Monetizing Online Video: Ecommerce Research Paper

Survey Background
This online study polled 1,005 US adults over the age of 18 who had downloaded or watched online video at least once in the
previous 12 months. Respondents had to have, either at home or at work, at least one of the following: laptop or desktop computer,
smartphone, iPad or other tablet computer, connected TV, game console connected to a TV, internet video receiver box connected
to a TV, or an internet enabled Blu-ray player connected to a TV. The survey was developed to examine consumer attitudes and
behaviors surrounding online video.

Executive Summary
The dynamics of the online video market are clear; consumption is heavy with multiple devices being used for watching and
downloading, including laptops, game consoles, smartphones, and connected TVs. The take-up of broadband, the proliferation of
devices, the rise of social networking sites, and the popularity of video-sharing sites have all contributed to this boom. Unsurprisingly,
young adults are the most active viewers of almost all types of online video, exhibiting an early adopter profile when it comes to the
number and type of platforms and services they use.

Consumers are regularly downloading and watching videos online but are reluctant to pay for content, most spending less than $50
per year. The widespread availability of free or inexpensive online video has created choice for consumers who traditionally have paid
for cable or satellite.

Service providers and content owners must better understand consumer attitudes and behaviors surrounding online video to attract
and monetize prospects. With few precedents to look to, companies must explore innovative strategies, business models and
features to find combinations that resonate with customers. Smart providers will end up with unique offerings to fit particular audience
segments, raising customer acquisition, loyalty, and lifetime value.

2 Monetizing Online Video www.elasticpath.com

How often do you download or watch online video?

Once a year, 2%

Once every 4-6 months, 5%

Once every 2-3 months, 7%
At least
once a week
53%
Once a

Key Findings
month
11%

Most online video viewers download or
Once every
2-3 weeks watch regularly.
22%
More than half of all U.S. online video viewers (53%) download
or watch online video at least once a week [Figure 1a]. Generally,
the younger the consumer, the more frequently they watch, with
Base: 1,005 US adults [Figure 1a] 63% of 18 to 34 year olds (Gen Y) viewing online video weekly
or more frequently [Figure 1b]. Online video appeals to both men
and women; however, men are significantly more likely to be
regular viewers.
Age breakdown for those viewers who watch online
video at least once a week.

Age 18-34 63%

Age 35-54 50%

Age 55+ 43%

0% 100%

Base: 1,005 US adults [Figure 1b]

FINAL chart January 18, 2011
3 Monetizing Online Video Ref # 10006 www.elasticpath.com

Do you use any of the following either at home or
at work?

Laptop or desktop computer 97%

Game console 46%
(e.g. Xbox, Wii, PS3) connected to your TV

Smartphone 33%
(e.g. iPhone, BlackBerry)

Connected TV 18%
( at screen TV connected directly to the internet)

Internet-enabled Blu-ray player
connected to your TV
12%
The number and kinds of devices for
iPad or other tablet computer 8% watching online video are growing.
Internet video receiver box
(e.g. Roku or Apple TV) connected to your TV
7% The massive consumer adoption of smartphones, tablets and
other connected devices [Figure 2] has led to an increase in
online video viewing across multiple devices. While the vast
0% 20% 40% 60% 80% 100% majority of viewers (93%) watch online video on desktop or
Base: 1,005 US adults [Figure 2] laptop computers, 15% are also now watching on smartphones
and 13% on connected game consoles [Figure 3].
Which of the following devices do you use
to watch online video? Younger adults and the more affluent exhibit an early adopter
profile when it comes to the number and type of advanced
consumer electronic platforms they use. They are significantly
Laptop or desktop computer 93% more likely to own or have access to smartphones, tablet PCs,
Blu-ray players, Internet set-top boxes and game consoles,
Smartphone
(e.g. iPhone, BlackBerry)
15% and they are increasingly using these devices to watch content
when and where they want. These technically sophisticated
Game console
(e.g. Xbox, Wii, PS3) connected to your TV
13% early adopters are an excellent target for service providers and
content owners.
Connected TV 7%
( at screen TV connected directly to the internet)

Internet-enabled Blu-ray player 5%
connected to your TV

iPad or other tablet computer 5%

Internet video receiver box 4%
(e.g. Roku or Apple TV) connected to your TV

Other 2%

0% 20% 40% 60% 80% 100%

Base: 1,005 US adults FINAL chart January 18, 2011 [Figure 3]
Ref # 10006

Which of the following online video services
have you used in the past year?

