6 Online Video Trendsto Watch in 2013

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This document features our 2013 predictions.

To see our 2014 predictions, click here.

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1. Over-the-Top video will become truly disruptive

For the last several years, the inexorable rise of over-the-top (OTT) video has given internet service providers (ISPs) legitimate reasons to worry. After all, OTT content is delivered over broadband without the ISPs’ control, precluding them from sharing in the revenue and relegating them to the dreaded “dumb pipe” status.

In 2013, the disruptive power of over-the-top video threatens to escalate service provider worries into full blown anxiety. Consider:

• OTT video providers such as Netflix, Amazon Prime, and Huluare estimated to generate $8.2 billion globallyin 2012 and are projected to swiftly quadrupleto $32 billion by 2017; revenue that is not sharedwith ISPs (ABI Research). Even worse, Netflix aloneaccounts for 33% of primetime downstream trafficin North America flowing over ISP networks(Sandvine).

• Total OTT revenue is projected to increase 32% in2013, with sales from advertising, subscriptions andtransactions expected to climb to US $14 billion(Informa Telecoms).

• By the end of 2013, more people will be watching OTT video thanwalled-garden IPTV services often run by operators. The divide will growsharply, with OTT projected to grow to a subscriber base of 380 million by 2015compared to 163 million for IPTV (Informa Telecoms).

But all is not lost for ISPs, at least for those who are able to offer content delivery services across their networks. Some of the limitations listed below may actually lead OTT providers to increasingly contract with operator content delivery networks (CDNs) for video delivery:

• New HD TVs and tablet PCs with high resolution displays have users hungering to watch equally high definition content on these devices. Over the top video is subject to fluctuating quality common to content streamed over the Internet, however. As such, it imperfections become more pronounced with HD devices.

• The rise of longer-form OTT content (see prediction #4) will also change the current dynamic. It’s one thing to watch a 60 second video that suffers from latency, jitter and frozen frames; it’s another to be subjected to those conditions for 60 minutes.

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Implications:

2013 may be the year when a commercially viable OTT model emerges that is equitable and sustainable for both content owners and ISPs and allows service providers to actually profit from their infrastructure investments.

ISPs can leverage their last mile advantage, utilizing their homegrown CDNs to serve video much closer to the end user, greatly improving quality of experience (QoE) in the process. This benefits content providers because:

• They can finally provide advertisers with consistently high picture quality and a suitable environment to showcase their products and services. This is essential because advertisers will not accept poor QoE that diminishes viewer engagement and tarnishes their brands.

• They can increase their subscriber base by delivering higher quality, uninterrupted programming.

• They can use the Internet to deliver more live, linear programming and on-demand services which, in turn, will help them reach more screens within the home and provide popular services such as catch-up TV.

Read more:How Telcos & ISPs Can Learn to Love OTT

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2. Online video traffic will continue to skyrocket

This prediction appears to have no expiration date for the foreseeable future.

Online video traffic is poised to continue its torrid growth rate, fueled by the proliferation of connected devices such as smartphones and tablet PCs, the rise of OTT video providers and their expanding content libraries and the migration of advertising dollars to online video. Consider the following: • IP video traffic — already staggering in size — will grow another 26% year over year, reaching 37,660

petabytes per month in 2013 (Cisco Visual Networking Index). For context, each petabyte is equivalent to one million gigabytes!

• By 2013 online video will account for nearly 90 percent of all consumer IP traffic (Cisco Visual Networking

Index).

• Mobile data traffic will grow 10-fold between 2011 and 2016, mainly driven by video (Ericsson Traffic and Market Report).

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Implications:

The continued shift toward consuming video over IP-enabled devices puts Communications Service Providers (CSPs) in a precarious position.

Sales are tumbling for once reliable sources of business like landline telephone service. In fact, if current trends hold, the last landline phones in America may be disconnected in little more than a decade (The

Economist). So, CSPs urgently need to replace lost income from waning legacy businesses with new revenue streams.

At the same time, service providers are being forced to make enormous infrastructure investments to keep pace with the insatiable OTT video demand on their networks; investments that can not be recouped through monthly ISP access fees alone.

These declining revenues from legacy businesses and increased costs from network build out are creating a real “double whammy” for service providers, with unbridled growth of online video traffic poised to significantly aggravate the situation.

