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Analyst Speak: Online TV views are rising but can they be profitable for broadcasters?

Platform: Internet | Author: Arash Amel, senior analyst, Screen Digest | Source: NMA magazine | Published: 27.11.08

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The BBC iPlayer is the most successful of the European broadcasters' catch-up services, with nearly 250m videos viewed to date — not surprising given the scale of investment and vision behind the platform. Erik Huggers, director of BBC Future Media & Technology, speaking at Screen Digest's Future of Online Media Distribution conference, revealed the majority of consumption — 199m streams and downloads — came from the online service.

Commercial European broadcasters are trying to emulate...

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... the BBC's success, but with the added pressure of trying to turn a profit. In practice, their services often operate between low margins and losses due to a mix of high delivery costs, poor ad strategies generating low per-view revenues, and primitive distribution models. Screen Digest forecasts that, despite large audiences, online TV will represent less than 2% of total UK TV revenues by 2012, and ad funding will remain stunted until advertisers and broadcasters settle on a model that works for both sides.

By comparison, US networks are profiting from online TV. They are negotiating better technology deals and have effective ad strategies. Rather than selling ads through inventory-based deals, they tend to involve sponsorship or be based on a run-of-site model reminiscent of the TV soap sponsorships of the 1950s. This is increasingly coupled with broadcasters embracing 'disaggregated distribution': letting affiliates and audiences help distribute content across the web by embedding the broadcaster's video. Done right, this gives the networks massively extended reach for their high-CPM advertising.

The leading US services like Hulu generate substantial revenues despite (or because of) the absence of any targeted advertising, understanding that simple steps are the most effective. Screen Digest estimates that in 2008, Hulu will have generated over $60m gross revenue, with an approximated 15% profit margin.

How far the UK's commercial broadcasters have to go is reflected in Huggers' speech. He plans for the iPlayer to go global, embrace community functions and switch its download proposition to Adobe's AIR platform. The latter can be considered not only as the final dismantling of the old Windows-only iPlayer but as the removal of a significant barrier that finally makes the platform truly open.