Bear Stearns Bullish on Web Video

Peering into the tea leaves, Bear Stearns analysts envision the next boom in the Internet economy coming from online video.

“We believe that video will be at the very heart of the next five years of Web evolution,” the analysts wrote.

And the blood pumping through that heart will be ad dollars. Still a “pubescent medium,” Web video will see ad revenue jump to $4.3 billion by 2011, the analysts said, citing a forecast by eMarketer. By contrast, online video ad spending was $775 million last year; it is projected to grow to $1.35 billion in 2008.

The fact that online video is proliferating is well established. But online video offers advertisers more than just another source of content to latch onto.

Users are becoming more engaged with the videos that they are watching, Bear Stearns argued, noting that the average viewer now spends seven minutes watching videos on the Web each day.

Engagement has become the critical metric for online advertisers, so video is starting to look like a bonanza, the analysts said.

The predictable winner in this gold rush will be YouTube. Already accounting for nearly a third of all online videos watched, the analysts described YouTube as a “behemoth” that shows no signs of giving any ground. YouTube recently expanded its Partners program, allowing select video providers to monetize their content.

Niche video sites also stand to benefit, Bear Stearns said, forecasting that a growing number of channels on YouTube will splinter off to become independent video sites.

Another contributing factor is the gradual migration of professional television to the Web, delivered with some brief pre- or mid-roll advertisements to sites like Hulu, or through the downloadable service Joost.

Video blogs are sprouting up on niche sites throughout the Internet’s “long tail,” where communities form around a specific interest.

Then, too, the analysts support their bullish Web video forecast with a familiar list of consumer trends: increased broadband uptake, cheaper and more abundant Web cams and video-enabled cell phones and more accessible monetization options.

Bear Stearns’ takeaway for investors: keep an eye on the video online marketplace, which is “changing the landscape for the major Internet/media companies — not only in terms of their relationships with advertisers, but also with consumers.”

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