The internet TV advertising industry is set to grow at a compound annual growth rate of 42% from 2011 to 2016, increasing in value from $54 million to $311 million according to Frost & Sullivan’s latest report on the Australian Online Video Market, written in association with media and technology company, The Video Network.

This massive growth outlook follows an explosion in online video streaming in Australia, which grew 550% from less than 2 billion videos in 2007 to 11 billion in 2011, primarily driven by cheaper bandwidth, greater choice of online content and higher data caps. On an individual basis, Australians are now watching around 10.2 hours of online video per month and are quickly catching up to US and UK consumers who watch 17.3 and 17 hours of online video per month respectively.

Peter Ostick, The Video Network’s Co-Managing Director, said Australia was on the verge of a significant tipping point when it comes to how and when we consume video content.

“As technology improves and the variety of content increases, Australia's video content viewing habits are changing rapidly with more of us choosing to watch television online. While this sector is in its early days, internet TV is already reaching upwards of 12 million viewers per month according to comScore statistics, which represents a huge potential for advertisers within this emerging market,” he said.

Online video is defined as any form of digital video that is been delivered to the user via the internet. Content may be either short or long form, according to duration of video content, with the most popular sites being YouTube, ABC iView, ninemsn, yahoo!7 and Fairfax. The two main content segments in Australia are media and entertainment, which includes short user generated clips, catch-up TV, live streaming and movies, and corporate.

While short form video accounts for the majority of online video viewed in Australia, the report predicts long form will overtake short form content as the key driver of online video growth by 2013.

Phil Harpur, Senior Research Manager, Frost & Sullivan, said there are many factors at work making online video attractive to Australian viewers.

“Consumers are increasingly using their PC/laptops, tablet PCs and smartphones for entertainment. They've become comfortable with the idea of subscription-based video content. Video production is becoming cheaper by the day. Internet capable TVs are more common, as is high definition video. All of this, along with bandwidth and data improvements, will continue to drive a rapid increase in video streaming over the next five years.”

The advertising opportunity

According to Ostick advertising agencies and marketers are increasingly recognising online video as an integral part of the overall advertising solution as online video consumption grows and the industry becomes more sophisticated.

“The 2010 release of the Video Ad Serving Template, which makes it easier for advertising agencies to track and report on video ad campaigns, has facilitated the ad industry’s acceptance of this segment. We expect standards will continue to improve to offer greater targeting and brand protection as it matures, and TVN intends on leading this innovation,” Ostick said.

Harpur said the predicted growth in expenditure on online video advertising, which is currently around 2% of the total online advertising spend, will accelerate as media buyers test and accept the medium, the number of online video viewers grow and the amount of professional video content increases.

“Industry growth combined with an under supply of inventory in the market has meant yield and demand for online video remains high in 2011, in sharp contrast to traditional online display advertising which is challenged by an oversupply.

“But for the online video advertising market to grow at its true potential, quality content needs to be produced at a much higher rate. The expected increase in availability of long form video content will go some way towards remedying this, opening up advertising opportunities, especially for mid-roll advertising,” Harpur said.

Despite these hurdles, Frost & Sullivan anticipates internet TV advertising will outperform all other major online advertising segments such as online display (banner ads), advertorials, integrated site content, sponsorships and e-newsletters.

The main sources of online video advertising inventory are the network resellers who are divided into two camps: display advertising networks such as VideoEgg and Joost Video Ad Network, who see increased yield opportunities in video; and organisations such as The Video Network who offer dedicated video offerings.