L.A. companies that produce and distribute Internet television programs and ads are getting ready for prime time. Literally.
Advertising is increasing as more viewers are logging on, tuning in and don’t seem to be dropping out. What’s more, the medium is poised to jump to the next level with the introduction of Internet-enabled TV sets later this year.
Industry insiders said L.A.-based online video companies such as Break Media, This Week In and Hulu may be able to carve out a profitable place for themselves in the new-age television market.
“We’re seeing tremendous growth as it relates to the online video space,” said Andy Tu, vice president of marketing for Break Media, a Beverly Hills company that owns eight websites featuring blooper videos, specialty shows such as mixed-martial arts programs and original web series aimed at young men. “We’re fighting for a piece of the TV advertising pie and that piece is going to grow immensely in the next couple of years.”
Activity in the world of Internet TV is buzzing. Web TV company Hulu is said to be preparing an initial public offering. This Week In, co-founded by Internet luminary Jason Calacanis, has recently jumped into the market with a series of specialty shows.
Paul Verna, a senior analyst who covers digital media for Internet marketing and advertising research company eMarketer in New York, said that Internet television is poised to become a market force in the world of media and advertising.
“Internet-connected TVs are going to facilitate an audience crossover that’s going to open a lot of doors,” he said. “It’s going to make the ad buys more fluid across a lot of platforms. This is a trend that’s now in full swing. Over the next few years it will really make its presence felt in the market. Over time I definitely see online video advertising becoming bigger and becoming more mainstream.”
Break Media claims its 2009 revenue rose 40 percent over the previous year, and it projects 90 percent growth this year. The company said its third quarter revenue would be more than $10 million.
Break Media also has seen increased advertiser interest in what it calls branded content, programming tied directly to a specific advertiser. For example, the company is shooting comedians doing standup routines about their first cars, and the show will be sponsored by a car company. Tu said the company expects to shoot 200 of these branded content shows by the end of the year, up from 75 last year. Among last year’s branded content advertisers were Coca-Cola Co. and AT&T.
Break Media’s websites drew 120 million visitors in June, most of them men 18 to 34. That’s up from 40 million in the same month in 2009, according to Internet market research company ComScore Inc.
Mark Jeffrey, chief executive of This Week In, said the company has been able to attract advertisers such as the electronics buyback website Gazelle.com of Boston even though its shows have been airing for only four months. He also cited the appeal of the niche market.
“Our shows are very highly verticalized and there are advertisers interested in getting to those vertical markets,” Jeffrey said.
The website, which streams 17 live videos about everything from the latest episode of “Mad Men” to instructions on raising venture capital, is averaging $20,000 a month in advertising revenue and up to 4 million video downloads a month.
Jeffrey singled out to Apple’s iPad as a game changer.
“Watching video on your computer screen isn’t that great of an experience, but having it on your iPad has made it a lot more accessible,” he said. “I find myself doing my dishes while I watch video on my iPad.”
Industrywide, online video advertising is expected to rake in $1.5 billion in revenue this year, up 48 percent from 2009, according to eMarketer.
A big player in the industry is Hulu, a West L.A. joint venture among News Corp., Walt Disney Co. and NBC Universal that shows popular primetime television shows free to users. Advertisers ran more than 780 million video ads on the website in July, according to a report from eMarketer.
Hulu, which the New York Times recently reported could be preparing to file for an initial public offering, claims to be on track to earn $200 million in revenue this year, up from $100 million in 2009.
There is some skepticism. Dan Rayburn, a digital media analyst in the New York office of research firm Frost & Sullivan, said the $1.5 billion in Internet ad sales is tiny compared with the $60 billion market for traditional TV advertising.
“It has a long way to go,” said Rayburn, who is also executive vice president of online video news company Streaming Media.
Online video could soon be competing directly with network TV, however, when Internet-enabled television hits the market this fall with the launch of Google TV and Apple’s iTV. These systems will let consumers connect directly to the Internet from their home TVs.
Initially, Internet television producers found their audience on home computers. Then smart phones came along, and people started watching on those. The iPad brought new viewers, and Jeffrey expects Internet-enabled TVs to be the major breakthrough.
“They’ll make viewing web television on your living room TV as easy as watching ABC or CNN,” he said. “The playing field will be leveled.”
Rayburn, however, said it’s unlikely that American consumers will adopt this new technology as quickly as online video companies are predicting. He estimated that 8 million Internet-enabled TV sets will be sold by the end of this year, but that only 25 percent of those will be connected to the Internet. This means that only 2 million sets will be able to show online videos.
“That’s not a lot of TV sets,” he said. “That’s not going to change the market.”
Instead, Rayburn suggested that the combined market of Internet-enabled TVs and game consoles could make an impact in three to five years.
The new Internet-enabled sets aren’t the first attempt to get online programming on TV screens, said eMarketer’s Verna. Apple TV tried a box that allowed viewers to stream video to their televisions, but it failed to take off; programming wasn’t readily available.
He predicted that the newer devices expected to hit the market this fall will give consumers a broader selection of websites and videos.
Break Media is getting its programs ready for the launch of the new wave of Internet TVs by making sure the company’s software is adaptable to Google TV, Apple’s iTV and other platforms. Tu acknowledged that he still has a ways to go before he rivals a TV network.
“TV is still the best of the media space,” he said. “It’s a dream that’s far away for us.”
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