YouTube 81%

Hulu/Hulu Plus 38%

Net ix 34% The appetite for watching social video is
Network websites
(e.g. ABC, NBC, CBS, FOX) 34%
strong.
iTunes/Apple TV 19%
Sports Networks
18%
When it comes to online video services, YouTube is in a league
(e.g. NHL, ESPN, NBA, NFL)
of its own with 81% of those surveyed using the free video
17%
Google Videos
sharing site in the past year [Figure 4]. Despite the high profile
Amazon Video on Demand 9% growth of video aggregators like Netflix and Hulu, less than 40%
BitTorrent(s) 8% of U.S. viewers accessed either of these services in the last 12
months. While the recently released Google TV has been touted
Google TV 8%
as revolutionizing the way people watch their favorite movies and
xFinity 7% programs, only 8% had experience with the platform.
Xbox (Zune) 5%
Not surprisingly, the largest consumers of online video, young
Vudu 2%
adults, tend to employ the widest variety of online video services.
Boxee <1%

Other 4%

Not sure 2%

0% 20% 40% 60% 80% 100%

Base: 1,005 US adults [Figure 4]


In total, how much did you pay to access online
videos in the past year, including subscription
services (e.g. Net ix, Hulu Plus) but excluding
adult content?

Don’t remember, 3%

More than $130, 7% Most consumers seek out free or
inexpensive online video content.
Nothing
$91 to $130, 7%
57% No matter the age or affluence of the consumer, they seek out
free content. Only 40% of viewers paid to access online videos in
the past year [Figure 5]. Of those who paid to watch, about half
$51 to $90, 5% spent less than $50. Only a minority spent more than $130. The
popularity of video sharing sites, aggregators (e.g., Hulu), and
less legitimate sources of content, has created consumer choice.
$21 to $50, 6%

$20 or less
15%



Why have you paid for online video content?

To gain access to videos that I want to watch 56%
when I want to watch them

It was cheaper than alternatives 32%
(cable/satellite TV, DVD, etc.)

I wanted to avoid watching advertisements 31%

To gain access to exclusive content that is 23% Common reasons for paying for online video [Figure 6] included
not available on other media like TV or DVD
the convenience of on-demand access (56%) and the relatively
I wanted to watch a video again that I’d seen 18% lower price compared to alternatives (32%). No longer satisfied
already elsewhere (e.g. on TV)
with the scheduled programming and high prices of cable and
The content/service was recommended 16% satellite subscriptions, consumers are increasingly turning to
by a friend, colleague, etc.
video services like Netflix that offer broadcast content for as little
I wanted to watch videos on a mobile device 12% as $8 a month.

I purchased it as a gift for someone else 7%

Other 5%

0% 20% 40% 60% 80% 100%

Unweighted base: 442 US [Figure 6]
adults who paid to access online video


The types of online content consumers are
willing to pay for mirror those they pay for
offline.
Would you consider paying for each
Not surprisingly, consumers are most likely to pay for content
of the following types of online video?
that they are used to paying for offline: full-length movies,
Have already paid Would never pay television shows, and sporting events.
Would consider paying
• 75% of online video viewers had paid or would be willing
to pay for full-length movies [Figure 7].
Full-length movies 30% 45 25
• Television programs are a distant second in popularity;
TV shows/show segments 13% 26 61 39% of those surveyed had paid or would consider
paying for online TV shows.
Short lms 7% 28 64
30 • 35% of viewers had paid or would be willing to pay
Sports 10% 25 65
for sports content, with men being significantly more
likely than women to consider paying (46% versus 25%
Instructional/how-to videos 4% 30 65 respectively).

