Consumption of legitimate free and paid for online video is on track to exceed 770 billion views across the USA, UK, France and Germany this year, according to a new report from Futuresource Consulting. Improvements in accessibility and ease of use are among the growth triggers that have seen the rise from around 640 billion views last year, with the USA dominating the market.

"Total online video views are on track to grow by 20% and paid-for online video revenues will reach in excess of $3bn this year," says Mai Hoang, Senior Analyst at Futuresource Consulting. "Online purchase and rental transactions are playing a part, but the majority of this revenue is coming out of the USA, predominantly through streaming subscription service Netflix. By 2015, paid-for online video spend is forecast to hit close to $7 billion across the four countries."

Although paid-for online is growing, it still remains negligible in many markets when compared with free, and is up against stiff competition from other forms of viewing, notably pay TV, free movies and television content.

Moving forward, Futuresource expects the paid-for segment in Europe to be boosted by the launch of a handful of key regional streaming subscription services, similar to Netflix in the USA. It is anticipated that these services will be led by existing online players including YouTube, Apple and Netflix, rather than new entrants.

The potential for future online video revenue extends beyond online purchase and rental and the expansion of subscription services across all major markets, with contributions from ad-funded services having a key role to play.

"Brands have only recently started to harness the full potential of online video," says Hoang, "with ad-funded revenues expected to grow by 50% in 2011 as advertisers continue to develop and refine content specifically for the online environment, rather than repurposing content originally destined for television. At the same time, consumers become more receptive as ads are effectively targeted."

YouTube in particular has recognised the potential of online advertising, as it continues to introduce initiatives to increase consumer engagement on ad-funded videos, even allowing viewers to stop ads that do not appeal to them, says the Futuresource analyst. This is then reflected in advertising rates, with more popular ads attracting preferential rates, thus encouraging an upsurge of enjoyable, targeted ad content and an enhanced experience for the consumer.

"The growing range of mobile devices is playing an increasingly significant part in the online video market," says Hoang. "Sales of smartphones are expected to exceed 450 million units worldwide this year, fuelled predominantly by the growing influence of Android-based handsets. This groundswell is building to a significant content distribution platform, largely driven by growth in the development and consumption of apps and rapidly becoming an essential part of service providers' multi-platform strategies.

"With tablets showing even more impressive growth and evolution, content holders, broadcasters and hardware manufacturers are increasingly interested in the relatively untapped growth potential in the online video market for these devices."

Story filed 28.11.11