularity. Meanwhile YouTube, the biggest online video site of them all, is still
struggling to monetize its audience. User appeal alone is not enough in these straitened times, as ad
revenues have failed to grow as expected and as capital becomes difficult to access. Video aggregators
should use the Forrester Content Strategy Review to assess their product in its market context as the first
step toward building a competitive strategy. They must balance appeal with the ability to deliver a return,
adopting a variety of tools to do so.

TAbl E O F CO N TE N TS N OT E S & RE S O u RCE S
2 Online Audiences Love Video, But User Appeal Forrester surveyed 4,284 European internet
Alone Won’t Pay The Bills users across France, Germany, italy, Spain,
youTube may be Struggling, but Online Video Sweden, and the uK in September 2008.
is booming
Related Research Documents
The Online Video market Will be Challenging
“How digital Consumption is Reinventing The
3 Using The Forrester Content Strategy Review
media industry”
To Map The Competitive Landscape may 1, 2009
Video Sites must balance Appeal And Returns
“How media Ecosystems Can drive Content Sales”
RECOmmENdATiONS march 6, 2009
7 Video Sites Must Use A Variety Of Tools To
Increase Their Returns “European Paid Content And Activity Forecasts,
2008 To 2013”
November 7, 2008

© 2009, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available
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2 Online Video Sites: A Forrester Content Strategy Review Analysis

ONLINe AUDIeNCeS LOVe VIDeO, BUT USeR APPeAL ALONe WON’T PAY THe BILLS
It wasn’t supposed to be like this. As aggregators, led by the mighty YouTube, created huge global
audiences for online video, advertisers were supposed to flock to the sites to find those elusive
demographics. You want young males? Don’t bother with TV; look next to the skateboarding cats
and the dodgy Eminem video. The ad revenues would cover the enormous costs of serving millions
of videos, and TV would struggle to compete. So what happened? The economic downturn brought
us back to reality. Investors don’t want reach; they want a return. Meanwhile, the media old guard
has fought back with an effective carrot-and-stick strategy: Genuinely compelling sites like Hulu
and iPlayer have rapidly built an audience for free, top-quality content online, while crackdowns on
the unofficial uploading of copyrighted content have weakened the appeal of user-generated content
(UGC) sites like YouTube. So where do we go from here?

YouTube May Be Struggling, But Online Video Is Booming
While neither pioneer YouTube nor its parent company Google have yet worked out how to make
online video pay, competitors with different models are succeeding. And the proportion of Internet
users watching video online continues to grow. Reasons for optimism about the future of online
video include the following:

· The online audience for video is strong, and it is still growing. In 2008, 38% of European
Internet users accessed video content online, and Forrester forecasts that this will rise to 65% by
2013, making it the most popular category of content online.1

· Online video ad revenues are still growing. Forrester forecasts that revenues from video
advertising online will grow from €239 million in 2008 to €986 million in 2013 in Western
Europe. The exponential growth in inventory is creating downward pressure on costs per
thousand (CPMs), but spend is shifting online.2

· Online sites are now a key part of broadcasters’ overall distribution strategy. The BBC’s
iPlayer, for example, saw 276 million videos streamed in the UK in 2008 and has become a
successful and high-profile part of the corporation’s mission to reach as wide an audience as
possible.3 With no advertising and the support of a mandatory license fee, the BBC’s business
model is not widely replicable, but as even arch-rival BSkyB acknowledged in an interview with
Forrester in July 2008, the iPlayer has helped educate the wider audience about the possibilities
of online video.

