The most common question from VCs and others who loan money to budding entrepreneurs deals with return on investment. More directly, how are you going to pay me back? And how long will it take? You’ve seen this dialog on “Shark Tank.”
With disruption in place, but still in evolution, mobile video will kick the tires on some tried and tested revenue streams, as well as some that are yet to be validated. By and large, they fall into three categories — traditional advertising, sponsored content and subscription.
Researchers such as eMarketer predict U.S. mobile video advertising will grow more than 70% to $2.62 billion in 2015, and that’s more than a third of the $7.7 billion spend on all digital video advertising. A closer look at the data reveals overall market growth for desktop and mobile, but a slowdown in category growth year over year. From 2015 to 2016, mobile is expected to only grow 50%, and from 2018 to 2019 growth is expected to be down to 15% year over year. The eMarketer data points to the need for revenue streams for mobile video beyond traditional digital advertising.
Verizon offers an interesting take on sponsored content that is similar to the way public internet used to offer its services. In order to get free WiFi at an airport, for example, the user had to agree to view an ad or use a special browser that offered embedded ads.
For its new OTT video service, Verizon will take advantage of the fact users who access video via their data plans may wind up losing a chunk of their monthly allocation of minutes. The mega CSP will offer advertisers the opportunity to sponsor a portion of the consumer’s data usage.
Verizon is not alone as a CSP offering sponsored data. AT&T began a similar program in 2014, but it was not targeted at a specific video service.
The subscription part of mobile video’s financial future is a mix of what is here and what is to come. In one category, the large OTT SVOD providers — Netflix, Hulu and Crackle — offer subscribers access to their services across all devices. In the other category, we have pay-TV/MVPDs that offer their services via mobile applications. This group includes Comcast, Cox and Time Warner from the MVPD side, which offer mobile app and TV Everywhere access to key cable nets, and HBO and Showtime on the other. But it’s more complicated than that. Added to the mix are nascent OTT services such as Sling, Sony Vue and a forthcoming offering from Verizon.
And then we have remarks from Disney CEO, Bob Iger, during the company’s most recent earnings call. Iger is a cable/satellite loyalist (apologist?) who believes the future is in skinny bundles that offer value and flexibility to the young cord-cutting consumer. Disney’s most prized “TV” asset is ESPN, and Iger lives on the assumption that sports fans cannot live without their daily fix of “Sportscenter.” He clearly has not seen the number of apps and sites (many owned or operated by pro leagues) that beat the pants off of ESPN’s coverage. Is Iger whistling in the graveyard, or is does he have a world-class poker face?
The conclusion is that those who have skin in the mobile video game truly have no idea what business models will work next year, let alone in five. The key for those who want to play the long game, and become the standard bearers for future successful mobile video services is to have double vision — keep one eye on ever-changing user behavior while providing whomever controls your finances (shareholders, VCs) updates on your progress.