Music videos 7% 16 77
• Online instructional or how-to videos are a potentially
untapped market. Thirty percent of viewers would
News/current events 5% 12 84
consider paying for instructional content, however, only
4% have already done so.
Non-professional or user-generated videos 5% 12 84
(e.g. YouTube) • Consumers are least likely to pay for user-generated
content and news; 84% of viewers would never pay for
0% 100% either. News has become commoditized, with much
content readily available for free.
Interestingly, younger consumers (ages 18-34) are more likely to
have already paid and be willing to pay for most types of online
video. Having grown up with ecommerce and having watched
virtual goods become mainstream, Gen Ys are already frequent
buyers of digital content.


How often do you let others know about online Consumers regularly share online video
videos that you have watched or heard about?
recommendations.
Very often Never
The number of ways to share influence and information online
Sometimes Rarely
continues to grow. During the past three years, for example,
traffic to social networking sites like Facebook and Twitter has
How often 26% 49 19 6 steadily increased. In line with this trend, we found that three in
four viewers (75%) regularly recommend online videos they’ve
watched or heard about [Figure 8]. Gen Ys are twice as likely
0% 100% as older adults (55+) to be frequent sharers of information.
Base: 1,005 US adults [Figure 8] However, even older generations enjoy letting others know about
videos they’ve watched; two out of three viewers age 55+ share
recommendations at least sometimes. Digital distributors who
offer community tools will directly benefit from an increased
How appealing to you are the following audience for their content.
types of offers?

Very appealing Not at all appealing Younger viewers are interested in rewards
Moderately appealing Not very appealing Not sure for higher consumption.
Volume discounts (e.g. buy 4 movies, 15% 36 6 21 21
Roughly half of consumers expressed interest in all the offer
get the next free or for a lower price)
types presented: volume discounts, bundles, and hour packs
Hour packs (e.g. buy 10 hours of viewing,
[Figure 9]. As the most active viewers, younger adults (ages 18-
13% 35 9 18 25
use them to watch anything) 34) unsurprisingly found offers that reward consumption, such
as volume discounts and bundles, most appealing. Hour packs,
Bundles (e.g. buy 3 TV series at the same time for
a price that is lower than buying each separately)
14% 32 8 19 26
where you buy a number of hours and use them to watch any
type of content, were most popular with a slightly older audience
0% 100%
(ages 35-54). This demographic might be more discriminating
in their viewing habits and prefer to pay only for content they
Base: 1,005 US adults [Figure 9] actually watch.


Ref # 10006

Gen Y has few qualms about watching or
downloading pirated content.
When it comes to consumer attitudes towards piracy, a
significant number of online video viewers (26%) believe
Do you agree or disagree that downloading or downloading or watching pirated video is acceptable [Figure 10].
watching pirated video content is acceptable? Clearly, people who would never consider stealing a DVD in a
video store don’t see downloading an illegal copy of a movie in
Strongly agree Strongly disagree the same light.
Moderately agree Moderately disagree Not sure
As discussed earlier, younger viewers are more likely to pay for
online content. However, they are also more likely to believe
Watching pirated video content 9% 17 9 23 40 watching pirated video is ok. Thirty-seven percent of Gen Y
(ages 18-34) said it was acceptable to watch or download
illegal video, versus 14% of those aged 55+. This generation
0% 100%
has grown up with the concept of sharing video, music, and
Base: 1,005 US adults [Figure 10] software and is comfortable taking the time and risk to copy, rip
or torrent desirable content.

Men are more likely than women to think downloading or
watching pirated content is acceptable (31% versus 23%
Agreement with statements about online video respectively). Lower income viewers (<$25k) are also more
inclined to find piracy acceptable than higher income groups
Strongly agree Strongly disagree
(32% versus 25% respectively).
Moderately agree Moderately disagree Not sure

Preview options could entice many
I like to preview content before purchasing 45% 39 5 7 4
consumers to buy.
I would be willing to watch embedded advertising 32% 39 7 11 11
if it meant I could watch premium content for free Eighty-four percent of those surveyed like to preview video
I like being able to watch online video
content before purchasing [Figure 11]; however, media providers
34% 35 6 15 10
on any device, anywhere, anytime offer few try-before-you-buy options beyond the traditional trailer
I would like to be able to start watching on one device and to encourage purchase.
29% 31 9 17 15
continue watching from where I left off on another device

I would pay more for a physical copy While consumers enjoy the convenience of anytime, anywhere
22% 34 8 20 17
than the online version access (69%) and the ability to synch views across devices
I would like to be able to loan my online videos 21% 32 11 18 17
(60%), they tend to place less value on digital content; 56%
to someone else for no additional cost would pay more for a physical copy than the online version.