To free themselves from this bind, CSPs must leverage their core strengths as network operators to create new revenue streams and reduce capital investments (realistically, cost reduction will come first, followed by new forms of revenue.) To that end, many operators are launching their own content delivery services as an essential tool to more effectively deal with the onslaught of online video traffic.

To successfully compete in delivering video content, they will need advanced analytics and reporting to help them harness these advantages, optimize quality and precisely provision capacity.

Read more:The 4 Keys to Telco CDN Success

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3. Online video advertising will really hit its stride

2012 was a very big year for online video advertising. Ad spending for online video rose 27% (Adap.tv) and the number of ads inserted into videos increased a whopping 68% (Freewheel). Meanwhile, the perception of online video among advertisers continues to improve, with 64% of advertisers ranking online video spots as effective as TV ads (Brightroll).

These conditions should remain very favorable for online video advertising in 2013. Consider the virtuous environment that presents itself for the coming year:

• The rise of programmatic online video ad buying from services like TubeMogul, BrightRoll and Adap.tv is bringing the efficiencies and accountability of the Internet to media buying. It promises to break down the wall between media buying for TV and online video, enabling a more integrated, complementary approach to target ad messages.

• The trend toward more long-form online video content will also create more premium ad inventory.

• Smartphones and tablet PCs comprised 70% of all devices sold in 2012, with another 1.2 billion projected to be purchased in 2013 (Gartner). The staggering rise of these connected devices will further induce increased time spent with online video and, in turn, increased exposure to online video ads.

• Innovations in online video delivery, like adaptive bitrate streaming (see prediction #6) will continue to improve the online viewing experience and create opportunities to seamlessly insert advertising directly into a video stream, more closely paralleling traditional TV advertising.

Implications:

Online video advertising is maturing to the point that advertisers are allocating it ever larger media spends, confident that the viewer experience and overall environment will befit their brands.

This could create a virtuous cycle in which increased ad dollars support more long-form online video programming delivered with higher quality levels, which in turn attract even more ad dollars.

Read more:How Much Online Video Quality is Enough?

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4. Long-form video will give rise to new subscription revenue

To date, online video has largely been based on short-form content — sports clips, pet tricks, music mashups and the like — monetized through advertising. That will begin to change in earnest in 2013 as more long-form video content like movies and TV programming is delivered over IP, laying a foundation for subscriptions and video on demand transactions to play a more significant role. Two trends will drive this:

1. User behavior will evolve

Viewers who have enjoyed watching short video clips on desktop PCs and laptops will increasingly allocate a larger share of their video watching to longer-form content on connected TVs — televisions and set-top boxes that integrate Internet functionality.

• The percentage of North American households that own connected TVs will increase by about 40% in 2013 (Parks Associates).

• Connected TVs will comprise 70% of all televisions sold by 2016 (IMS Research).

2. TV Everywhere initiatives will push more long-form content to portable devices

Viewers who already consume long-form cable programming on their TV sets will supplement that with increased viewing of the same programming — via TV Everywhere services — over connected devices like tablet PCs and smartphones.

• The time spent watching long-form video on tablet PCs grew 50% between Q1 and Q2 of 2012 (Ooyala Global Video Index Report).

• Most every major North American multiple system operator (MSO) is offering, or contemplating, a companion in-home tablet service.

Bottom line, some IP video traffic will migrate from desktops to connected TVs while some CATV traffic will move from the TV to other IP-enabled devices. Either way, subscription services will become more important. As consumers come to crave longer-form HD video content viewed anywhere, anytime, on any device, they will need to pay for it.

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Implications:

Consumption of longer-form online video will continue to rise as viewers watch increasing amounts of OTT content over connected TVs. This bodes well for OTT subscription and video on demand (VOD) services likes Netflix, Apple iTunes and Amazon Prime but poses a considerable threat to Pay TV offerings from cable, satellite and IPTV providers.

These legacy Pay TV providers are digging in for a battle. Many of them have launched OTT video services and can leverage network assets to successfully compete against the raft of newcomers; or in some cases, to work with the competition.

• Because they own the “last mile,” operators can cache OTT video deep in their networks and deliver it much closer to the end user. That results in a more reliable, high quality viewing experience. This capability positions service providers to be valuable partners for over-the-top content providers; witness Netflix’s initiative to place its caches within ISP networks.