· Companies are learning what users want. Hulu epitomizes the importance of learning
best practices and making the right investment decisions. By deciding to opt for a streaming
experience, with no P2P client to download, Hulu, like the BBC with iPlayer, saw rapid growth
in user adoption of its services. And by not including user-generated uploads, Hulu established
itself as an advertiser-friendly destination for “premium content.”4

June 4, 2009 © 2009, Forrester Research, inc. Reproduction Prohibited

Online Video Sites: A Forrester Content Strategy Review Analysis 3

The Online Video Market Will Be Challenging
Online video aggregators face tough decisions about the future strategy of their businesses. For
most, citing the impressive volume of traffic is no longer enough to justify their current proposition.
Unless you have access to other funding, now is the time to prioritize monetization across all areas
of your site. And this will not be easy, given that:

· Video piracy is not going away. The recent ruling about The Pirate Bay in Sweden may have
temporarily boosted content owners’ morale in their ongoing battle against illegal file-sharing
sites, but it is not yet clear that it will slow the growth of users pirating content. And the growth
of online video means that TV and movie companies are now grappling directly with the
problems that have bedeviled the music industry. In 2008, 10% of European Internet users
admitted using file-sharing networks to download TV or movies.5

· The majority of online video consumption is free. While legitimate long-form content from
TV has been very successful in engaging online audiences, the vast majority of video viewed
online will remain free to the consumer. Forrester estimates that only 2% of European Internet
users paid to watch online video in 2008.6 Unless attractive paid models get traction in the
market soon, free will be the norm — even for nominally high-value content, such as movies.

· Content owners remain too conservative. A major reason for the weakness of paid online
video offerings, in Europe at least, is the reluctance of content owners to embrace new models.
Many are reluctant to deviate from the old windowing system of delaying releases by territory
and by platform. For viewers, however, seeing a movie trailer on the global Internet creates a
need that can’t be met locally by legitimate means, encouraging piracy. And wholesale pricing of
movie content remains unfeasibly high, given the collapse of DVD prices and user expectation
that digitally delivered content should be cheaper than the physical version of the movie.

· The lack of available capital will hit the sector hard. It’s not just consumers who are reluctant
to open their wallets: The venture capital that was flowing around the online video space in
2007 and early 2008 has all but dried up. Sites without a focused and imminent strategy for
monetization face extinction. This thinning of the market may, conversely, create opportunities
for those who survive, especially for broadcaster direct-to-consumer initiatives, but it will
equally drive users to file-sharing sites when the content they seek is not available through
legitimate means.

USINg THe FORReSTeR CONTeNT STRATegY ReVIeW TO MAP THe COMPeTITIVe
LANDSCAPe
We can help companies seeking to negotiate these tricky waters. To help them evaluate their digital
content offerings, in this case online video sites, we have developed the Forrester Content Strategy

© 2009, Forrester Research, inc. Reproduction Prohibited June 4, 2009


Review (FCSR), a sophisticated analytical and quantitative tool to measure products’ effectiveness
and strategic integrity. The FCSR measures current digital content strategies and offerings against
more than 20 business-critical metrics across the following categories (see Figure 1):

1. Content control. This measures the degree of control that consumers have over the content,
such as portability, supported devices, and level of ownership.

2. Strategic integrity. This assesses the competitive marketplace and how strongly your digital
content offering aligns with your wider business strategy.

3. Pricing and packaging. This measures how well you have positioned your pricing and
packaging to meet consumer demand and the revenue potential.

4. Consumer experience. This looks at the quality of the consumer experience and the extent to
which it delivers added value compared with traditional alternatives.

We then group and weight these scores to create the four key FCRS strategic effectiveness scores:

1. Implementation. This scores how well positioned the service is in the competitive marketplace
and how well it is woven into the strategic objectives and core business of the provider.

2. Appeal. This shows the effectiveness of a content service in meeting consumer demand and
matching consumer needs.

3. Return. This indicates the economic integrity of the business model, such as a return on
investment (ROI) time line or the average revenue per user (ARPU).

4. Final Content Strategy Review Score. This is a single score based on the combined results from
the three criteria above.



