Magazine article Marketing

Andrew Walmsley on Digital: Video's Costly Demands

Magazine article Marketing

Andrew Walmsley on Digital: Video's Costly Demands

Article excerpt

The launch of US VOD service Hulu in the UK will put traditional TV ad revenue in serious danger.

Ofcom is conducting a consultation into video-on-demand (VOD) services, news that many are holding up as proof that the medium has arrived.

In fact, the investigation is long overdue. A product of the EU's 2007 Audiovisual Media Services Directive, it is evidence that regulators are continuing to struggle to get to grips with how technology is changing, as the pace of change in media outstrips their efforts to build fences around it.

From the Competition Commission's bungled review of Kangaroo, the BBC-led VOD consortium, to the culture secretary's bafflingly strident (and recently reversed) rejection of product placement, UK legislators and regulators have echoed the EU's combination of keenness to regulate with incapacity to affect the outcomes.

Ultimately, these debates might influence ownership and regulation of the most powerful media channels in the UK. More importantly, in the short term, the growth of VOD is likely to cause widespread value destruction in the existing UK TV industry.

The success of iPlayer has proved the consumer demand for VOD, and Virgin Media has shown how this is boosted by delivering it to the TV At least three commercial services are jostling to launch before the end of this year, and although what they are fighting for might not be a huge market in ad terms, the impact of their efforts could be disastrous for UK television companies.

As I noted in May, every viewer that shifts their Skins viewing from Channel 4 to 4oD loses the channel money, a process that will only be accelerated when dedicated commercial VOD platforms launch in the UK These effects are already being seen in the US, where Hulu, the VOD joint venture between News Corp and Universal, now has 38m monthly viewers.

Laura Martin, an analyst at US-based Soleil Securities, believes that Hulu is cannibalising audience directly from TV. Her analysis is based on the assumptions that VOD advertising attracts a 50% premium over broadcast, and that Hulu runs about 75% fewer advertising minutes per hour. Martin estimates that the video site will cost TV networks dollars 920 per viewer lost. Her analysis is not unreasonable, but what would the effect be in the UK market?

Online video still has a small share of overall viewing - less than 3% in the UK, by some estimates. However, even at this low share, pounds 70m would be lost from UK TV advertising under Martin's formula. …

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