Online Video Sites


Contents [show]
1 Revenue Models of Online Video Sites
2 Executive Summary
3 1 Introduction
4 Consider the following factors
5 2 Literature review 2.1 Online Video Audience
6 2.3 Online Video Advertising
7 2.4 Other revenue models
8 2.5 Recent initiatives to increase revenue
9 2.6 Knowledge Gaps
10 3 Research Design 3.1 Research Problem
11 3.2 Research Objectives
12 3.3 Research Methodology
13 3.3.1 Phase 1
14 3.3.2 Phase 2
15 3.3.2.1 Sampling Design and Method of Analysis
16 4 Expected Contribution
17 5 Research Analysis 5.1 Demographic Profile of respondents
18 5.1.1 Online Video Viewing Behavior
19 5.1.2 Online Video Uploading Behavior
20 5.1.3 Online Advertising
21 5.1.4 Online Video Subscription
22 6 Exploring relationships through cross tabs
23 6.1 Times spent on online video vs. Ranking for video ad
24 6.2 Times spent on online video vs. Rating for ticker ads
25 6.3 Recollection of online ad vs. Favorite online ads
26 6.4 Favorite online ad vs. Ad watching behavior
27 6.5 Rating for Music Videos vs. Willingness to Pay
28 6.6 Ratings for movies vs. Willingness to pay for movies
29 6.7 Willingness to subscribe vs. Willingness to pay for TV serials
30 6.8 Willingness to subscribe vs. Willingness to pay for news
31 6.9 Willingness to subscribe vs. Willingness to pay for movies
32 6.10 Willingness to donate vs. Rating of user created clips
33 6.11 Willingness to donate vs. Rating of sports clips
34 7 Results and Interpretations 7.1 Online Advertising 7.1.1 Overall
35 7.1.2 Video advertisements
36 7.1.3 Banner advertisements
37 7.1.4 Ticker advertisements
38 7.1.5 Product Placements
39 7.1.6 Pop up and interstitial advertisements
40 7.2 Subscription
41 7.3 Donation
42 8 Conclusions
43 9 Limitations
44 10 Bibliography 10.1 Papers
45 10.2 Websites
46 11 Annexure 11.1 Questionnaire
47 11.2 Different types of online advertisements
Revenue Models of Online Video Sites
Executive Summary

The number of users of online video websites has been growing very rapidly over the past few years. In fact the popularity of online video websites has increased so much that a lot of people are watching lesser television then what they used to. But video websites continue to make large losses due to high bandwidth costs and copyright claims. Even sites like YouTube which has millions of subscribers are struggling to make a profit.

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My research has attempted to study the existing revenue models for video websites and explore the possibility of introducing new strategies to increase revenue. As most of the revenue for these sites comes from advertising currently, I have tried to assess user responses to online advertisements and suggest ways to increase their effectiveness. The viability of the subscription and donation models for video websites has also been explored.

This was done through Quantitative Techniques i.e. administering a questionnaire to 100 respondents who watch online video at least for an hour every week. A pilot survey was also conducted to test the effectiveness of the questionnaire. Statistical methods like cross tabs were then used to analyze the data and derive insights.

It was found out that the current advertisements on online video websites have very low recall value and do not engage the users sufficiently. I have suggested steps through which this could be changed. Also the subscription model could be implemented currently by charging for some additional features, but keeping the basic features free. Among the different types of content currently movies, music and television serials seem to be the easiest to monetize. There is also some scope for monetizing sports content.

People also seemed receptive to the idea for donations to YouTube. Thus by using a mixture of all the above models more proficiently, YouTube stands to increase its revenues significantly.

1 Introduction

“This is an interesting time of constant change and innovation, and things will keep changing until we find equilibrium. Trying to understand online video today is like taking a Polaroid photo of a moving train—it’s a blur. Every day we uncover a new behavior or out a cost issue.”

