The Smart Money Is on Big Data

The average U.S. viewer spends about five hours a day watching television. But the way that viewer watches TV is changing.

Connected viewers are now watching more movies and TV shows on their tablets, smartphones and set-top boxes than ever before. Gaming consoles are now entertainment portals, beaming over-the-top video to big-screen TVs.

As a direct result of this media shift, a number of emerging and established companies are placing big bets on the future of television, looking to profit from a new media land grab.

So where is the smart money in smart media? Content? Technology? Advertising?

When you look at the macro and micro trends, it’s clear that the smart money is on Big Data.

Big Data and online video analytics deliver extremely personalized media experiences that benefit both viewers and content publishers. Rather than “killing television,” the shift to mobile, multiscreen video viewing offers entertainment and technology companies a tremendous opportunity to create new and profitable digital distribution models. The key is for those companies to collaborate within a media universe that is changing dramatically, quarter by quarter.

A Rapidly Changing Market

How quickly is this space changing?

Three years ago, only 2 percent of video consumption in the U.S. occurred online. Today, that number has jumped to 10 percent. And if current growth trends continue, it will reach nearly one-third by 2015. From the perspective of content providers, online video is transforming from a nice-to-have option worthy of experimentation to a critical business mandate requiring sophisticated strategies and swift execution.

At the risk of overstating the obvious: Revenue from the online TV market is still nowhere near the world of broadcast, cable and satellite. That is changing, however. During last year’s Super Bowl, online CPMs were higher than broadcast for the first time. We’ve all heard tell of analog dollars turning to digital dimes as content shifts from TV set to Internet. What we are seeing now is pretty exciting: Revenue is in fact following viewers online.

After watching the online TV market mature over the past few years, I’ve gone back to my college math days and written out some axioms based on the latest online video industry data:

The Two Axioms of Online Television

  1. The type of content watched changes very little over time.

    Even as consumption expands to tablets, social networks and smartphones, people watch primarily the same kind of video content they have for years. While users have more frequent access to content online, relatively little of their time is spent watching user-generated content or other forms of content available only online. Rather, most people watch the same premium content — TV shows and movies — as they always have.

  2. The method of viewing is changing radically.

    TV is migrating from traditional TV to the PC, smartphone and tablet. According to data from the Ooyala Global Video Index Report, the share of non-PC video plays has tripled in the past nine months.

    Ultimately, most of this broadcast-quality video content will wind up back on the TV, but it will be consumed over the Internet, not from a cable box or satellite dish.

These axioms lead us to:

The Online Television Theorem

There is no new online video market, nor is TV dying. Rather, what many perceive as a new market is simply a tried-and-tested market that’s experiencing rapid evolution fueled by a mix of newly available technologies, premium content and connected devices.

Online video will not significantly increase the total number of TV viewers. There is roughly the same number of people watching video now as there was before the online TV boom.

People today are simply watching videos online as well as on traditional TV. Moreover, these consumers have the same or less willingness to pay for content — that is, unless there is a distinctly new value proposition provided to them. (Spoiler: “Same content, same experience, more screens” isn’t enough to substantially boost incremental revenue.)

At Ooyala, we’ve been watching the trend away from short online clips to long-form TV content unfold for the past five years. We’re now at a place where the Online Television Theorem is clear: Recent Ooyala data shows that long-form content (videos of 10+ minutes) made up more than half of the total time spent watching online video in Q1 across all connected devices.

In short, viewers are watching the same types of content, for roughly the same amount of time each day, and they aren’t willing to pay that much more for it in total.

So where is the big opportunity? Silicon Valley is working hard with Hollywood to put more content online. But it takes more than simply enabling content on all devices to succeed here. Rather, Silicon Valley must better collaborate with traditional media companies to create more profitable online distribution models through data-driven, personalized media. Only when online TV delivers a better viewing experience than what’s currently available via cable and broadcast will revenue opportunities really open up.

The Smart Money Is on Big Data and Personalized Media

A number of estimates have online video consumption overtaking traditional TV in 2016. This shift will be driven by a more personalized viewing experience. How about a personalized guide that recommends live and VOD content based on a viewer’s interest graph? How about connecting viewers only with ads that are relevant to them? How about offering similar viewers bundled subscription deals on, say, travel and leisure content?

This is why media providers need to use Big Data — to not only better understand their viewers, but to engage them one on one with a truly personalized experience.

Traditional TV is fundamentally not personalized. “Broadcast” is, by definition, a one-to-many experience. Online TV is different: Viewers may be authenticated individually, and in many cases they have their own screen, be it a tablet or smartphone. This one-to-one relationship presents new ways to use vast amounts of Big Data and human expertise (Big Science) to turn information into insights.

It stands to reason that the one-to-one nature of online TV should produce greater economic opportunities through more targeted ad content and the convergence of social, mobile and video. Big Data helps content providers understand viewer preferences, behavior and location to optimize media viewing like never before. It also helps viewers find more content that they enjoy watching.

In three years, the focus of online TV will be squarely on monetization and optimizing online revenue channels.

For more innovative media companies, it already is. In the past, when online video was just starting to emerge, most media companies were concerned only with managing their online media — that is, making sure that it was available on most browsers. Today, as connected devices gain more market adoption, the larger concern lies with reaching as many screens as possible. But after the enabling and management issues are solved (and they are relatively easy to solve), the focus will turn to optimizing online viewing experiences and maximizing revenue from this channel.

Personalized media will drive higher online revenue from premium TV content. The future of TV won’t be about the best 100 channels, it will be about one billion channels — a personalized channel and experience for each and every online viewer.

The key for both technology and media companies now is to work together to deliver the right content on the right screen at the right time. When Big Science delivers personalized, data-driven viewing experiences to every connected screen, viewers and video publishers will both win.

Sean Knapp is co-founder and CTO of Ooyala, a video technology company that powers premium, personalized media experiences across all connected devices.

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