Google’s acquisition of YouTube in October 2006 was supposed to usher in a new era of opportunity for video creation, distribution and monetization that leveraged the power of the internet. Now, three and a half years later, the biggest benefactors of the boom in online video consumption have primarily been YouTube’s founders and investors as profitability still eludes YouTube and revenues are scant in comparison for most others in the online video ecosystem. With webisode creators closing up shop or changing business models, television networks removing or withholding their content from partners and distribution channels, and well-funded online video aggregators Joost and Veoh shuttering their businesses, what role will the internet play in the video content experience going forward?

Here are today’s realities…

Television will not go the way of the newspaper industry.

Clay Shirky, an internet and media consultant and professor at NYU, recently suggested that the television industry faced the same disruption in its business models as newspapers are experiencing today. What he failed to acknowledge was that the production value of video content creation cannot be commoditized in the same manner written content can (Avatar didn’t become the highest grossing movie of all-time by cutting corners on cost). In fact the cable industry seems to be strengthening its position with consumers- delivering record audiences for sports leagues, including the largest audience for a single cable network event (last year’s Vikings vs. Packers game on ESPN) and the signing of Conan O’Brien to host his new later night show on TBS. This performance is leading advertisers to commit an even greater share of their television ad budgets to cable networks in the coming upfront season.

There are no free lunches for online video consumers.

Cord-cutting is somewhat of a fallacy. While a lot has been written about the growing minority of consumers who have given up their cable subscriptions in favor of accessing video content over the web from the likes of Hulu and Netflix, the fact of the matter is that consumers are still paying their cable or phone company to access this video content over their networks. Though monthly internet access can cost a quarter of the price of a monthly cable subscription bill, as they say, you get what you pay for. Without the ability to watch live events (American Idol, Super Bowl, etc.), or specific content from cable networks (Mad Men on AMC, It’s Always Sunny in Philadelphia on FX, etc.), in addition to no quality of service considerations for video playback on the web (when was the last time you experienced buffering while watching television through your cable service provider?), we are starting to see stories about consumers who have given up on the internet-only video experience.

The internet will be one of several distribution channels, not a panacea.

While many consumers expect to find all content online, and for free, these people tend to forget that television’s economics continue to drive the decision-making process for broadcasters. It’s for this reason I’ve previously suggested companies such as Blip.tv should look to traditional television networks to extend the distribution and reach for their clients’ webisodic content. With the launch of the iPad and associated apps from video providers, and discussions around broadcasters working together to build a mobile television network, the number of ways consumers will be able to access movies and TV shows will continue to proliferate. While this should drive additional content consumption opportunities for consumers, it will be done so on the television industry’s terms.

And tomorrow’s opportunities:

Delivering “DVR economics” will bring more premium video online.

For television networks to get comfortable with making more of their content available online after its original broadcast, the revenue opportunity needs to be comparable to what broadcasters are generating from their DVR-viewing audience. This makes sense since watching video online and via DVR are both non-linear viewing experiences intended for consumers to catch-up on missed shows. This will be an important metric for online video services to achieve in order to be considered distribution partners for broadcasters and networks going forward. With online consumers showing a willingness to sit through additional advertisements and both Hulu and TV Everywhere expected to charge for certain content, achieving parity with DVR economics seems to be an achievable goal as the dual revenue model employed by the television industry (users paying for access to programming in addition to being presented with commercials while watching that programming) proliferates into new channels. This could become a recipe for enabling virtual MSOs like Apple TV and others to gain access to television shows that haven’t been previously made available online. Over time a bifurcated business model could emerge between real-time and time-shifted viewing with different price points for each experience.

Social TV will be the key to enhancing the video viewing experiences.

Because the internet is a proactive, lean-forward experience most of the time, it is best leveraged as a companion to live event broadcasts to create a social television experience. With more and more people spending time online while watching television there’s an opportunity for programmers to engage audiences by allowing viewers to share their experience with friends or other fans in a meaningful way, creating larger and more loyal audiences. Events such as the Grammys and Oscars have benefited greatly by combining the social features of Facebook and Twitter with live broadcasts. Apps such as Hot Potato and Miso have been launched to aggregate these types of experiences on behalf of viewers, though broadcasters are now developing these services on their own as well. Regardless of the social network or app being leveraged, these services should be incorporated into devices such as mobile phones and tablets, and not necessarily directly into the television set via TV widget platforms, to not inhibit either experience individually and allow any service to compete for audience attention.

Unified audience measurement will be paramount.

While video ad networks have probably been the greatest benefactors of the growing online video ecosystem, with over $90 million invested between BrightRoll, TidalTV and YuMe in Q1 of this year and Tremor Media earlier this week, until there is a way to merge audiences across different platforms (television, laptop, mobile phone, etc.) online video revenues will remain insignificant in comparison to broadcast television. Nielsen announced a solution to address this problem earlier this year that is expected to be rolled out for the fall television season. Looking to make buying video inventory online comparable to traditional television, two different online video ad networks have partnered with third-parties to create an online equivalent to Gross Rating Points, called iGRP, which is used to sell prime-time ad inventory, to match online audiences with that of traditional television. As agencies and advertisers get more comfortable with quantifying users online in a similar manner as is currently being done through traditional television broadcasting more ad dollars will continue to flow to online video. This will allow online ad networks to compete for even more upfront ad dollars during TV’s traditional outlay season.

Opportunities exist for online video technology providers- to an extent.

Brightcove, founded before YouTube ever existed, is arguably the most well know enterprise technology provider to the online video industry. In raising a fourth round of funding recently, the company disclosed it expected worldwide revenues of $50 million this year. Considering the company already works with most major media companies, what does this tell us about the market opportunity for the most important component of the online video ecosystem? If you concur with Frost & Sullivan analyst Dan Rayburn’s estimate of $300 million in total revenues for online video platforms this year, then it’s not that significant. It doesn’t mean that Brightcove won’t have a successful IPO, it’s just that for the amount of capital the company has raised ($100 million) the revenue potential ought to be 10 times Frost & Sullivan’s estimates. That being said, companies that can automate content encoding (i.e. Elemental Technologies) and distribution (i.e. TubeMogul) across disparate platforms and formats, provide rights management (i.e. Widevine) across access points and deliver aggregated audiences and reporting for advertisers will have the best chance for success, though primarily through acquisition. Companies such as Akamai will be the biggest benefactors as they can leverage their public currency to add these services to their CDN delivery business, allowing them to move further up the value chain with clients.

Add it all together and where do we end up? Most consumers don’t differentiate between what content they are accessing, broadcast network television (ABC, CBS, Fox and NBC) or cable networks (Discovery, ESPN, MTV, etc.), since in today’s digital environment you need a set-top box from a cable, satellite or telecom company to access any television programming. The same will hold true for how consumers access programming tomorrow, be it over dedicated coaxial cables, wireless carrier networks or over the public internet. As such, consumers will have tiered pricing (as either a bundle, how monthly subscriptions are currently provided, or a la carte as Apple is attempting to do) that incorporates how content is being accessed (real-time or on-demand) and from where (television, laptop or mobile phone). Whatever the model, viewers will be able to interact with audiences around the content, creating a more fulfilling experience. Advertisers will benefit from better audience targeting capabilities already being used on the web today across all these viewing outlets with the added value of unified reporting.

While the nirvana of free access to all video content over the internet will probably never be realized (except for one-off cases like YouTube’s wildly successful live streaming of a cricket tournament) the internet will play a major role in improving the online video experience from both a consumption and monetization perspective.