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Report: Netflix Driving Online VOD Revenue

21 Nov, 2011 By: Erik Gruenwedel

Subscription and transactional video-on-demand and electronic sellthrough will drive global online video consumption past 770 billion views in the United States, United Kingdom, France and Germany —up from 640 billion views last year, according to a new report.

London-based Futuresource Consulting said that while transactional VOD and electronic sellthrough contributed to the 20% increase in online video consumption this year, Netflix streaming will have driven revenue past $3 billion. The streaming service has expanded operations into Canada, Latin America, the Caribbean and Mexico.

“By 2015, paid-for online video spend is forecast to hit close to $7 billion across the four countries,” said Mai Hoang, senior analyst with Futuresource.

While free VOD content remains dominant globally, SVOD in Europe is projected to surge by the launch of key regional streaming services, similar to Netflix domestically. It is anticipated that these services will be led by existing players, such as Amazon, YouTube, Apple and Netflix, rather than new entrants.

Despite reservations from major media companies regarding ad-supported online video services such as Hulu (not Hulu Plus) and others, Futuresource contends that future online video revenue will embrace ad-funded services.

The report suggests the ad-funded market could be driven by business models championed by YouTube. In particular, YouTube continues to introduce initiatives to increase consumer engagement with ad-supported videos, even allowing viewers to stop ads that do not appeal to them.

This is then reflected in advertising rates, with more popular ads attracting preferential rates, thus encouraging an upsurge of enjoyable, targeted ad content and an enhanced experience for the consumer, according to the report.

In addition, smartphones and tablet computers are playing an increasingly significant part in the online video market, according to Hoang.

“Sales of smartphones are expected to exceed 450 million units worldwide this year, fueled predominantly by the growing influence of Android-based handsets,” she said.

With tablets showing even greater growth, content holders, broadcasters and hardware manufacturers are increasingly interested in the relatively untapped growth potential in the online video market for these devices.

“This groundswell is building to a significant content distribution platform, largely driven by growth in the development and consumption of apps and rapidly becoming an essential part of service providers' multi-platform strategies,” Hoang said. 

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