0% 100% When asked if they would be willing to accept embedded
advertising to subsidize the cost of premium online video, 71%
were open to the idea.


10 Monetizing Online Video Ref # 10006
www.elasticpath.com

How likely would you be to pay extra
for the following online video features?

Very likely Not at all likely
Ad-adverse viewers will pay to avoid
Moderately likely Not very likely Not sure
advertisements.
Ability to watch without ads 24% 31 6 16 23 Consumers are of mixed opinion when it comes to advertising.
Despite their willingness to watch embedded ads to access
Ability to watch in high de nition (HD) quality 18% 26 6 19 31 premium content for free [Figure 11], a large percentage of
consumers (56%) would consider paying extra to view ad-free
Ability to watch in 3D 12% 21 7 19 42 content [Figure 12], many having already done so. Surprisingly, this
sentiment resonates most strongly with a younger demographic;
Access to the back catalog
(e.g. previous episodes or sporting events)
9% 24 7 24 36 63% of 18 to 34 year olds would be willing to pay more to avoid
ads. This compares to 48% of those 55+.
Ability to interact with or customize 9% 21 8 24 39
the video to my preferences
Viewers show willingness to spend on many other features as well
Access to special features and extras
(deleted scenes/outtakes, audio commentary, etc.)
9% 21 6 26 39 including high definition quality (44%), back-catalog access (33%),
and 3D content (33%). Men and younger consumers (ages 18-34)
0% 100%
are more likely to pay than the general population. Gen Ys also
show interest in interactive video; 40% in this demographic are
Base: 1,005 US adults [Figure 12] willing to pay for the ability to interact with video content or tailor it
to their preferences, while this is true for only 17% of those aged
Which of the following have you ever done 55 and older.
as a result of watching an online video ad?
Online video ads are effective at driving
purchase.
Visited a website 48%
Requested more information
about a product or service 24%

Gone to a store to see a product 23% While 34% of viewers had taken no action in response to an
22%
online ad, 22% had made a purchase and 14% had signed up
Made a purchase
for a trial [Figure 13]. Many others had taken steps toward a
Signed up for a product/service trial 14%
purchase decision including visiting a website (48%), requesting
Forwarded the video ad to someone 11% more information about a product or service (24%), and going to
6%
a store to view the item (23%). Finding online ads more effective
Ordered a subscription
than TV ads, television networks like ABC have recently increased
Other <1%
I have never done anything
the amount of advertising shown during episodes of shows viewed
in response to a video ad 34% online to raise revenue.
I have never seen a video ad 3% FINAL chart January 18, 2011
Ref # 10006

0% 20% 40% 60% 80% 100%



Recommendations
Media providers may have some hope in getting consumers to pay for Digital distributors can support their main content offerings and platforms
online content, though monetization remains difficult, especially when with complementary but distinct smartphone content, promoting higher
you consider how fragmented the media and device landscape has overall consumption. Adding mobile social features such as reviews,
become. With few precedents to look to, companies must explore comments, favorites and sharing can help companies deepen customer
innovative strategies, business models and features to find combinations relationships and reach wider audiences.
that resonate with customers. Smart providers will end up with unique
offerings to fit particular audience segments. Below are some of the
recommendations for actions based on the results of this research.
Customize offerings for the valuable Gen Y
segment.
Enable multi-device content access and Gen Ys, the most active online video viewers, exhibit an early-adopter
payments. profile when it comes to the number and type of advanced consumer
devices they use. These technically sophisticated early adopters are more
Consumer appetite for online video continues to grow as new services, likely to have already paid and be willing to pay for most types of content,
devices and technologies improve convenience and the viewing making them an excellent target for media providers and content owners.
experience. Mobile viewing in particular has taken off, fueled by rapid
smartphone adoption and an increasing percentage of mobile-only Companies can grow revenues by accommodating the unique needs of
households; one in three mobile subscribers now has a web-enabled this segment and their even more highly connected and instant-minded
smartphone. younger siblings, Generation Z or the “Net Generation”. These groups
value rewards for higher consumption, anytime anywhere access and
As a result, digital distributors must find ways of feeding video to an comprehensive social networking tools. Interactive video content where
ever-growing number of services and screens, ensuring the ability to viewers recommend characters or soundtracks, vote on plot twists or
synch views across devices. They also need to enable multi-channel follow multiple story arcs also appeals. Non-credit card payment options
payments and give buyers on-demand access to owned content from a can capture younger consumers who don’t qualify for credit cards or
wide variety of devices. Flexible, developer-friendly video publishing and prefer a fast one-click checkout process.
ecommerce systems can help facilitate multi-device content distribution
and monetization, speeding time to market.