Figure 1 The Forrester Content Strategy Review measures Four implementation Strategies

Scorecard variable Scales used for scores
Content control Maximum Minimum
Portability Portable Fixed
Downloadable Downloadable Streaming only
Interoperability Interoperable Locked
Platform agnosticity Ubiquitous Limited
Strategic integrity
Addressable market Mainstream Niche
Ease of implementation Straightforward Challenging
ROI timeline Near-term Long-term
Competitive imperatives Lead Follow
Likely impact on core business Strong Modest
Competitive environment Benign Aggressive
Investment Strong Weak
Ability to monetize effectively Strong Weak
Market maturity Immature Mature
Pricing and packaging
Consumer value proposition High value Low value
ARPU potential Strong Weak
Competitive differentiation Unique Undifferentiated
Ease of access Easy Difficult
On demand On demand Programmed
Consumer experience
Ease of use Intuitive Complex
Quality of service Compelling Poor
Added value Strong Weak
Value to consumer Good value Poor value
Depth and breadth of content Deep and broad Narrow and shallow

Aggregated scores
Appeal score Score between 1 and 5
Implementation score Score between 1 and 5
Return score Score between 1 and 5
Final content strategy review score Score between 1 and 5

53760 Source: Forrester Research, Inc.



Video Sites Must Balance Appeal And Returns
Evaluating a sector like online video using the FCSR allows aggregators — whether broadcasters
with a multiplatform offering or Web-only companies — to map their products against those of their
competitors (see Figure 2). Using the tool, publishers can identify relative strengths and weaknesses
and create a viable road map for their sites’ future. Looking at the scores for just a few of the highest-
profile examples, we can see key trends emerging:

· Sites with the strongest appeal struggle to generate ROI. Most video aggregators have been
successful in building appeal, leveraging growing consumer interest in the content. But now is
the time to prioritize the ROI, especially where sites with the highest consumer appeal — such
as YouTube — currently have the lowest ability to deliver ROI.

· Sites can’t rely on the appeal of their content alone. The best sites — Hulu and iPlayer — don’t
just offer the most compelling, professionally created content for free; they also invest heavily in
the user experience. Broadcaster catch-up sites, such as ITV’s Player, may have strong content,
but they must continue to add features like social tools to their offering to compete.

· Me-too sites risk oblivion. With even well-established sites struggling to monetize their content,
there will be no place in the market for sites that do not provide a differentiated experience —
either in terms of content or user experience or, ideally, both.

· Paid sites, such as Apple’s iTunes and Microsoft’s Xbox LIVE, can balance appeal and
returns. For both, the catalog available to users outside the US is currently too shallow —
thanks in part to labyrinthine international licensing agreements. But the consumer proposition
in terms of billing and delivery is well executed to minimize transactional friction. In both cases,
the video proposition supports and drives hardware revenues, too.



Figure 2 The Strategic Effectiveness Scores Of Selected Online Video Sites

Bubble size reﬂects implementation score

1 3 5

Xbox LIVE

iTunes
Hulu
High
blinkbox Dailymotion iPlayer

Return
Medium
score

Low Joost
ITV Player
YouTube

Low Medium High
Appeal score
53760 Source: Forrester Research, Inc.

R E C O m m E N d AT i O N S

VIDeO SITeS MUST USe A VARIeTY OF TOOLS TO INCReASe THeIR ReTURNS
The market for online video is booming, but video aggregators face considerable challenges.
Strategic imperatives will vary — some broadcasters can position a catch-up service as a key
part of a multiplatform strategy, while Web-only destinations must focus on elusive revenues.
Nevertheless, we urge consumer product strategy professionals working with online video sites to
adopt the following maxims:

· Now is the time to prioritize returns. To be fair to youTube, it is leading the way in looking
for ways to generate returns from its site. it is investigating different ad formats, including
pre-rolls, and has introduced long-form premium content to the site. Recently, youTube’s
ultimate boss, Google CEO Eric Schmidt, has even been talking about subscriptions to certain
content.7



