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New Competitors in UK’s VoD Arms Race
Portals, aggregators, platforms, and broadcasters are working—in concert and in competition—to claim audience share and advertiser commitment in the UK

There are signs that video internet usage in the UK is starting to mature, with users focusing on a limited number of sites. Recent developments at AOL and MSN show that these firms are taking video seriously and are approaching it in a strategic manner, but it's imperative for these portals to deliver a wide variety of engaging, professionally produced video—not just for audiences, but also for advertisers.

"This content requires proper licensing and likely tie-ins with TV channels and other producers of professional content," says Adrian Lacey, UK managing director of video ad network Tremor Media. "It's also costly to stream and a drain on resources if not properly monetized.

In building out video channels, portals might face a decision around which advertising source yields the greatest return, with agencies appearing more comfortable buying pre-roll advertising through existing TV based relationships.

Portals like MSN, Yahoo!, and AOL have the advantage of a huge critical mass of users and, with the right kind of video offer, the potential to earn revenues for themselves and their content providing partners.

Yet with exclusivity at a premium and with content largely shared with YouTube, VoD aggregator SeeSaw, and broadcaster catch-up sites, the strategies of these portals in trying to tap the $60 million worth of UK online video ad revenue has come under scrutiny.

"Online display advertising income has fallen year on year but VOD investment is still growing," says Jas Gierlinski, account director, MPG Media Contacts. "Eighteen months ago only digital clients would touch VOD. Now we have mainstream fragrance and high-street fashion brands looking at pre-roll. The key battleground is video."

According to communications regulator Ofcom more than 40% of the UK online population has watched web TV-with age 16-24 the core demographic. Further growth can be expected through partnerships appearing from hybrid services such as Fetch TV (which includes Sky Player), Nintendo (iPlayer), and Xbox 360 (Sky Player), and as various TV manufacturers incorporate internet catch-up and aggregator services.

Portal vs. Aggregator
While a broadcaster's objective lies in offering its content online to retain TV viewing figures, portals aim to be the destination for users to get a broader range of entertainment. Typically the video on offer from AOL, Yahoo, and MSN (until the recent addition of its longform player) is short-form clips, news, and magazine-style lifestyle features, watched on impulse for a few minutes daily while users read email or check the weather.

According to Nielsen, MSN Video pulled in 2 million unique UK visitors in February, averaging 2.17 viewing minutes and a 5.2% reach of all those actively online. Yahoo! Video scored 1.1m uniques and a 2.9% reach, and AOL just 283,000 (0.7%) over the same period. In comparison Google Video scored a 7% reach and 2.7m uniques in February.

"In terms of differentiation, I think there's work to do across all of them," says Justin Taylor, Interaction Partner at agency MEC Interaction. "SeeSaw has the clearest proposition and the easiest for traditional buyers to grasp, MSN has a market lead of the portals. AOL and Yahoo! feel too shortform to compete at the same level. The problem for all of them though is serving enough content to create a video market to trade off."

According to MSN it is both an aggregator and a portal. "MSN is primarily a portal made up of a number of verticals of which video is one," explains portal business manager Rob Crossen. "We are also expanding to become an aggregator and to provide a substantial and standalone video entertainment.

"We believe we'll attract viewers who appreciate a curated offering of the best archive content in various editorially themed areas. We're not trying to compete with the full range of catch-up TV."

The ad-supported platform has no direct broadcaster deal but fields approximately 1,000 hours of shows from independent producers. The service has been overhauleded to feature HD streaming and uses Silverlight technology to enable variable picture quality. Some 1.6m view longform on the ad-supported platform.

AOL's story is somewhat different, having repeatedly tried to monetize video, most notably with social network site Bebo. Bebo UK post-tax profits fell 143% year on year in the 12 months to the end of May 2009, a performance that led AOL to decide to sell the struggling website.

Nonetheless the portal still makes positive noises about video being central to its plans. At the beginning of this year CEO Tim Armstrong said, "Premium original video creation is a fundamental part of AOL's strategy," while head of media and marketing David Shing stressed that "Video is a key focus for us this year."

In January the company spent $36.5m on online video creation and syndication platform StudioNow for integration into AOL's content management system, Seed.com. AOL also expects to leverage StudioNow's resources to complement the ongoing work of its in-house studios, both for AOL productions, which creates original video programming such as AOL Sessions and the Engadget Show, and for its branded advertising and content partners.