Create shorter clips for smaller screens.
New devices, particularly smartphones, require media providers to think
more deeply about consumers’ viewing habits. Redeploying content
just isn’t as effective as crafting targeted videos that make sense in the
context of the device and how the user interacts with it. For example,
shorter clips - deleted scenes, trailers, advertising, interviews and the
like - lend themselves well to the smaller screen as mobile users tend to
consume content in brief intervals while on the go or doing other tasks.


Test multiple price points and business models.
Many consumers have trouble justifying the purchase of digital content. Whatever the business model used, digital distributors must work hard to
Media providers must test price points and business models to find those entice paying customers. Sneak previews of video content or free trials
that resonate best with target audiences: help, as does marketing copy that expresses the unique benefits of online
video: the ability to watch instantly, on-demand viewing and multi-platform
• Pricing models where video prices are directly determined by access.
consumer demand are worth exploring. Recent or premium
content can command higher pricing which dynamically falls over
time as interest and purchases wan. Think beyond advertising to monetize audiences.
• Amazon, Netflix and others should use their deep knowledge Due to its effectiveness at driving purchase, and therefore ad revenue,
of the individual consumer to not only offer online video many media providers will almost certainly not abandon advertising.
recommendations but also customized pricing based on usage, And when video content is highly valued, viewers are willing to watch
content preferences and other factors. embedded ads in exchange for free access. There is, however, a growing
• Although not commonly used by online video providers, group who would pay extra to avoid advertising. Companies who don’t
pay-as-you-go models allow users to pay only for content they offer consumers the opportunity to opt out of ads, instead paying to
actually watch. Infrequent consumers may find usage-based download or watch, risk losing audiences to competitors who do provide
payment more appealing than flat monthly rates. this option.

• Subscription services can raise average revenue per member Other add-ons consumers are willing to pay extra for include the ability to
by offering paid à la carte content or tiered subscriptions where watch in high definition or 3D, back catalog or special feature access, and
premium members pay more to access exclusive videos not yet interactive or customizable content. Offering these types of options may
available to regular members. improve average order values and customer engagement.


Contact Us
To find out how Elastic Path’s ecommerce research and consulting services can help you succeed, please email
consulting@elasticpath.com or call 1.800.942.5282 (toll-free within North America) or +1.604.408.8078 (outside North America).

Methodology
From December 22 to 29, 2010 Elastic Path Software hired Vision Critical, an interactive research solutions company, to conduct an
online survey among a sample of 1,005 U.S. adults over the age of 18 who had downloaded or watched online video at least once
in the previous 12 months. Respondents had to have, either at home or at work, at least one of the following: laptop or desktop
computer, smartphone, iPad or other tablet computer, connected TV, game console connected to a TV, internet video receiver box
connected to a TV, or an internet enabled Blu-ray player connected to a TV. The full dataset has been statistically weighted according
to the most current region, gender, age, and education Census data to ensure a representative sample. The margin of error is ±3.1%,
19 times out of 20. Discrepancies in or between totals are due to rounding.

© Copyright 2011, Elastic Path Software Inc. All rights reserved. Elastic Path™ and the Elastic Path logo are trademarks or registered trademarks of Elastic Path Software Inc. All other
trademarks are the property of their respective owners.


Monetizing Online Video: Ecommerce Research Paper

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Monetizing Online Video: Ecommerce Research Paper