-Vivi Zigler, President, NBC Universal digital entertainment division, (Streaming Media, 4/09)

According to readwriteweb.com the different types of online video websites could be classified as

* Video Sharing – Sites where you can watch, upload and share videos e.g. YouTube, Metacafe, Yahoo Video etc

* Intermediaries – Sites that connect publishers, video creators and advertisers e.g. NBBC, VideoEgg etc

* Video Search – Sites to search for videos e.g. Google Video, AOL, Pixsy etc

* Video Ecommerce – Sites that allow you to legally stream latest movies and TV shows e.g. MovieFlix, Guba etc

* Video editing and creation – These sites can be used to edit videos and serve as a complement to video sharing websites e.g. JumpCut, EyeSpot etc

Online Video Streaming has grown immensely popular over the past few years. An increasing number of users have been watching their favorite television serials, movies and music videos online. User generated content through sites like YouTube have also become a rage among the youth.

The effectiveness measuring capability of online advertising seems to be a boon for all marketers. At a time of economic uncertainty and increasing dissatisfaction with the accountability of broadcast TV advertising, online video advertising is delivering double digit click through rates and high levels of attention and engagement.

Consider the following factors

* Launched just three years ago, YouTube is one of the web’s top five websites; hosting 73 million video clips watched hundreds of millions of times a day.

* Print titles ranging from the Financial Times and Sun to Elle and Time have been as quick as dedicated online publishers to put video at the heart of their editorial offer.

* Even in India, viewers are able to watch the latest news in video on the websites of Times of India and Hindustan Times

* Video product demonstrations and reviews are becoming a key driver for ecommerce services such as Cnet TV, Comet TV and Borders BookZone.

* According to IDC, U.S. consumers will spend more than $9 billion on online video content in 2012

All this, however, has not translated into large revenue for online video websites. Google which has acquired YouTube are struggling to come up with ways to monetize it. Recent steps taken in this direction include setting up partnerships with big media companies and letting content creators sell their own advertisements. Hulu a joint venture between Newscorp and NBC shows short video ads before, during and after its programs which include recent TV content

But these sites also incur huge costs in providing huge bandwidth which is a prerequisite for online video streaming. Licensing content is also a major cost for most of the websites. Until now sites like YouTube have sought safety in the ‘safe harbor’ law (Section 512c), but broadcasters are now seeking their pound of flesh as was seen in the recent litigation filed by Viacom.

While YouTube has access to the deep pockets of Google and Hulu has the backing of major studios, these websites cannot continue to depend on just advertising as a source of revenue. If they have to exist they would need to find out innovative ways to earn additional revenues while also trying to increase advertising revenue to ensure profitability.

2 Literature review
2.1 Online Video Audience

Accessing videos online has gone main stream at an extraordinary pace. (Nielsen, 2009)

With the increase in penetration levels of internet, other demographic groups seem to catching up with young males between the ages of 18-24 who were thought to be the primary users of online video. This includes female users especially moms and the older population who are aged above 50 years. The increase in the number of niche video websites targeting these users like essence.com, Univision.com etc proves this fact.

There is no evidence that the Internet is cannibalizing TV use. In fact, Nielsen studies have shown that high consumers of TV are also high consumers of the Internet: high-intensity media consumers are high intensity media consumers regardless of media type. (Nielsen, 2009)

While there have been huge improvements in the quality of internet video, there is still some catching up to do to reach the levels of television. Currently internet video performs a complementary role to television, with users watching their favorite television shows online if they are not able to watch it on television due to time and geographical constraints. But an increasing number of younger viewers prefer to watch content online because of the greater degree of freedom involved, which includes forwarding advertisements and rewinding portions of the show that did not make sense the first time.
2.2 Audience Engagement

Forrester Consulting (2008) defines ‘Engaged Viewer’ as an online video viewer who watches online video more than one hour per week. In a study conducted in 2008 among the American audience it found that the growth of social networking websites like MySpace and Facebook has resulted in more people spending an increasing amount of time viewing online video and hence qualifying as engaged viewers. Majority of these users find the videos that they want to watch either through browsing, site searching or referral by peers. These users usually watch an entire video and do not stop it before it has finished.

Most of these viewers are watching amateur clips uploaded by other users on sites like YouTube. Movies, News, Sports and Music are the other popular content that viewers seek online. The other engaging activities that these users are involved in include posting comments, sharing videos and social bookmarking.

