Local TV Station Sites Trail Papers in Video Advertising

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Nationally-known video sites may get most of the attention, but the local video ad market is poised to increase more than two-fold this year. The $371 million to be spent on local video this year represents only about 5 percent of the $7.7 billion slated for all local online ads, according to a new Borrell Associates report. However, these small numbers represent entirely new revenue channels for local television and newspaper properties, which are competing against one another for advertisers long considered the stations' turf. In fact, newspapers are ahead in this game.

"A media company has to diversify channels of revenue; otherwise they will lose overall ad share," said Borrell Associates VP Pete Conti. "The days of a TV station or newspaper resting on its laurels...and being overconfident about their share of advertisers -- it's all fallen by the wayside now."

Local online video advertising on sites produced by newspaper publishers and broadcast TV and cable affiliates hit $161 million in 2006, and will grow over 130 percent to $371 million this year, according to "The New Frontier: Local Online Video Advertising" report. The Borrell report predicts the local online video ad market will explode to over $5 billion in 2012, overtaking today's primary local online ad formats: banner advertising and listings.

Following several years spent trying to score online ad dollars, newspapers are grabbing far more video ad cash than their local TV competitors. Newspaper-run Web sites garnered about $81 million in locally spent streaming video ads in '06, compared to $32 million that went to local TV broadcast sites.

The report estimates local online paper video revenues will double to $162 million by the end of this year; TV station video ad revenue will rise 178 percent this year to $89 million. The boost in newspaper Web video dollars will come from up-sells on classified listings, the report notes.

Because video production has been their output for so long, TV firms have made the assumption that "they don't have to worry about what newspapers are doing," Conti said. Newspaper publishers, however, "are like the ants storing away their [video] product and getting ready for the long haul."

The majority of advertisers buying local video media are in the auto, real estate, health and employment categories, according to the report. The Chicago, New York and Los Angeles markets are driving the most local online video ad revenue.

The report predicts "there will be a lot of money made on the tens of millions of unsold pre-roll video avails across thousands of local Web sites." Still, a trend toward longer-form video commercials is underway. Video ads over 60 seconds accounted for about two-thirds of local online video ad spending in '06, according to the report, which shows infomercial-style videos are popular with legal, health and home improvement advertisers, as well as auto and real estate marketers. Standard pre-roll video ads run 15 to 30 seconds in length.

On-demand and long-form video advertising on television is typically cost-prohibitive for small- and medium-sized local advertisers, but on the Web it's more targeted and reasonably-priced, said Conti.

Local cable operators are at a "distant third" when it comes to obtaining video ad dollars, notes the report. That could change, though, if companies like Time Warner Cable and Cox Communications take advantage of site traffic from broadband subscribers to push local video ads.