Twitter’s New App, Longer Vines And A $200 Million A Year Opportunity
Twitter (NYSE:TWTR) recently unveiled Twitter Engage, its new standalone mobile app for Apple iOS devices, to help “influential” video content creators better monitor the performance of their tweets through an easy interface and “down-to-the-second” analytics. It also announced that users will now be able to share videos of up to 140 seconds (compared to 30 seconds before) and a small group of users will also be testing longer Vine videos as well.
Twitter’s increasing focus on video content and content creators is a step in the right direction, considering that video usage is rising at a rapid pace and video has much higher engagement capabilities and monetization potential than banner and text ads. [1] Advertisers are also increasing their focus on live streaming and digital video advertising. According to a January 2016 research report by eMarketer, nearly 80% of U.S. retail executives stated that producing live streaming video events helps them create more authentic interaction with audiences. A survey from Cowen and Company published in Q1 2016 estimates that U.S. digital video ad spending will reach $28.1 billion in 2020, up from $9.9 billion in 2016.
Twitter’s focus on video and improving user engagement can also be gauged from its recent acquisitions:
- Magic Pony Technology: a London-based company that has developed machine learning techniques for visual processing. Twitter plans to use Magic Pony’s technology (which can understand the features of imagery) to enhance its video strength.
- Whetlab: a company focused on machine learning
- Madbits: a company focused on computer vision and dynamic search
The monetization potential of video is growing at a significant pace, and gaining a foothold in this domain should help Twitter increase its advertising revenues as well as average revenue per user (ARPU) in the wake of a stagnating user base. Below we look at Twitter’s revenue potential from in-video advertisements over the next few years.
The “video minutes broadcast per day” data is from Twitter’s announcement earlier this year about Periscope’s rising usage and engagement. In March, Twitter announced that Periscope had witnessed a significant increase in user engagement from 40 years’ worth of live video (21 million minutes) watched per day in August 2015 to 110 years’ worth of live video (58 million minutes) watched per day in March 2016. In the recent press release launching Twitter Engage, the company also announced that video tweets had grown over 50% since the start of this year. All of this points towards robust video usage growth on the Twitter app (including Periscope and Vine). Accordingly, we have forecast Twitter’s video minutes per day to grow at a CAGR of about 110% over the next three years.
Assuming a revenue generating video advertisement (played for at least 3 seconds) appearing at intervals of every 15 minutes on average across the millions of minutes of video content played every day, Twitter could potentially play about 23.7 million video ads per day, earning over $212 million a year by 2018. [2] We use an average cost of $24.60 per 1000 views for online video ads in the U.S. in our calculations, which averages among indirect, mid tier and premium online video ads. [3]
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Notes:- Why brands are failing to maximise the potential of video for advertising, Marketing Tech, Feb 2016 [↩]
- Introducing autoplay video and a new standard for viewability, Twitter Blog, June 16 2015 [↩]
- US Online Video Advertising CPM, 2010-2017 [TABLE], eMarketer [↩]