There are a couple of ways of thinking about live Internet TV. It can be another way of viewing content from broadcast or cable channels, contributing to a "TV everywhere" mentality, or it can use original live streaming content which is then posted in ancillary snippets for viewers to view whenever they want.
The former is the model used by a number of companies, including Verizon Communications (NYSE:VZ) for its FiOS TV service. Among other offerings, this service streams Disney's (NYSE:DIS) ABC TV in some of the larger local markets that the telecom giant operates in. While it provides an entry into the media content game, it offers little in the way of differentiation for Verizon. It will generate some revenue and earnings, but original content will be the differentiator in this space. The winners in the original content game will be the ones that profit the most.
This deal was partly done in response to the growing threat that the Aereo business model presents. Aereo provides customers with an antenna and streams content from the four major broadcasters over the Internet at low cost to a variety of devices. Aereo pays nothing for the content, and so far has been ruled to be legal by the courts. If a broadcaster offers content through alternative means such as FiOS, it offers Aereo competition in those large markets.
Among the shows offered by Verizon from ABC are Watch Disney Channel, Watch Disney XD, Watch Disney Junior, and Watch ABC. These are part of the "TV Everywhere" suite offered by ABC.
Viewers receive content on their alternative devices which is already being seen on broadcast TV and streamed by ABC and other alternative outlets. Content providers like Disney benefit from this because it provides further opportunities for the company to offer its content everywhere at any time.
America is online
AOL (NYSE:AOL) is among the leaders in live streaming TV. It is the go-to company if you want to see how it's working and how viewers interact with it.
There are two parts of AOL TV. The first is HuffPost Live, the only operational live streaming video at the company. The second is AOL Live, which now appears to be on indefinite hiatus as far as original programming goes. This is a result of Nathan Richardson, who was heading up the unit, leaving only three months after being hired.
Dubbed "770 Live," the new AOL channel was scheduled to launch in the latter part of October 2013. Other than airing its original reality series starring Nicole Richie, all the channel is doing now is syndicating HuffPost Live video. Add to that the delay in distributing HuffPost Live content on Mark Cuban's AXS TV, and it seems that this is an idea before its time.
One positive factor is that HuffPost does offer original content. If nothing else, this offers the profitable side of the business content to sell ads against in the form of clips.
The apparent value of live streaming on the Internet is for companies to have video content available as various events or situations arise. That theoretically will attract people to the video content.
For HuffPost, average viewers watch approximately 20 minutes of content per visit, providing another source of viewing and advertising.
What's interesting about HuffPost Live's streaming is that users interact with its video content in the same way they do when accessing content from studios on the Internet: they're viewing video clips.
In other words, the large number of views and value of the content is in the company taking video clips from its live streaming content and allowing viewers to watch them. This means that post-production is outperforming production itself, and also points to what is valuable to both viewers and advertisers.
During the second week of November, AOL reported 21 million on-demand views. This is in contrast to the 5.1 million unique monthly visitors watching its live stream. Assuming that the weekly numbers are consistent, there would be somewhere about 90 million on-demand views a month, depending on how many days there are in any particular month.
AOL has surpassed Google as the company with the most online video ad views in September, soaring to about 3.7 million. In November it has shot up to 4 million video ad views. This is where revenue growth will come from for online media properties.
The future of live streaming
Live online video streaming is still in its infancy, and it is far from clear whether it will become a source of content that people will watch in significant enough numbers to justify its existence. AOL has quickly found out that mining clips from the streams is where the value is, not in the live streams itself.
There is also the problem of how marketers will place ads on a live stream, although AOL has backed off of its total commitment to the stream and is working on building out scheduled content.
For now, live streaming on the Internet remains an experiment. Investors should look at the clip side of the business rather than the streams, as that's where the money is and where value is added to a company.
Gary Bourgeault has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.