Meanwhile Kelly Sweeney, formerly Bebo's head of original video productions, has been swapped to director of video for AOL Europe.

Yahoo!'s UK video strategy has been a lot quieter but it surprised many late April with a striking coup to show UK Premier League soccer highlights for the next three seasons.

Rich Riley, Yahoo!'s European Managing Director, said, "The acquisition of Premier League rights shows how serious Yahoo is about providing the best in video content for our both our users and advertisers."

Yahoo in the U.S. has similar deals with franchises including NBA basketball, PGA golf, NHL hockey, and MLB.

In January Google-owned YouTube struck a deal with the IPL to stream live 20-20 cricket matches to every country outside the US.

New entrant SeeSaw believes its "video only" proposition is its chief weapon against the entrenched user-based of rival portals. "Where portals are known for having a bit of everything, we are just online TV," says commercial director Matt Rennie.

"We're not trying to be a social network or UGC. That makes our task somewhat easier but we're not kidding ourselves that it's a small task.

Nielsen records 146,000 users for the VOD aggregator in SeeSaw's launch month averaging 12 minutes per viewer. The company will shortly introduce pay-per-view of U.S. network content.

An exclusive deal with a U.S. studio (a CBS or HBO) might prove the tipping point to bring any of these services into the big league.

According to Martín Blinder, Head of Creative at digital agency Essence, portals are not maximizing the benefits of what video can do. "Advertising needs to be unobtrusive, contextual and relevant to users rather than extensions of the TV copy," he says. "Until AOL, Yahoo, and others jump into investing in new ad formats we're not going to see the type of result we all hope for."

Blinkbox CEO Michael Comish believes consolidation is inevitable. "The market has already segmented into those primarily offering clips, trailers and UGC, those offering long form TV and some offering DVDs titles to stream online," he says. "There will likely be a small number of successful players in each space and the rest will merge or quit."

There are also those who believe that competition in PC VOD has been a ‘phony war' in so far as the players with the best long term potential have not yet featured prominently.

"We must treat broadcaster owned VOD players differently from platform owned players," stresses Nigel Walley of media strategists Decipher. "Broadcaster content can be in a platform player, but not vice versa."

He believes third-party aggregators like Hulu will be inconsequential in the long run.

"There is a strong argument that, rather than doing deals with Hulu and YouTube, the UK's commercial broadcasters should be trying to put them out of business," Walley says. "The likely winners in the PC VOD game will be the platform owned players like SkyPlayer (from BSkyB) and Virgin Player (launching later this year from Virgin Media)."

"The platform owned players will be the only players not worrying about ‘how to get onto TV' as they will be integrated into the bigger VOD service delivered through the parent company's set top box. This leaves the simpler task of having to solve how to get on a customer's second TV, or into the TV of a home that doesn't have an account with the parent."

Free-to-air broadcasters all want a CRM strategy, Walley contends. "The platform owned players will be the only one able to create a user profile that links data on a consumer's broadcast consumption to data on their TV and PC catch-up consumption. They will be the only players able to support a commercial broadcaster's future aspirations to move into pay. Commercial broadcasters should put together proactive strategies for working with SkyPlayer and Virgin Player giving the platforms their content in return for a range of data and functionality services around VOD content."

There are signs that broadcasters are taking this into account. ITV, the leading UK commercial broadcaster whose online strategy had stalled while a new chief executive was found, has decided to make digital distribution a major part of its revenue earnings going forward. That strategy distinctly does not include alliances with Hulu or other aggregators.

"We have no plans to launch onto any online-only aggregators," says Ben McOwen Wilson, director of online and interactive at ITV. "You can expect us to make a move onto consoles, integrated TVs, set-top boxes, and mobile."

"We want strong control over ITV branded environments, ad formats used and the ad load to which our content is exposed," says McOwen Wilson.

ITV is also keen to hook into BSkyB's Sky Player and indeed any platform such as Virgin Media's which supports dynamic advertising delivery.

"We will seek to integrate advertising around our content on any platform which delivers dynamic advertising," he says. "We understand the advertising market arguably more than Virgin does so there's an opportunity to work together."

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