Bill Tancer is General Manager of Global Research at Hitwise. He writes a weekly column for TIME magazine on consumer Internet usage and is the author of Click: What Millions of People Do Online and Why it Matters, to be published September 2008 by Hyperion.

There’s a lot of hype about the rise of online video. Network and pay-TV brands are scrambling to devise strategies to maintain viewers without cannibalizing revenues. Panic seems reasonable given how we’ve seen the Internet rapidly erode other industries such as print news, with readership and revenue streams rapidly disappearing. Is the pay-TV industry next? If so, what is the proper course of action?

Hitwise online competitive intelligence service reports on the Internet habits of over 10 million Internet users in the US. More than hypotheticals it gives a clear picture of actual Internet user behavior. The Hitwise sample reports on over one million websites that are divided into 172 industry categories – including entertainment and multimedia.

It is indisputable that when you discuss online video there is really only one significant player today: There’s YouTube and then there is everything else. Hitwise tracks over 740 different online multimedia sites. If you combine all of these sites, YouTube would account for 55% of all user visits. The next closest competitor is MySpaceTV with only 7.1% of visits to the same category. Since YouTube is a Google subsidiary, if you add Google’s video search element, video.google.com to YouTube’s market share the combined properties have over 58% of the market. Since it premiered in 2005 no video site has mounted a credible challenge to this video behemoth.

YouTube’s impact

Having eliminated most of the noise in the debate about the future of online video, we can focus on the industry leader and its impact on traditional media. With YouTube as the primary threat to traditional television content the next logical question is who is consuming videos online. The pervasive myth is that online video continues to be the domain of young Internet users. Actually while that statement was true at YouTube’s launch in 2005, today the most predominant demographic for YouTube isn’t the 18-24 year-olds or even the 25-34 age group. The largest demographic, accounting for 22.3% of all visits to YouTube over the last four weeks, is 35-44 year olds. But here’s the shocker: The 55+ age group isn’t far behind. It accounts for 19.1% in the same time period.

‘The pervasive myth is that online video continues to be the domain of young Internet users . . . While that was true when YouTube launched in 2005, today the most predominant demographic . . . is 35-44 year olds. But here’s the shocker: The 55+ age group isn’t far behind. . .’

With such a wide spread of visitor age groups you might convince yourself that it’s game-over for traditional television. However I wouldn’t come to that conclusion just yet and here’s why.

Traditional TV adjusts to reality

The saving grace for pay-TV today comes down to a single issue: form factor. While every age and socio-economic group has glommed on to online video, only the younger online viewers are willing to watch traditional length content on computer screens versus a wall mounted plasma or LCD.

Perhaps it’s due to age, the ability to watch extended content on a small screen, or the generation gap. The fact is that traditional online media is consumed primarily by two groups: business travelers and Generation Next.

In fact if we look at the average session time for visits to YouTube across all age demographics the average time is just over 20 minutes per visit over the last year. When YouTube launched in 2005, the average time per visit was just over five minutes. This is important as it represents a typical timeframe for uploaded consumer generated media as well as a suitable time period for watching music videos and professionally produced skits.

How long are online video visits?

Looking at the average visit time over the last three years, it appears that the consumption of videos online has hit the wall short of the 30-minute television sitcom. Until the convergence of Internet and television becomes a mainstream reality (and the second generation of Apple’s iTV may be the first step) the online 20-minute limit will protect television in its current incarnation.

Should cable and satellite operators completely disregard online media consumption? Absolutely not. The key to survival for television as it exists today is for players to act outside the box and do the counter-intuitive. They should embrace online video.

Given the statistics I quoted at the beginning of this article, that doesn’t mean competing with YouTube. Unless someone comes up with the next disruptive online video technology, such a move would be certain online suicide. Rather, in order to succeed, pay-TV operators have to embrace what some would consider the biggest competitor to television.

The challenge for traditional media is to find video material that satisfies the appetite of the online video watcher, but which also serves a very specific purpose: to drive online viewers back to their TV sets.

All it takes is a little guerilla market research. Bear in mind that YouTube sorts its video content by ranking and popularity. This provides an interesting gauge of the types of content that gain traction. By supplementing market research with competitive intelligence and demographics, content specifically developed for the Web can serve to reverse the tides, sending online viewers offline.

The simple fact is that YouTube and online video specifically aren’t going to go away. Online video viewership will only continue to grow as long as mass adoption continues. If used correctly this new type of media can be the perfect advertising and branding vehicle for today’s television programming. Winners in the new Wired World 2.0 will have to find a seamless way of integrating all forms of content consumption.