• Operators have long standing relationships with content owners. They can improve their standing further by offering content owners with guaranteed levels of quality.

• Those carriers who have launched IPTV services can also draw on that expertise and apply it to OTT. They can market varied offers to their ISP subscribers and, eventually, to the subscriber bases of other ISPs.

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5. CDNs and Transparent Caching will link up

Perhaps no piece of the video ecosystem has been more negatively affected by the huge surge of online video traffic than broadband providers. Spiraling IP video traffic has required ISPs to constantly upgrade their networks, eroding profit margins in the process.

To reduce transit costs and defer additional infrastructure buildout, broadband providers have increasingly begun to cache video at the network edge using CDNs or Transparent Caching solutions. Until now, they have typically used one of these solutions or the other, but 2013 will see the beginning of converged approaches that combine the best of both technologies. Here’s why:

• The surge of OTT video traffic will force the hand of operators — even those with their own CDNs — and necessitate a second look at transparent caching systems as a a proven technology to handle unmanaged traffic.

• Emerging business models and lines of business will require that operators select the best tool for the job. In 2013, more and more carriers will operate both OTT and IPTV businesses.

Implications:

A combined CDN - Transparent Caching solution offers service providers the best balance of flexibility and cost savings. The CDN can provide the most extensive, reliable caching of content from participating content owners, while Transparent Caching can cache the unmanaged OTT content.

However, harnessing the power of such a hybrid solution will require a single, unified view into all caching activity. By doing so, operators can compare performance and quality across both platforms, identify which kind of traffic is routed by which type of caching system, and track quality improvements and savings trends over time.

Read more:Combining CDNs & Transparent Caching into a Dynamic Duo

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6. The embrace of Adaptive Streaming will grow stronger

As the proliferation of devices and volume of video data coursing over IP networks escalate, the importance of technologies like adaptive bitrate streaming (ABR) grows too.

• ABR enables faster start times and a continued, uninterrupted experience by adjusting the bit rate up or down in relation to the quality of the network connection. This results in less time spent watching spinning buffer icons and more time watching programming.

• With the rise of video viewing on tablet PCs and smart phones, the benefits of adaptive streaming really come to light. A subscriber to a mobile data plan currently gets chargedfor the time that a video takes to load, not for time that the videois actually watched. Adaptive bitrate streaming can remedythis discrepancy and lower charges for data plans.

• Adaptive streaming also stands to gain in importance formobile service providers and video publishers in 2013 too.Currently, mobile operators clog up their networks withvideo downloads. Meanwhile, content providers pay contentdelivery networks to deliver video that is never consumed.Adaptive bitrate streaming promises to significantly mitigatethese issues.

• Because adaptive bitrate streaming enables CDNs to stream overHTTP using inexpensive server software and commodity hardware,it can also substantially reduce the need to purchase costly serverlicenses for proprietary solutions.

The dynamics that propelled adoption of adaptive streaming protocols in 2012 will continue in 2013. Consider:

• Consumers increasingly expect to be able to view any content, anywhere, anytime, on any device, connected to any network. Cable and IPTV operators are rolling out TV Everywhere and OTT services to fulfill this expectation and need to provide a high quality, uninterrupted experience in order to be successful.

• The global installed base of smartphones and tablet devices is on track to surpass that of PCs by the second quarter of 2013 (Mary Meeker / Kleiner Perkins Caufield & Byers). As a consequence, mobile broadband providers will need to leverage the benefits of adaptive bitrate streaming to reduce network congestion and keep customers satisfied.

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Implications:

For all its benefits, adaptive bitrate streaming also introduces a significant drawback; it makes measurement exponentially more difficult.

It wasn’t long ago that an entire movie delivered over IP could be measured as a single file. With adaptive streaming, that same movie can introduce tens of thousands of 2-10 second file fragments that need to be measured. Extrapolate that to a network with 150 channels and the number of separate files for a single bitrate could easily be in the tens of millions.

At that scale, separating the signal from the noise becomes very difficult. Going forward then, capturing meaningful data from online video streamed via ABR will require an analytics and reporting solution that can identify, re-aggregate and report on actual content assets.

Read more:What is Adaptive Bitrate Streaming and Why is It So Difficult to Measure?