If anyone in the UK media industry doubts that the phenomenon of television over the internet is real and here to stay, they have only to look at what's happening in the US.
Two of America's biggest broadcasters are locked into a contest over who has the greatest online video offering. On 22 March, NBC Universal and News Corp announced a joint venture to create "the largest internet video distribution network ever assembled", supported by advertisers including Cadbury Schweppes and Intel.
Two weeks later, rival US network CBS unveiled the CBS Interactive Audience Network, also funded by advertising, which it immediately dubbed "the most widely distributed professional content provider on the web". It will take months or even years to distinguish whether one is greater than the other, but their jostling for position speaks volumes about the importance of web TV to broadcasters' futures.
With an estimated 300-350 million global broadband users and 40% of UK households with broadband internet, this is a market few can ignore. The question for traditional broadcasters is what television over the internet, or web TV, means for their business. Meanwhile advertisers must decide whether the world of online video represents a significant opportunity, and if so, how soon to jump in. The market is also being shaken up by the imminent launch of three new providers of web TV services, two of which are funded entirely by advertising.
Joost and Babelgum - the first developed by the Scandinavian duo who launched internet telephony firm Skype and music-sharing service Kazaa, and the second backed by an Italian magnate - launch this year with TV and film content that is free to viewers and, it's hoped, a raft of advertisers for whom the new services could be another form of commercial TV.
The third new web TV provider, Jalipo, will charge users to access content but may well bring advertising into the mix longer term.
Add to these players the web TV services being developed by the BBC (iPlayer), Channel 4 (4oD), Five (Five Download) and ITV (itv.com) and there's a wealth of choice for watching TV online. Tech-savvy internet users are already familiar with the likes of Google Video, BitTorrent and Tioti (Tape It Off The Internet) to name just a few suppliers of online TV programming.
So how will this quickly expanding market shape up and what do advertisers stand to gain in the process?
Nate Elliott, senior analyst with Jupiter Research, says: "This looks like a wonderful opportunity for advertisers. It's not necessarily that easy to find the inventory advertisers are looking for on the web. As for viewers, nobody ever wants to watch advertising, but people are willing to accept it as long as it's implemented in the right way."
The launch of ads around content on both YouTube and 3 Mobile demonstrates this is an increasingly widely held view in media.
Damian Blackden, director of strategic marketing at media agency Universal McCann, says the only stumbling block to mass take-up of web TV is technological.
"There's a way to go before people routinely connect their TV to the internet. That's where the friction is in the market," he says.
The issue is how people will connect broadcast TV and the internet - essentially, it's about whether we upgrade our computers or our TVs or both. Inevitably, decisions will come down to cost and ease of use.
Blackden also predicts a battle over who will triumph as the most established, respected aggregators of content. "There will be some consolidation, but where it ends up remains to be seen," he says. "Whoever owns the technology to search across a range of content will be in a good place, and it helps to own content."
Both Blackden and Jupiter's Elliott agree web TV provides a real opportunity for advertisers, with great cut-through (Joost will have just three minutes of advertising per hour) and scope for highly targeted, even personalised ads. So will ad-supported content that is free to the end-user become the dominant model?
"That's how consumers have been used to receiving web content and the large part of TV so that's the route I'd be inclined to go down and it will grow very quickly," says Blackden.
Alex Holt, head of media at Cable & Wireless, which was involved in the first pilot of the BBC's Interactive Media Player (now iPlayer), is impressed by the possibilities new entrants such as Joost could create when combining TV content with internet applications, for instance by allowing Joost users to chat with friends via Skype about programming.
"We're all aware of pause, play and rewind - that will become the norm," says Holt. "But there will be other internet applications, maybe video conferencing, that will become popular. Joost may provide a stimulus for how the internet can be integrated into the broadcast experience."
Web television (as opposed to IPTV - see box) is such a dynamic medium that it's worth recapping what the main players are offering.
Joost launches commercially this month with 32 advertising partners and claims an impressive user interface to its broadcast-quality service. It has done a deal with Viacom for access to its content including MTV and Paramount Studios, and kids' broadcaster Turner. Programming from Hasbro, the National Hockey League, Sports Illustrated and Sony Pictures Television will also be available later this month. Users will have to create a profile and watch a limited number of interactive, targeted ads per hour.
Over the next two months, Joost is working with select clients including Coca-Cola, Intel, Procter & Gamble and Unilever to test the most effective ways of placing ads.
"I can finally deliver clients a solution they've been waiting for for over 10 years," says David Orman, Joost's UK vice-president of advertising.
He won't be drawn on how Joost will compete with other web TV offerings, however. "The end-user will define what they want to watch and how," he says.
"Joost will offer the opportunity for a viewing experience either sitting back on their sofa, or leaning forward and interacting. We will learn as we go what the best way is to maximise that audience."
Babelgum is also based on content that is free to view and funded by advertisers. Co-founder Erik Lumer says they are still fine-tuning the format and can't say whether the service will feature pre-roll ads, which air before a viewer watches a programme, but he believes that the Babelgum model is a winner, with advertising that is targeted and is as unobtrusive as possible.
"The best way to grow a service over the internet is to make it free, at least in the early stages. Then you can move to subscription models once users have had a chance to explore the system. We feel the revenues that can be generated from advertising are extremely high if you can make the advertising targeted," he says.
