After a tiring day at the office, most Brits like nothing better than to put their feet up with a cup of tea and watch the "telly." Yet more and more now are turning to the Internet to get their TV fix. And while video-sharing sites like YouTube (GOOG) and Daily Motion are popular, the real push into online video is being led by a surprising actor: old-media stalwart British Broadcasting Corp. (BBC).
The BBC's remarkable success in delivering its news, entertainment, and educational programming via the Internet has caught the attention of broadcasters all around the world. Traditional TV companies—both producers and distributors—are nervous the Net will undermine their business models, yet they badly want to jump on the bandwagon. The BBC has proved an unexpected trailblazer and is now a model for companies such as Italy's RAI and Germany's RTL, which are looking to replicate the BBC's popularity in their home markets.
The secret of BBC's success? In a word: iPlayer. No, it's not a new gadget from Apple (AAPL), but rather a Web site that streams full-length BBC TV shows from the last seven days on demand. Launched last December, iPlayer has combined a slick user experience with popular content to triple its unique monthly audience in Britain to 2.2 million, according to researcher Nielsen Online. That makes it one of the most successful streaming video services in the world.
An Older (and American) Audience
Unlike youth-oriented YouTube, the iPlayer has also been a hit with an older audience. The BBC says more than 60% of its viewers are 35 or older—and they stay online for almost 30 minutes per session. That's a powerful draw for advertisers, who have long sought to capitalize on the public's growing interest in online TV, especially among a well-heeled adult audience.
"The BBC iPlayer is well ahead of the game when it comes to online video," says Adam Daum, media analyst at technology consultant Gartner (IT) in Britain. "We definitely could see the model exported across Europe." It's already proving to be an inspiration for British commercial broadcasters ITV (ITV.L) and Channel 4, which are in talks about joining forces for a shared online TV portal.
Not just European broadcasters could take a page out of the BBC's playbook. U.S. content providers, such as ABC (DIS) and NBC (GE), have experimented with online TV since 2005. So far, they've been swamped by YouTube, which commands 57% of the U.S. Internet video market, according to Forrester Research (FORR). By mimicking the iPlayer's dead-simple user interface and large content library, U.S. broadcasters finally could cash in on online video, says Bobby Tulsiani, a New York-based analyst with consultancy JupiterResearch. "From day one, the BBC's iPlayer started with the right experience," he says.
To a large extent, the BBC's model has been mirrored by the new Hulu online TV service in the U.S. A joint venture (BusinessWeek.com, 3/14/08) of Fox (NWS) and NBC, Hulu has signed up more than 60 content providers to offer TV shows all from one Web site. Despite launching only a few months ago, it is already attracting 2.4 million unique visitors per month.
How the BBC "Kick-Started the Market"
How has the BBC, founded in 1922 and once so stodgy that Brits affectionately referred to it as "Auntie," been able to crack the Internet Age? Gartner's Daum reckons it comes down to three things. First, the Beeb's government-backed business model has allowed it to try new technologies without fear of angering cost-conscious shareholders. The BBC already has spent $11.3 million on R&D and technical investment to support iPlayer and figures to shell out a total of more than $260 million by 2011 on its ambitious video-on-demand plans. "You have to make it easy for someone to have a great time on the site," says Anthony Rose, the BBC's head of digital media technology.
Second, Daum says the BBC's dominant position in the British TV market has attracted viewers looking to access its large (and free) content library. According to Nick Thomas, a European media analyst at JupiterResearch in London, getting a critical mass of shows means people don't have to jump between different Web sites to watch their favorite programs. That makes the experience more customer-friendly and builds brand loyalty to the BBC's site.
Lastly, the BBC has used its large presence across TV, radio, and the Internet to raise awareness about the iPlayer. Cross-promotion, such as radio DJs or TV presenters telling audiences about the service, has helped boost iPlayer viewership by 20% per month from its December launch through April (the most recent month for which figures are available), to 21 million shows. "The iPlayer has really kick-started the market," says Rebecca Jennings, principal analyst at Forrester Research in Britain.
The first few months of the iPlayer have also produced a host of lessons. The first, says Jupiter's Tulsiani, is that the more impatient nature of the online audience requires advertising breaks in programs, as well as the ads themselves, to be only about one-quarter as long as on TV. Ads also need to target specific audiences, he says. For now, advertisers are paying about a 50% premium for Net ads on a cost-per-viewer basis. But with fewer time slots available than on TV, analysts caution, the revenue to broadcasters may not be enough to make online services sustainable.
Another unexpected challenge has come from Internet service providers, which have complained bitterly about the amount of bandwidth being gobbled up by the iPlayer's streaming video. As more people start watching TV via the Net, ISPs say, content providers should help pay for the necessary infrastructure (extra switches, fiber-optic cables, etc.) needed to make video stream seamlessly. Complicating matters, some ISPs have made their own moves into online TV, which could lead to a battle between them and broadcasters to win over audiences.
Gartner's Daum figures both sides will find a way to live with each other. Broadcasters, for example, could cache their content on ISP servers. That would reduce the amount of bandwidth viewers use to watch programs online. Partnerships between ISPs and content providers also could limit the investment risk for companies looking to move into Internet TV.
European and American broadcasters must overcome such hurdles if they want to grab a piece of the online video market. But what they no longer have to worry about is whether there's consumer interest in Internet TV. That question, at last, has been answered by the success of the BBC's iPlayer.