online video ads trends

Digital MediaWeb Video Takes Off, Ads Trail

by Louis Hau, 09.20.06, 6:00 AM ET originally posted on Forbes.com

Years after it was originally supposed to arrive, Internet video is here and making up for lost time. Steve Jobs has made it the focus of Apple Computer's new strategy. Nearly every major media outlet is obsessed with figuring it out. And video file-sharing site YouTube, non-existent two years ago, now has buzz rivaling that of the original Napster.

So it makes sense that ad dollars should follow the new medium. Market research firm eMarketer predicts that U.S. online video advertising is expected to total $385 million in 2006, up 71% from a year ago. That's more than twice the growth rate of overall U.S. online advertising spending, which is projected to reach $16.7 billion this year, up 34% from last year. Online video advertising could hit $1 billion by 2010, says JupiterResearch.

But advertisers and Internet video aren't a perfect match yet. The main problem: While Internet users now seem happy to watch clips on their computers--a recent poll says that half of them have done so--they may not be watching the kind of stuff that marketers want to buy ads on. YouTube boasts that it has stored 100 million video clips on its site, but the anything-goes nature of them--home-brewed stuff mixed with clips of copyrighted, unauthorized material--makes some advertisers wary. Meanwhile, professionally produced content you can find at established Web sites has a harder time drawing eyeballs.
"Advertisers and Web publishers have been waiting for consumers to watch--it's been a pretty slow build,'' says Jeff Lanctot, vice president and general manager of Internet advertising agency Avenue A/Razorfish, a subsidiary of aQuantive. "The interest and demand of online advertisers has outpaced that of online consumers."It's a point of view seconded by Greg Stuart, the Interactive Advertising Bureau's outgoing chief executive."The big stumbling block now is continued consumer adoption of video online,'' Stuart says. "If you talk to the online publishers, they say they cannot get enough video impressions to sell. There's not enough relative to marketer demand.''

Ian Blaine, co-founder and chief executive of thePlatform, a Seattle provider of digital media services says some advertisers have told his clients that they would buy far more advertising if only the clients had enough impressions to sell. It's a problem rooted in both the need to digitize more content as well as in the difficulty of drawing the critical mass of viewers necessary to make major ad deals worthwhile, he says.

"For a big campaign to work, they need 100 million unique impressions,'' he says."That's sort of a bar for it being interesting. There are plenty of people watching video. The challenge is where are they watching it. It isn't a lack of eyeballs but a lack of aggregated eyeballs."Meanwhile, the relative scarcity of online video ad inventory has caused the cost per thousand impressions to climb about 15% to 20% this year, estimates James Kiernan, vice president and associate director of digital media and innovation at MediaVest USA in New York.While a 30-second ad during a prime-time broadcast TV show typically fetches a CPM rate of about $20, a 15- or 30-second online video ad currently commands a CPM of around $20 to $50, Kiernan says.Another stumbling block for mainstream advertisers is figuring out what kind of ads a Web user can stomach. Most of the video on the Web runs for just a few minutes. That means most Web sites with video content dare not tack on more than one "pre-roll" ad, which run before the clip itself, for fear of scaring off viewers. And some advertisers won't use the ads at all.
Toyota Motor's Scion subsidiary is an intriguing holdout, considering that its target market of 18- to 30-year-olds makes up an important chunk of the online audience. But while Scion's marketing team will sponsor concerts, film series and even video game competitions, pre-roll online video ads aren't part of the strategy, says Adrian Si, the company's interactive marketing manager.

Focus group surveys suggest that Scion customers frown on being forced to watch an ad before a movie preview or whatever video content they're trying to watch, he says. "We feel that's just way too intrusive."

But online video gives advertisers some distinct advantages. It generally offers advertisers a more precise way to reach consumers than television does. In addition, online video is what marketers dub a "lean-forward" medium, reaching viewers who are actively engaged with what's appearing on their computer screen rather than slumped on a couch. Video ads, which are usually paired with a nearby banner ad that viewers can click for more information, typically enjoy very high click-through rates, says Patrice Varni, director of Internet marketing for Levi Strauss.The company uses a combination of pre-roll video as well as animated banner ads featuring video content. "We feel we get a consumer who engages with us more deeply,'' Varni says. "It takes it one step further than TV.''
And plenty of conventional advertisers are willing to pay up as well. Chase Card Services, a subsidiary of JPMorgan Chase, has advertised on Time Warner's CNN.com and Reuters.com. The company likes online video ads because it provides an appealing alternative to banner ads, which often have to vie with many other ads on the same Web page to gain the attention of Web surfers, says Manning Field, senior vice president of branding and advertising for Chase Card Services."The fact is pre-roll is not cluttered when you compare it to other types of environments," he says. "Usually, there aren't five or six ads. It's usually as an exclusive sponsor."And sites that specialize in YouTube-style "user-generated content" have been seeking ways to accommodate marketers' concerns. For instance, video-sharing website Revver categorizes all of its content to enable, say, a skateboard maker to advertise on skateboard videos. Revver video ads don't appear as pre-rolls but rather after the conclusion of a video clip. Even then, a viewer must click to start the ad. "You can get very, very targeted advertising opportunities, really take it to a very fine granularity,'' says Revver founder and Chief Executive Steven Starr.Revver videos can be embedded in other Web sites, which allows advertisers to take advantage of popular video content that spreads virally. Starr says that "allowing content to move freely across the Internet and monetizing the content wherever it goes'' is where the future lies."The redistribution of the file itself is where the business is heading,'' he says.Meanwhile, YouTube, the kingpin of user-generated content sites, has set up "brand channels" for advertisers. General Electric's NBC Universal, Warner Music Group and News Corp.'s Fox Broadcasting Group have been among the first to sign up, using YouTube as an advertising vehicle without directly associating themselves with content they hadn't produced themselves. And this week Warner Music has signed a revenue sharing agreement with YouTube.