The content on online video sites can be categorized into three categories i.e. Snippets, Boutique and Catch- Up (Gibbons, 2008). Snippets consist of content which is viewed for amusement or to kill time. Boutique is more information and task driven content. Catch-Up mainly comprises of stuff like TV serial episodes which users can catch up on online.

In a survey conducted by Liverail (2008) among close to 400 media users in the US in the 18-24 age category it was found that frequent viewers consume an average of 273.1 minutes of online video content per month as against 195 minutes during 2007.

One of the major reasons for this is the increase in the popularity of websites like Hulu that stream long form content (full length television shows, for instance) as compared to short duration user generated content (Forrester, 2008). Also the number of viewers who watch movies on online streaming websites has increased drastically due to increase in broadband speeds. Time spent by a user on a video is usually calculated after the user has pressed the ‘Play’ button on the online player. The time for which the user pauses the video is not included in the Time Spent metric

Forrester Consulting (2008) further classifies the engaged viewers into four categories ( 1):

* Watchers – This group contributes the least amount to the total video views, do not watch different types of video, prefers TV to online video and is not likely to share videos online.

* Controllers – They contribute a significant amount to the total video views, like different genres of video, prefer online video to TV, are likely to share and rate a video

* Connectors – While they comprise of the least percentage of engaged users they contribute the maximum amount to the total video views, watch online video most of the time and are responsible for most of the video sharing that happens online.

Advertisers need to target the Controller and Connector segments as they watch the most online video and hence are more likely to watch advertisements. They are also the most receptive to advertisements and understand it is a small price to pay for watching the content free. But in order for the advertisements to have more of an impact they need to be entertaining, not intrude on the video viewing experience, non repetitive and effectively target the viewers.

2.3 Online Video Advertising

Non-video advertising such as banners and pop-ups are generally unpopular with people engaged with this content unless related to the video. Furthermore, the intrusive nature of advertising can make some viewers impatient. (Gibbons, 2008)

Online video sites need to ensure that the advertisements on the site do not annoy the viewer. The advertisement need to be made relevant to the video being viewed and also should be entertaining. If the viewer perceives the advertisements to be annoying then he may switch to another site. Also advertising around user generated content in YouTube would get a more negative response from the viewers since the clips are shorter in duration.

Not only is the Internet adding incremental reach to a TV media buy, but it is also creating significant additional effectiveness. (Nielsen, 2009)

Watching an advertisement on television and then seeing a banner of the same ad on an online video website increases the chances of the message of the brand getting to the customer. Hence it recommended to reach the customers in as many different touch points as possible, to increase the effectiveness of the communication. Online video website provides another avenue for marketers to do this.

TV manufactures see online video to be the future of content distribution (Liverail, 2008). Hence the next generation television sets have been made compatible with broadband to facilitate the delivery of video content through the internet. This would enable television viewers to watch on demand content from websites like Netflix and also revolutionize TV advertising by tailoring it according to the viewer’s interests.

The Liverail report has highlighted the following problems as preventing online video websites from realizing their full revenue earning potential

Publishing platforms and advertising servers provide different s for the performance of the advertisements
The larger number of advertising formats online like pre roll ads, non linear non interactive ads has created a lot of confusion in the advertisers mind
The industry has failed to adopt standard units and metrics though the Interactive Advertising Bureau (IAB) has consistently tried to set standards
No standard protocols have been defined for communication between the video players and ad servers.

2.4 Other revenue models

Today, advertising is the main source of revenue for Web 2.0 sites. Effective targeting is given as one of the major reasons as to why advertisers should advertise on websites. However advertising revenues are weak and disappointing, especially considering their large audience (Beuscart, 2009).

One of the major reasons for the above is that marketers are still not comfortable with the online medium. Since websites like YouTube depend a lot on user generated content advertisers are not sure about the kind of content that their brands would get associated with. In their preoccupation with advertising, marketers forget the various innovative models and different advertising formats that could be put to use to catch the attention of the consumer. It is by using such models that online video websites could increase their advertising revenue.

