Telco 2.0™ Executive Briefings

Online video and broadband: the business model impact of symbiosis

Initially, broadband enabled online video. Now online video is growing to become the volume driver of broadband traffic. Analysis of these interrelated markets at different stages of evolution worldwide provides insight to future strategy in both.

Online video traffic is growing rapidly to become the volume driver for consumer broadband services. In this edited extract from our Strategy Report Online Video Market Study - the impact of video on broadband business models, we describe groups of national markets with comparable broadband performance, pricing and penetration to demonstrate how online video markets are evolving worldwide.

Why online video matters to broadband

Online video makes up one-third of consumer internet traffic today and will grow more than ten times by 2013 to over 90% of consumer traffic overall. For fixed and mobile telcos and other broadband service providers, a large part of future strategic success in broadband therefore rests on understanding how the online video market and ecosystem will evolve and how to interact with it effectively.

(NB: We’ve covered some of the online video industry dynamics in our recent analysis Google - How (precisely) it profits from YouTube, in the briefing Video Distribution 2.0 - Time to re-think the fundamentals, and presented scenarios for market evolution here. )

Emerging broadband / online video plays

An explosion of different online video plays has been driven by different combinations of broadband pricing, bandwidth and market penetration.

Figure 1: Broadband Prices versus Speed

Our analysis shows that countries fall broadly into four groups.

1. High bandwidth, low price countries (green box) - South Korea, Japan, France, Finland and Sweden have 16Mb/s average broadband capacity, enough to receive two high definition tv streams or a variety of other services per household
2. Moderate bandwidth, low price countries (blue) - US, Canada, the Netherlands and Germany have 4Mb/s+ average broadband capacity, enough to comfortably take standard definition TV plus other services in parallel
3. Low bandwidth, low price countries (yellow) - UK, Spain, Italy and Hungary
4. Low bandwidth, high price countries (pink) - Many eastern European and developing countries, which have broadband at video TV quality or worse and where price is the barrier to heavy use.

The Online Video Market Study examines the customer behaviours and market dynamics in these groups, and includes case studies on key markets to explore the key industry dynamics of the development of broadband and online video usage.

Factors driving internet video emergence

The rise of IP-based online video was driven by two key factors - increasing bandwidth and user penetration of broadband internet.

1. Bandwidth drives the quality of online video that can be consumed in real time via streaming, rather than being downloaded prior to consumption. It also drives the speed of downloading.

2. Penetration drives the attractiveness of the market for service providers that typically assume large user bases can be monetised via advertising, or that offset economics can amortise investment in services. They also assume that a successful start-up service can be sold to a larger player. For example, YouTube’s $1.65bn sale to Google started a rush of online video start-ups.

The Impact of Bandwidth

Streaming video, which emerged in dial-up days, was the first IP media technology to be used. However, video really took off with the arrival of broadband in the early 2000s. Figure 2 shows the relative quality of video media that can be streamed depending on bandwidth.

Figure 2: Quality of media stream by bandwidth

As the available bandwidth increases, it becomes increasingly possible to stream video media. By 3Mb/sec broadband speed, PAL quality standard definition TV is possible. By 8Mb/sec, high definition TV is possible. By 24Mb/sec, any normal-sized household will have full multimedia capability.

Different countries have vastly different average bandwidth, meaning there are major differences in the sort of online services that can be offered. Advanced countries, such as Japan and South Korea, give some insight into how other markets will develop.

The Impact of Market Penetration

The other factor behind the services offered is the value of the market, which is driven primarily by penetration, in essence the number of customers online. The higher the penetration, the more people there are who can buy video services, making the market more attractive to online video companies.

The Telco 2.0 Online Video Market Study

The Online Video Market Study analyses the potential of online video, identifies possible market winners and losers, and sets out three interlocking scenarios depicting the evolution of the market. In each scenario, the role of distributors (primarily telcos) is examined, possible threats and opportunities revealed, and strategic options are discussed.

• 137 Pages of original research & analysis
• Covers 98 Companies & Organisations, including Telcos and Media Companies
• 4 detailed Case Studies including Hulu, YouTube & Apple72 Technologies & Applications including IPTV and IP Video
• 53 charts and tables Proprietary industry research

Report includes: 

• Market background, size and dynamics
• Differences in, and lessons from, different geographies
• Analysis of prospects by content type: movies, sport, music, adult and user-generated
• Hulu Vs YouTube: Comparative business model analysis
• Market forecasts for revenues related to online and mobile video
• Evolving market scenarios
• Positioning to maintain / develop advantages in scenarios
• Recommends specific short, medium and long term actions for moving forward

• Please see contents here

Who is this report for?

The study is an invaluable guide to fixed and mobile Broadband managers and strategists, broadband equipment vendors, and those across the TV and video value chain who are seeking insight into how the online market will develop and the opportunities and threats it presents.

To order the report, please click here, or find out more here.