The Australian market for online video advertising will grow from AUD 54mn (US$ 55mn) in 2011 to AUD 311mn in 2016, giving a compound annual growth rate of 42%, according to a new report from Frost & Sullivan.

The country is described as being in the middle of an “explosion” in online video streaming, going from under 2bn videos viewed in 2007 to 11bn in 2011, driven primarily by cheaper bandwidth, greater choice of online content and higher data caps.

On an individual basis, Australians are now believed to be watching around 10.2 hours of online video per month on average, and are fast catching up with their US and UK counterparts, where consumers watch an average of 17.3 hours and 17 hours respectively of online video per month. While short-form video currently accounts for the majority of online video viewed in Australia, the report predicts that long-form content will overtake it as the key driver of online video growth by 2013.

“Consumers are increasingly using their PC/laptops, tablet PCs and smartphones for entertainment,” said Phil Harpur, Senior Research Manager at Frost & Sullivan. “They’ve become comfortable with the idea of subscription-based video content. Video production is becoming cheaper by the day. Internet-capable TVs are more common, as is high-definition video. All of this, along with bandwidth and data improvements, will continue to drive a rapid increase in video streaming over the next five years.”

Growth in expenditure on online video advertising in Australia will accelerate from the current 2% of the total advertising spend, according to the report, as media buyers test and accept the medium, the number of online video viewers grows and the amount of professional video content increases.

“Industry growth combined with an under supply of inventory in the market has meant yield and demand for online video remains high in 2011, in sharp contrast to traditional online display advertising which is challenged by an oversupply,” said Mr. Harpur. “But for the online video advertising market to grow at its true potential, quality content needs to be produced at a much higher rate. The expected increase in availability of long form video content will go some way towards remedying this, opening up advertising opportunities, especially for mid-roll advertising.”