Posts Tagged ‘iptv’

Can advertising pay for bandwidth costs?

September 8th, 2008 No comments

The internet isn’t free. If you have a significant amount of traffic your hosting provider will start charging you or constrain your account in some way. When it comes to video content most amateur producers are using the likes of YouTube or BlipTV to distribute their videos. They are getting approximately half the revenue where there is any.  The adds are typically a single placement before or after (‘preroll’ and ‘postroll’) or small adds popping up during the content (‘overlay’).  The problem is that the infrastructure has to be paid for. In the case of YouTube it is being subsidised by Google as well as its original venture capital like the other players. Major players such as TimeWarner are receiving revenue from preroll and postroll advertising and probably paying fairly directly for their infrastructure and production overhead which is a large part of the slow provision of these services.

What that infrastructure costs isn’t clear but as a guide we know that at the retail level traffic costs are as low as 25c/Gb. A typical recurring video might be anything from 0.1Gb to 1Gb depending on the duration and resolution. That gives a cost of 2.5c to 25c per viewer. Google has bought a lot of fiber and will be able to serve video at a significantly lower cost by providing their own network. Others will be using brightcove etc. in order to get economies of network scale at some unknown cost. The retail figures give a range of cost range per thousand viewers of $25 to $250 for traffic charges.

Television advertising typically realises $30 per thousand viewers (CPM) but can vary from $5 to $50 depending on the region, time of the week and program. Internet video advertisements typically realize less than one dollar but fall within the range of $0.25 /CPM and $5.00.   Television programs in the US typically include 12 minutes per hour or approximately 8 advertisements of 30 seconds in twenty minutes of air time. So television might realise $240/CPM for twenty minutes. Internet video might realize for preroll,postroll and overlay as much as $1.50 to $6.00 /CPM across a much smaller audiance.

So infrastructure costs need to be significantly lower or somebody else needs to be paying them to allow the current advertising revenue model to be profitable. There are legitimate reasons why internet advertising realizes a much lower CPM due largely to the low barriers to entry and resulting low premium.

There is an assumption that advertising will support internet video because television is supported by advertising but this doesn’t necessarily follow. The constrained access to television made it a premium product and added credibility to the content and advertising. The economics of broadcast television, which is still what provides significant theoretical viewer numbers to television, was based on a cheap distribution method which could be paid for with commercials. This isn’t necessarily true of an infrastructure which requires physical installation to the consumer’s premises and servers which consume over 1% of the electricity in the US. The energy costs aren’t decisive. It is the infrastructure cost that needs to be reduced, both for the servers and the distribution, if advertising is to be the sole basis of the model.