Is it all slipping away? Not a week goes by that it seems another study, survey or research report suggests that more and more people are going online to watch TV shows. And while many are also watching advertising online, the economic model simply doesn’t approach that of the linear cable TV universe where a dual revenue stream of strong ad dollars and subscription fees fuels the industry. The latest is this week’s Nielsen Online study, which found that online video viewing in March was up nearly 40% over March 2008, with 9.6bln streams blasting out to those hungry eyeballs. Users watched more than 2 streams per day in March, with a total of 190.7mln minutes of online video viewing per person. That’s a huge sea change over just a year ago and—while it includes everything from the latest episode of Fox’s “Fringe” to that ubiquitous “dog on a skateboard” variety—the big change in the last year has, in fact, been the uptick in “premium” video, i.e. professionally produced TV fare making its way online through sites like Hulu, Fancast and others. As might be expected, Nielsen also found that users are increasingly watching longer-form fare—partly because more full episodes of shows are landing online. Post it, and it seems they will come. YouTube is still the giant, with well over 10 times the traffic of the number-two site, Hulu. But YouTube’s growth is slowing, while that of Hulu and other premium sites continues to ramp up.

The central question here is whether linear TV can survive this massive shift to online viewing. But so far, the evidence suggests that the rush to online video “screens” hasn’t necessarily hurt linear TV—at least not yet. Case in point: Nielsen just last month confirmed that live, linear TV viewing continues to dwarf all other forms when it comes to aggregating eyeballs. People still love their TVs, especially when they can see their favorite shows in blazing HD and on much larger screens. But the simultaneous online trends suggest that habits continue to change, either because people aren’t satisfied with the amount of VOD fare available through their TV sets (or frustrated with the often clunky navigation) or because people are just sitting in front of their computers all the time and taking the opportunity to catch up on shows while they do other things.

The bottom line is that overall video viewing appears to be increasing across the board. And that suggests that online video isn’t yet cannibalizing linear TV fare. The question is what happens as it becomes increasingly easy to watch online video from any source on a TV set through gaming consoles, third-party set-tops and even through the televisions themselves (see Sony’s new Internet-enabled Bravia sets). As these two platforms merge and the “walled garden” of linear TV starts to crumble, will people still gravitate to professionally produced fare filled with commercial breaks and product placements, and bolstered by subscription fees paid by distributers like cable and satellite? Or will they simply “bookmark” shows that exist outside the traditional TV universe, including independently produced movies and TV series with lower budgets and indie street cred? It’s probably going to be a combination of both. And people will still appreciate well-produced, well-written TV shows. Most of that indie fare living out on the long tail will never aggregate enough eyeballs to match the production budgets of even the most modest cable TV show out there now. That doesn’t mean there won’t be great indie success stories. But it seems that big-budget TV shows will continue to dominate even as the Internet leads to an explosion of competitive video entertainment options. At the end of the day, this competition between so many players is good for everyone as it forces producers, writers, actors, hosts and everyone else involved in video production to step up and put their best feet forward. In that world, consumers win.

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