Online video websites offer their services and content to customers for free because of low entry barriers and large amount of competition. Three revenue models that can be used to supplement advertising could be

· Freemium – The basic functionalities of the site are available to the users for free, but a fee needs to be paid for access to advanced functions. E.g. Pro accounts on Flickr.

· Donations – Sites strike an emotional chord with their loyal users and seek donations from them e.g. Wikipedia aims to collect 7.5 million dollars from its users in the form of donations and has already collected 1 million dollars

· Transaction Fees- Sites can charge a transaction fee for directing its users to related product and services. In the case of YouTube, users could be directed to purchase music and movies.

Revenue models for online websites (Beuscart, 2009)

In the future as online video websites like YouTube and Hulu further establish their presence, they could also move to a subscription revenue model. Also for popular content a pay per view model may be implemented where users would have to pay for a single access to a video clip.

2.5 Recent initiatives to increase revenue

Advertisers prefer Hulu to YouTube because the former allows users to watch full length television shows and thus engages users for a longer period of time. YouTube also seems to be moving in the same direction, by tying up with major studios for content. Recently they signed a deal with Time Warner to furnish clips of movies, television program and news content from Warner Bros.

But that doesn’t mean that YouTube is shifting its focus from user generated content. Recently the site started offering popular content creators a share of the revenue, in order to boost good content. YouTube offers a license that will allow the site to sell advertising around the content and share the revenue with the content creator. But in the future this step could lead to problems in the future with popular content creators demanding minimum guarantees or higher licensing fees.

Another initiative taken by YouTube is to allow the big media companies to sell their own advertisements. Currently CBS is allowed to sell their own advertisements along with their content on YouTube channels. This step seems to be very attractive to the media companies which have a lot of content as they will be able to leverage YouTube’s reach to sell their own advertisements at higher rates.

According to paidcontent.org, YouTube is also allowing users to decide on the kind of advertisements that they want to watch. Viewers could choose between watch four advertisements in between a video clip or watching a pre roll advertisement that would be shown before the clip starts playing. Viewers could also choose between two different pre roll ads. This will make viewers more receptive to advertising as they are the ones selecting what they want to watch. Also advertisers would be forced to make their advertisements more entertaining, so that viewers actually watch them

2.6 Knowledge Gaps

All the research done in this area is for internet marketing in general. There is very little research material on the plausibility of alternative/ complementary revenue models for online video websites, as well as what the pros and cons are for each model. Also it needs to be explored if the online video websites could do anything more to increase their revenues.

There are different types of advertising used on video websites such as banner, pre roll, contextual overlays etc. But there is a dearth of research that has been done to how users react to these different kinds of advertisements, whether they respond more positively to any format in particular or whether they find advertisements on the site obtrusive. This would help online video websites to become even more attractive to marketers and also increase their advertising revenue.

YouTube has introduced some initiatives to increase revenues recently like tying up with major studios for content, paying popular content creators and letting viewers choose the advertisement that they want to watch. But some research is needed to find out if viewers are aware of these steps and whether they are responding positively.

3 Research Design
3.1 Research Problem

To study the existing revenue models of online video websites, analyze their efficient and limiting features and explore the possibility of introducing new strategies to increase revenue

3.2 Research Objectives

To assess user responses to advertisements on online video sites and understand whether the presence of advertisements influence their decision switch between sites
To find out ways to increase the effectiveness of advertisements on online video sites
To assess user responses to the new initiatives taken by online video sites to increase revenue
To suggest the major measures that can be adopted by online video sites to increase revenue.

3.3 Research Methodology

The research was executed in 2 phases

3.3.1 Phase 1

The exploratory phase of the study consisted of secondary research to find out how do online video websites currently earn their revenue and what do they plan to do in the future to increase it. Also recent trends in online advertising were explored and an analysis was done if they are applicable for video sites. The various engagement points for viewers on video sites would also be explored.

