Akamai CEO: Online Video Has Reached a 'Tipping Point'

Written by Ryan Lawler

Tuesday, May 12. 2009 at 03:05 PM EDT 2 comments

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Due to vast advancements in video quality and scale, Akamai Technologies Inc. (Nasdaq: AKAM) CEO Paul Sagan said that we've finally reached a point where consumers will start to view online video the same way they view television.

In a keynote speech at Streaming Media East today, Sagan pointed to the large number of viewers watching high-definition (HD) streams of live events like the Presidential Inauguration and the NCAA Men's Basketball Tournament online. As a result, Sagan said he believed that online video had finally reached a "tipping point."

"[The inauguration] was on every TV channel, and it was free. But if you add up the number of people in the audience online, you had 10 million viewers," Sagan said. "That's the audience of 60 Minutes, 24, or Survivor. We're now delivering prime-time-sized audiences on the Web."

According to Sagan, the growth of online video is analogous to the spread of the pay TV model, back when cable television was a novelty for users that couldn't get good reception through free analog channels. Then HBO came along and changed everything.

As Sagan explained, HBO began as a local access station that started serving premium content via satellite. But as the quality of the content improved, more and more subscribers became interested.

"As more people subscribed, the content got better. Eventually cable reached a tipping point, and all of a sudden, you had this flowering business model," Sagan said. "We believe the same thing is now happening with Internet video."

Today, he says, improvements in video quality are leading users to consume more and more content online.

"When you look at the inauguration and MMOD [March Madness on Demand], what you saw is the tipping point," Sagan said. "The experience people got was as good as the TV experience. Internet quality now matches TV quality."

The amount of people watching HD streams online continues to grow, with more than one third of online viewers watching Internet video in HD at least some of the time, Sagan said. But HD will soon be in the majority, which Sagan says will lead to longer engagement times and better monetization.

"What's most significant is that HD video drives revenue. Users watch online video longer when the quality is higher," Sagan said. "The closer it is to the TV experience, the closer their engagement time matches TV."

According to Sagan, the shift to online viewing is leading some to begin questioning the current pay TV model. With more and more video available for free online, Sagan sees consumers moving increasingly to Internet video as their source of video content.

"To many people, they start to say, 'This [online video] is my TV,' which is scary to MSOs," Sagan said. "People are starting to say, 'Why do I need cable TV?'"

While some in the industry are uncomfortable with the prospect of online video cannibalizing the traditional TV market, Sagan advocated making it easier for consumers to view video served over the Internet.

"We as an industry have to make it really simple to connect the Internet to the wide-screen TV. As that happens, people are going to choose to get their video over the Internet," Sagan said.