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Competition Hot as Ever for Two Digital Video Monetization Models

Digital TV viewers are split in their advertising and paid content preferences

December 12, 2016

The US digital video market remains a tale of two models: advertising and subscriptions. YouTube and Facebook have continued to be leaders in video advertising in recent months, while some services, notably Vimeo, Hulu and Amazon, have doubled down on subscription-based approaches. These are two of the trends eMarketer explored in a new report, “Q4 2016 Digital Video Trends: Monetization, Audience, Platforms and Content” (eMarketer PRO customers only).

US Programmatic Digital Video Ad Spending, 2014-2018 (billions, % change and % of total digital video ad spending)

In 2016, US advertisers spent $6.18 billion for digital video ads purchased programmatically, up from $3.00 billion in 2015. On a percentage basis, this year’s total amounts to 60.0% of all digital video ad spending, compared with 39.0% last year. By 2018, programmatic digital video advertising will reach $10.65 billion, or 74.0% of total video ad expenditures. These figures do not include video advertising on social platforms such as Facebook.

The high and growing percentage of programmatic video ad spending stems largely from YouTube’s dominance of video. Not only did the company capture 20.9% of all US video ads in 2016—the largest share by far of any single company—but over the past year it has aggressively expanded the use of its demand-side programmatic platform, DoubleClick Bid Manager.

YouTube’s net US video ad revenues will reach $2.89 billion in 2018, up from $2.16 billion in 2016. Its growth rate will stay in the double digits over the next few years, while its share of total US video advertising will inch downward to 20.1% in 2018, from 20.9% in 2016.

When it comes to subscriptions, in November 2016, Vimeo became the latest streaming operator to announce a video subscription plan. In a letter to shareholders, Joey Levin, interim CEO of Vimeo and CEO of parent company IAC/InterActiveCorp, said Vimeo would begin delivering “subscription viewing experiences” at an unspecified time. The letter was light on details, but it cited the success of HBO and Netflix in building subscription video markets on cable and digital, respectively.

US TV Viewers' Preferred Method of Watching and Paying for TV Shows Digitally, Aug 2016 (% of total)

In August 2016, Hulu announced it would discontinue free access in favor of tiered subscription plans that give viewers a choice of an ad-free experience for a monthly fee of $11.99, or a "limited commercial" option for $7.99.

Combined with other recent activity such as Amazon’s decision to offer its premium video service as a standalone offering separate from its Prime membership program, these announcements point to a shift toward subscription-based monetization in the US market.

According to an August 2016 study from Hub Research, over half—53%—said they liked free, ad supported video, while the rest chose paid platforms, with 40% favoring subscription-based ones and the remaining 7% transactional ones.

Get more on this topic with the full eMarketer report, “Q4 2016 Digital Video Trends: Monetization, Audience, Platforms and Content.”

eMarketer releases over 200 analyst reports per year, which are only available to eMarketer PRO customers.

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