3.3.2 Phase 2

This phase included Quantitative research using a questionnaire. A pilot survey was conducted to test the effectiveness of the questionnaire. A copy of the questionnaire is appended to this report (See Annexure 1)

3.3.2.1 Sampling Design and Method of Analysis

Since this study intended to explore the response pattern with respect to advertisements in the on line video medium, the universe is constituted by people who watch online video for 1 hour a week and fall in the connector or controller segment. Hence, we used the purposive sampling method and administered the questionnaire on-line to 100 purposively selected respondents who fall in the above two categories. Through the pilot we have identified graduate and postgraduate students as two connector/ controller groups. We have employed simple statistical methods to analyze the data and interpret the results.

4 Expected Contribution

This dissertation is aimed at helping online vide websites like YouTube, who are struggling to make a profit. Currently Google spends about 711 million dollars annually on bandwidth and licensing costs for the site, but earns only 240 million dollars in annual revenue. Considering the amount of users and the popularity of these sites it seems that not enough has been done to generate revenue for these sites.

This dissertation aims to analyze the current revenue models followed by online video sites and find out if there are any bottlenecks. Since the primary revenue for these sites is from advertising, focus would be given to examine how these sites can make their advertising more relevant to viewers and thus attract more advertisers. After analyzing the drawbacks of the models used by these sites, new strategies for online video sites to earn more revenue would also be explored.

5 Research Analysis
5.1 Demographic Profile of respondents

Majority of the respondents were between 20 -30 years old, as it is this age group that is predominantly heavy viewers of online video. The sample had equal number of male and female respondents selected from the Mumbai, Delhi, Bangalore and Chennai. Some of them were also from small towns like Bhopal, Cochin, Chandigarh, Lucknow and Hissar. Around 4% of the respondents were currently living abroad in USA.

5.1.1 Online Video Viewing Behavior

54% of the respondents spent more than an hour daily watching online video ( 1). Out of these 8% of respondents spent more than 2 hours a day watching videos online.

The amount of time people spend watching online video has been increasing drastically over the past few years. A major contributor to the increase is the proliferation of social networking sites through which users can share their favorite video links with the friends.

Also significant improvements in the internet speed and bandwidth have meant higher quality video can be streamed online and hence there is not a lot of perceivable difference between the quality of television broadcast and online video.

A little more than half of the respondents visited YouTube daily ( 2). Reasons for this could be that YouTube boasts of the largest number of user created clips online and also has a large variety of other content. Also the website allows you to post its links on social networking sites like Facebook which increases the number of visitors to its site.

Metacafe and Yahoo Videos were the next most visited sites, but their reach is very low compared to that of YouTube – 13% and 15% respectively. Metacafe would be popular among the youngsters because it has a feature which allows its users to turn the ‘Family Filter’ off and access adult content.

Not a lot of respondents accessed Hulu because the site does not allow Indian viewers to watch its TV content. A lot of the respondents did not visit Digg and Videosift because these websites were not yet very popular in India.

Among ‘Others’ a large number of people visited Ted.com, a site where people talked about ideas for the future. The videos on this site feature prominent speakers talking for around 18 minutes about technology or ideas that would change the world we live in.

When it comes to content one does not see significant concentration around any one type ( 3). Music Videos are the content most in demand in online video sites, with a quarter of the respondents reporting that they would watch videos of the favorite rock star, band or singer on online vide websites. It may be noted that a lot of users might be using these sites just to listen to their favorite music and not actually watch the videos.

The next most popular content on these sites were the various clips uploaded by users on these sites. This would include humorous clips, how to do videos, videos of important functions, creative clips etc. Most of these videos are shot by an amateur with a digital camera or a camcorder.

There is not much difference in the amount of viewers for movies, TV serials and sports content. While this content is in heavy demand there are a lot of copyright issues involved with them and hence they are not freely available on online video sites. News seemed to be the least popular content among the respondents, but that could be attributed to the fact that majority of the respondents were in the 20-30 age group. Other than the above content, some male respondents also watched porn on online video sites.

Majority of the respondents felt that they were watching lesser television due to online video ( 4). This is in contrast to the findings of the 2009 Nielsen report which states that online video has not affected TV viewership. Reasons for people choosing online video websites over television could be

1. Getting to watch TV serials online on the same day as that they are broadcasted internationally. Usually Indian audiences have to wait a long time before an international television series is broadcasted here.

