Internet Video Overtakes TV, Video How’s Are The Next Big Thing On The Internet

Video killed the radio star, as the old song goes. Now, online video could make a killing for network gear makers over the next few years.

When IBD recently asked Cisco Systems CEO John Chambers to offer some predictions about the future of technology, the networking pioneer didn’t mince words.

“If I had to make one big bet on the future, I would bet on video,” Chambers replied. “I think video is a major killer application, and the combination of video and networking will be a huge driver for how we will communicate in the future.”

In fact, Chambers has already made a big bet on the future of video. In March, Cisco (NasdaqGS:CSCO – News) said it would pay $590 million for Pure Digital Technologies, makers of the Flip mini camcorder, designed to make sharing video online easier.

Video growth has continued “at a rapid pace” even through the recession, says Mark Sue, an analyst with RBC Capital Markets. In a recent research note, he cites data from market tracker ChangeWave showing that Baby Boomers now spend more time online, 12.9 hours per week, than watching TV, 11.8 hours per week.

“Video services (Hulu, YouTube, CinemaNow, etc.) are giving consumers even more choice for video consumption, and network traffic growth may mean more network infrastructure will be required,” Sue wrote.

Web-based entertainment and online video sites such as Google’s (NasdaqGS:GOOG – News) YouTube are creating a big spike in demand for network bandwidth. Total time spent watching online videos shot up 49% last month over the year before, to 188.7 minutes per user, according to Nielsen Online.

In addition, more companies are holding virtual meetings online. This surge in video content plays to Cisco’s strength as the market leader in network routers and switches that guide Internet traffic.

Bob Metcalfe, creator of the ethernet standard for local area networks and co-founder of 3Com (NasdaqGS:COMS – News), is a video true believer. Now a partner with Polaris Ventures, Metcalfe sits on the board of Avistar (NasdaqCM:AVSR – News), a small video conferencing firm.

“The next big thing is the video Internet,” Metcalfe said.

A new white paper out this month from Cisco highlights the rapid buildup of this video-rich future. Global Internet traffic will increase fivefold by 2013, according to Cisco’s Visual Networking Index. Over that span, total traffic of video communications — including video messages and calls — will increase tenfold, the study says.

Cisco contends that all forms of online video together will exceed 90% of global consumer Web traffic by 2013. That includes Web-based TV, video on demand, Internet videos and peer-sharing videos. And by 2013, nearly two-thirds of all mobile data traffic will involve videos.

Cisco management sounded bullish about the prospects for video at a recent stock conference hosted by William Blair & Co., according to Jason Ader, a William Blair analyst. He rates Cisco stock as market-perform or hold.

Juniper Networks (NasdaqGS:JNPR – News) also stands to benefit, Ader says. He rates Juniper as market outperform or buy.

“Video, broadly speaking, is going to be the biggest driver of bandwidth and therefore network equipment over the next 10 years,” Ader said.

Cisco predicts a coming state of “consumer hyperconnectivity.” This includes active digital multitasking, such as listening to online music while surfing the Web or talking on the phone. In addition, passive networking might include downloading movies and shows in the background while watching other network TV.

Experts say this overlap is stretching the theoretical TV day — from 24 hours in a traditional broadcast schedule to 36 hours now. And that will grow to 48 hours by 2013.

More executives are conducting virtual meetings these days as well. The need to save on travel costs could drive future growth for firms such as Polycom (NasdaqGS:PLCM – News), a maker of video collaboration systems.

Tandberg of Norway is number one in video conferencing, followed by Polycom, according to Ader. He rates Polycom as market perform.

Michael Kourey, chief financial officer of Polycom, played up the video trend at the recent William Blair stock conference in Chicago, Ader says.

“(Polycom) management expressed confidence in its ability to return to growth in video ‘in the foreseeable future,’” Ader wrote in a research note.

The number of conferences that executives plan to attend this year has fallen by 50% to 60% over last year, according to Global Equities Research analyst Trip Chowdhry.

At the same time, the use of online conferencing systems such as Cisco’s WebEx or GoToMeeting from Citrix Systems is up 400% over last year, Chowdhry says.

“Oil prices are very high, and people are getting more green-conscious,” he said. “Many feel you can accomplish a lot just by videoconferencing.”

And consumers crave more high-definition downloads of their favorite video clips, TV shows, movies and games.

“This bodes well for companies that compete in these areas,” Chowdhry said

Keith Spear, CEO of KES Systems, Inc believes that the next big thing on the Internet will be video demonstration, visual product reviews and video instructions, from the extremely simply to the complex. For everything from how to use it to how it works.

Noteworthy, for the first time every more people spent time watching videos on the Internet than they spent watching TV.