· Narrow your appeal to identify the most valuable users. Video site Veoh, for example,
has focused on serving only the highest-value markets where ad revenues are strong and
geo-blocking users from poorer countries, who represent only a cost in terms of serving
the content with little prospect of a return. For licensing reasons, Hulu and iPlayer are not
available outside the uS and uK, respectively, but the effect is similar to not spending money
on serving “dead wood” audiences.
· Learn from your closest competitors. The major broadcasters were not necessarily the first
to market with online video propositions, but in several cases, their second-wave products
have proven the strongest in the market after learning from the trials of others. As is so often
the case, the early follower succeeds where the first mover failed. They have learned what
audiences want: in terms of user experience and simplicity, the likes of Hulu and iPlayer have
become the sites to follow.
· Adopt best practices from beyond the video vertical. Actively monitor developments on
your competitors’ sites and if they can enhance your own, implement them quickly. but cast
your net wide. your viewers are using best-of-breed sites in all categories online — learn
from the best sites out there, from Facebook to Flickr, from Spotify to Twitter, from Club
Penguin to Steam. These are competing for your users’ time — what can you learn from
them? For example, consider how the appeal of real-time updates, central to Twitter’s rapid
growth, could enhance your video site. Or look at how games distributor Steam has built a
safe, secure, and profitable way of delivering premium content.8
· Implement social tools. depth of catalog is important for video sites, but they must also
invest in developing other features, such as social tools that allow users to engage with the
content and share their experiences with others. This will be central to the next iteration
of the iPlayer and will provide another form of differentiation, as well as an enhanced user
experience.
· Innovate to differentiate. What is striking about the sites that score highly in this exercise is
the rapidity with which they have developed their services. New features and improvements —
in picture quality, in user experience, and in catalog depth — have kept these sites at the
forefront in an aggressive market.

eNDNOTeS
1
Sixty-five percent of European Internet users will watch online video by 2013, making it the most popular
online content category ahead of news. See the November 7, 2008, “European Paid Content And Activity
Forecasts, 2008 To 2013” report.
2
With European online video ad spending set to more than quadruple in the next five years — nearing €1
billion in 2013 — the majority of publishers have now set their sights on the in-stream video ad. See the
February 27, 2009, “Monetizing Online Video In Europe” report.



3
“Virgin Media recorded a record 56 million views of video content in December alone, 17 million of which
were BBC iPlayer shows.” Source: Mark Sweney, “BBC iPlayer boosts Virgin Media video downloads,” The
Guardian, February 12, 2009 (http://www.guardian.co.uk/media/2009/feb/12/bbc-iplayer-virgin-media).
4
In just one year since its public launch, Hulu has climbed to the top of the video site rankings and is
becoming one of the Internet’s premier brands. However, numerous competitors are lining up to challenge
the young company in a battle to control the Internet TV space. To compete with Hulu, product strategists
must understand how Hulu’s focus helped it win the early rounds and where the next battles for Internet TV
will be fought. See the May 11, 2009, “Competing With Hulu” report.
5
Source: JupiterResearch/Ipsos Consumer Survey (9/08), n = 4,284 (France, Germany, Italy, Spain, Sweden,
and UK).
6
Although online video will be the most popular content category online, music will see the highest pay
conversion rates in an otherwise modestly performing European paid content market that will dominated
by free. See the November 7, 2008, “European Paid Content And Activity Forecasts, 2008 To 2013” report.
7
“Chrystia Freeland, US managing editor, interviewed Eric Schmidt, chairman and chief executive of Google,
in London. They discussed the future of newspapers, developing online advertising and antitrust issues.
This is a transcript of that interview.” Source: “View from the top: Eric Schmidt of Google,” FT.com, May 21,
2009 (http://www.ft.com/cms/s/0/73bc2fe4-45b4-11de-b6c8-00144feabdc0.html).
8
A focus on service and ease of use is key to Steam’s success. A simple user experience and a robust, reliable
platform are vital ways to reward payers — and discourage piracy. See the March 6, 2009, “How Media
Ecosystems Can Drive Content Sales” report.


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Online video sites a forrester content strategy review analysis

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Online video sites a forrester content strategy review analysis