2. Having greater control on the type of content to watch. This would involve choosing the type of content, time to watch it and pausing as well as rewinding the clip as per convenience

3. Due to increased bandwidth of internet there is not a lot of difference between the quality of the video viewed online and that of television.

Lesser interruption of advertisements in online video once the clip starts playing.

Respondents who still watch the same amount of television are probably followers of a particular show or channel which they still loyally follow on television.

Most of the respondents contacted preferred watching online video late at night ( 5). Almost no one watched videos online in the morning and afternoon. Reasons for this could be

1. People are usually free at that time day after going their office hours or attending classes in college

2. Usually there is lesser internet traffic late at night which results in a higher bandwidth to stream videos. This helps in watching the video online without any interruptions

Most of the internet service providers have schemes for free downloading at late night. Hence watching online videos at this time would not result in a huge dent in the wallet.

A large number of respondents also said that they do not have a fixed time for watching online video. These respondents probably spend a lot of time throughout the day on social networking sites and check out video links posted by their peers.

A large majority of the respondents watched online videos alone ( 6). The comparatively smaller size of the computer screen could be one of the reasons why individuals prefer to do so. This is in contrast to television viewing which people usually watch with friends or family.

5.1.2 Online Video Uploading Behavior

Though most of the respondents spent a large amount of time watching online video, a large percentage of them had never uploaded a video online ( 7). This may be because people consider uploading videos to be very complicated or feel that it would take up a lot of their time. Also a lot of people might not be comfortable sharing their personal videos on a public forum such as YouTube. This might be especially true for girls who come from conservative families in India.

Majority of the respondents created and uploaded clips on an online video website for some competition or part as a college assignment ( 8). A large number of respondents also uploaded creative clips which included short films, plays, humorous clips etc. with the intention of sharing their creativity with their friends.

Respondents also uploaded recordings of important events that they attended such as speeches by prominent personalities, sporting events, concerts etc. People also uploaded videos of their trips to various places. Family videos were also uploaded in order to share them with relatives or friends who were abroad.

Most of the respondents felt that they had uploaded videos because they had a desire to express themselves ( 9). This was expected as the proportion of the respondents who uploaded video clips as part of competitions was relatively more in the sample. Also people usually feel that they have a hidden talent or their creativity has been suppressed by their daily meaningless activities. Online video websites give such users an opportunity to explore their true potential and express themselves.

18% of the respondents uploaded clips to get critical acclaim from their peers, which could be in the form of ratings, likes and comments for the videos. People actually derive a sense of satisfaction from higher ratings or a larger number of comments for a video that they have uploaded online. They might even compete with their peers for the same.

Very few respondents (5%) attached significance to remuneration or felt that they uploaded videos to boost their self esteem. Also while helping people they know might be an outcome of their uploading videos it was not the primary motivation because of which people uploaded videos.

Even when all the respondents were asked to rank the various factors due to which people upload videos, ‘desire to express oneself’ and ‘critical acclaim from viewers’ received the highest ranking ( 10 and 11). 42% of the respondent felt that people uploaded videos because of a desire to express themselves whereas 19% felt that they did it for critical acclaim.

Remuneration for uploading popular content was ranked lower by respondents. Most of the respondents were not aware that YouTube paid its popular content creators a share of the advertising revenue. They felt that getting money from YouTube involves complex processes and it would also be a lot of fine print.

A very small number of the respondents felt that people uploaded videos to boost their self esteem or benefit people they knew. Most of the respondents probably felt that the clips were mainly for entertainment purposes.

A large majority of the respondents felt it was very important that the website that they selected for watching online video should be free to watch ( 12 and 13). They have probably got accustomed to getting their content online for free and would only pay for it if it is not available anywhere else. People also felt it was important that the website should contain less intrusive advertisements as they largely hamper the viewing experience on these websites.

Large amount of music videos, movies and TV serial episodes were also important parameters while selecting a website. Surpringly respondents felt that a large amount of user created clips and sports clips was not important parameters for an online video website to have. The female respondents probably did not watch a lot of sports content online and hence did rate it very highly. User created clips are present in large abundance in most online video websites hence viewer

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