• by Mark Walsh  @markfwal, August 1, 2014

A new report from Needham & Co. argues that digital video, driven by viewing on mobile devices, has so far helped the traditional TV business rather than hurt it.

Specifically, it points to the consumer shift toward watching video on smartphones. According to the latest Nielsen cross-platform report, smartphone usage is up 40% (from 48 minutes to 67 minutes per day) in the last two years, while desktop usage is flat at about one hour a day. Total media consumption has risen 1% to 10 hours and 51 minutes per day.

“Rapid growth of mobile devices is creating demand for short-form digital video content, which is fueling the growth of a parallel video ecosystem that, so far, appears to be additive,” states the report by Needham analyst Laura Martin.

She notes, for example, that World Cup streaming added 12% to TV audiences and 15% to economics for Univision. And 87% of its digital streaming traffic took place on portable devices, up from 37% in 2010. Since ad revenue is calculated on a CPM basis, this implies that Univision generated 12% more revenue for streaming World Cup games on digital platforms. But because online audiences skew younger -- and valued more highly by media buyers -- this translates to a 15% gain, according to the report.

Overall, the report estimates that digital video advertising added about $2.5 billion to U.S. TV economics in 2013, and will do the same again this year. But it also warns that over the next decade, digital video will pose more of a threat to TV networks and cable companies.

While mobile viewing of TV content is translating into more revenue to the traditional TV model, it will add more to the new parallel digital video ecosystem because of its shorter lengths that fit better into “new windows of time” created for watching outside the home. The report cites a surge in short-form programming (less than 7 minutes), largely viewed on smartphones via YouTube.

“Although short-form video is poorly monetized today, disruption always begins at the low end and moves up over time,” it states. The biggest risk to the dominant dual-revenue stream model today is that the rise of digital video will lead to a single revenue stream -- either from an OTT subscription, or ad-driven Internet business.

Martin suggests that advertising alone can’t cover the costs of creating premium content. One factor in favor of TV networks and content providers is that there will always be an audience for premium content, whether live programming, like the World Cup, or original series like “Game of Thrones.” Through initiatives like TV Everywhere and required authentication for over-the-top (OTT) services like Apple TV and Roku, are extending that programming across devices while maintaining the dual-stream model.

“We believe TV Everywhere adds to the perceived price/value relationship of the TV bundle, especially for young viewers,” states the Needham report. At the same time, it points out that when asking a typical 21-year-old about "second screen" viewing habits,  many think you’re asking them about their smartphone usage, since their laptop often is their first screen, not the TV."