Can Internet Video Deliver A Nielsen Ratings Point?

The delivery of Internet video to your PC and television has changed the way we consume entertainment — but when will the Internet be deemed a successful channel for Hollywood?

The Internet needs to deliver to the entertainment industry a metric of success that translates into revenues and mindshare –- in other words, a rise in one Nielsen ratings point (approximately one million viewers at the same time). Nielsen ratings points generate advertising revenues and help future advertising sales. That is how the entertainment world brings in dollars and that, as they say, is the bottom line. So when will being delivered over the Internet cause the Nielsen ratings of your favorite show go up by a point? My bet: a lot sooner than anyone thinks.

Last month Om wrote about the boom in online video, pointing to a report released by Cisco Systems (CSCO) that predicts video will grow to thirty percent of all consumer Internet traffic by 2011 from nine percent today. But I’ve spoken with service providers who have shown me evidence that Internet video will account for more than thirty percent of their traffic by 2008, climbing to over ninety percent by 2011. So while these predictions vary, it’s clear that Internet video will soon dominate network traffic and that network device makers, content distribution networks that handle streaming, and peer-to-peer and bandwidth service providers are in for a wild ride.

For now, let’s make the bold assumption that these devices, technologies and services can handle the traffic onslaught. It’s a big assumption that overlooks the need for more network backbone and last-mile bandwidth, but a critical one if Internet video is to deliver Nielsen ratings points.

Using today’s encoding techniques, an hour of video content equates to around 850 megabytes of data. According to the Cisco report, by 2011, Internet video will consume more than 17 exabytes of data a month (an exabyte is 10 to the 18th power). Divided by 850 megabytes, that 17 exabytes works out to some 20 trillion hours of video delivered over the Internet each month. Given that volume of video, it seems likely that some piece of content –- as an episode of Heroes or Desperate Housewives, perhaps — will garner a million simultaneous viewers and add a Nielsen ratings point to the viewing audience. In fact, it seems contradictory to think otherwise, 20 trillion is 20 million million hours per month — surely one popular piece of video content will generate this audience.

Hollywood clearly sees this coming and makes almost daily announcements about content that will be shortly available via the Internet. These announcements will really get interesting once the Internet delivers a Nielsen ratings point of one or greater –- and I’m willing to bet that occurs well before 2011.

Allan Leinwand is a venture partner with Panorama Capital and founder of Vyatta. He was also the CTO of Digital Island.

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