By contrast Jalipo chief executive Alex Taylor believes free-distribution systems won't work. "It appeals for promotional content and limited content from catalogue but not for content owners' crown jewels and not for live programming," he says. Taylor is also against subscription funding that, he says, demands a guaranteed level of service that isn't possible with the internet.
Jalipo will sell pre-pay credits to consumers, allowing them to watch streamed programming such as live sports events, films and live TV, so consumers only pay while they're watching. The viewer can stop watching, and paying, if they encounter problems. Later this year Jalipo may add advertising to its offering, as Taylor explains: "We don't feel that it is appropriate to force rights owners to be dependent on advertising to make their content available. Down the track, advertising will become incremental revenue."
Traditional broadcasters are getting their acts together too. Of the commercial broadcasters, Five was the first to launch an online video-on-demand service, Five Download, last October. Users can download episodes of CSI and Grey's Anatomy for a small fee.
So far opportunities for advertisers are limited, but this could change as web TV advertising develops.
Channel 4 has the most advanced offering of the UK commercial channels. It launched 4oD in December, initially with content paid for by viewers either on a pay-per-view or subscription basis. Then, in March, 4oD launched a free catch-up service backed by advertising.
C4's new-business director Rod Henwood says this service was always part of the plan. "We still see this being a mixed economy of ad-supported and pay-per-view or subscription-based content," he says. "We think it will become a general consumer expectation for broadcast services to be accompanied by some form of free catch-up and there's a good deal of demand out there for advertising, certainly on a pre-roll basis."
Advertising deals done so far on 4oD's free catch-up are linked to traffic levels, although C4 hasn't revealed how many downloads there have been from the service. But Henwood says: "We've sold out on the basis of having managed to meet or exceed advertisers' expectations. It's helped that we're the only major broadcaster out there and our programming lends itself to the on-demand world, which is young and upmarket."
At the moment, 4oD incorporates two pre-roll ads per programme and brand sponsorship of the 4oD site is being developed.
"We will look at increasing the number of pre-rolls and potentially including post-rolls and centre breaks, but we don't want to flood the market with inventory at this stage and make users feel their viewing experience is flooded," Henwood adds.
Entertainment channel
ITV, which launched its broadband portal last week, describes the new ITV.com service as "the UK's richest online entertainment channel". It will carry the "best" of ITV's content, accessible at any time, and feature simulcasts of ITV's broadcast channel output, a 30-day catch-up service, previews and downloads of key programmes, plus exclusive online content.
The vast majority of ITV's content will be free and funded by advertising, although premium pay content along the lines of its subscription Champions League service is also expected.
ITV Broadband managing director Annelies van den Belt says: "ITV.com is a great new addition to the ITV family. We are providing a compelling free service to consumers and dynamic online solutions to our advertisers that will set the benchmark against which all other commercial broadcasters should be measured."
Other players, including BT Vision and Virgin Media, are mixing the paid-for and ad-funded models for their web TV offerings. BT Vision's Download Store offers paid-for content, but advertising will be added this year. Virgin Media uses pre-roll advertising to support its web TV offering and the service as a whole will expand this year with, for instance, the addition of online Premiership football coverage.
Across the board, the swiftly changing world of web TV offers plenty of opportunities for advertisers to get their messages out to online users. The next challenge is to determine which services have the highest levels of traffic and the most commercially attractive online audience.
Then comparisons between the different services on offer will really start to make sense.
JARGON BUSTER
- IPTV - a technical term meaning internet protocol television. Strictly speaking, it means TV via walled garden services such as HomeChoice or BT Vision
- Web TV - a general term for television content supplied over the internet.
- Streaming - continuous video feed from a web TV provider, accessed in real time
- Download - saving a video file to a computer hard disk or portable media device to watch later, usually within a specific period
WHAT WEB TV MEANS FOR BROADCASTERS
- Whatever they say publicly, broadcasters must be wondering whether their brands are strong enough to survive in a world where consumers can access whatever content they want in variety of ways. The emergence of Joost, Babelgum and Jalipo as aggregators of TV and other content online could allow users to bypass traditional broadcast brands.
- On the other hand, the new players could amount to just another number of platforms for broadcasters to contend with and possibly cooperate with. Distributing content online may cannibalise traditional TV viewing but, increasingly, broadcasters will count cumulative audiences for content that has been broadcast on traditional TV channels and online.
- But Babelgum's Erik Lumer says that web TV will complement what broadcasters are providing in individual territories. "With a global service, Babelgum can offer a diversity and richness of content while national broadcasters focus on their territory and audience," he says.
- Ashley Highfield, the BBC's head of future media, also believes web TV will complement traditional broadcast TV. He says: "BBC iPlayer will never be a replacement for the BBC's traditional channels. It is a complementary service that we expect will help keep BBC 1, 2, 3 and 4 and their entire range of programming in front of an audience who may have less time or inclination to watch programmes live, and who want to take them on the train, on their smart-phone, or even to bed with them on their lap-top."
- Channel 4's Rod Henwood sees platforms such as Joost as a possible means of distributing C4 branded services, rather than as competition for advertising. C4 hasn't yet syndicated its content to open web TV platforms although Henwood says they are "in conversations with lots of people". C4 has done deals with walled-garden operators such as Virgin Media, BT Vision and Tiscali. But he cautions: "We will only do deals with platforms where we can sell our own advertising on our own content."