The growth of online video this year has been staggering, but marketers are still struggling to find ways to effectively monetize the channel. According to a new report from eMarketer, as well as comments of several speakers at the Ad:tech New York conference last week, there's no consensus on what models will be most successful, but most agree that pre-roll ads will not be the best long-term answer.
The pre-roll model is the dominant online video ad unit today, with estimates of more than 90 percent of inventory typically sold out at any time this year. That's not likely to change in the short term, but with tremendous growth predicted for online video, new monetization models will surely be developed.
U.S. online video ad spending has grown 82.2 percent since 2005, to $410 million in 2006, making up 2.6 percent of total Internet ad spending, according to an eMarketer report released last week. And it's expected to grow another 89.0 percent next year, reaching $775 million, or 4.2 percent of the total, and should reach $2.9 billion, or 11.5 percent of overall Internet ad spending, by 2010.
"Convergence may be real, but it runs in slow motion. Even as elements of television and the Internet come together for both advertising and content, testing new methods of video delivery and marketing are more the rule than are full-play campaigns," said David Hallerman, senior analyst at eMarketer and author of the online video report.
That's poised to change, Hallerman said, since Internet video ad spending represents only 0.6 percent of TV ad budgets this year, while the Internet audience is about two-thirds the size of its TV counterpart. "Large spending gains for Internet video advertising, then, will be as natural as rain, even though the actual dollars remain relatively small," he said.
At present, many marketers are simply porting their TV ads online to run as pre-roll. They're doing that not because they think it's the most effective way to market in the online video medium, but because that's what their organizational challenges allow them to do, Janet Balis, senior VP of sales development for AOL Media Networks, said during a "TV 2.0" panel at Ad:tech.
"Most are looking to buy 15- or 30-second pre-roll, not because it's the most interesting thing people want to be doing, but because there are real challenges to transitioning online. A lot of people want to innovate, but it's challenging to do that on a broad scale," Balis said.
More savvy marketers are trying to find ways to market without pre-roll ads, instead looking for ways to integrate their messaging into the content through product placement or various forms of sponsorship, Balis said. "It's possible to have a graceful integration of brand values and still make it entertaining," she said.
Google, which is in the process of acquiring YouTube, is also looking to get away from pre-roll, according to Daniel Blackman, strategic partner for development at Google Video. During a series of video ad tests earlier this year on Google Video, the company opted to forsake pre-roll, opting instead for persistent branding ads above the video content and 15-second post-roll ads. Another contextual video ad product distributes user-initiated ads on AdSense partner sites.
It's taking the same tack as it did with paid search ads, according to Blackman. "When Google first launched text ads next to search results, people said there was no way they were going to make money," Blackman said. "It's clear users respond to less intrusive, more relevant, targeted ads. Can we approach video advertising with the same mentality?"
One big difference between search ads and video ads is what Google, or other providers, are able to target the ads against. With search, a user is clearly telling the search engine, and thus the advertiser, what he or she is looking for. With video, there could be several "ad hooks" throughout a video clip that ads could be targeted against, and the challenge is to create a system to identify those hooks and target ads against them, Blackman said.
Measurement is also a problem with online video, since it is much harder to provide meaningful analytics for video than for a standard HTML page. That doesn't prevent advertisers from demanding the same level of data from agencies and publishers, said Karen Anderson, VP and director of media at Digitas' Modem Media, during a "Digital Media Innovators" panel at Ad:tech.
"The expectations have always been higher for digital than print. How it's measured is somewhat different, but we need to talk about the ways that it's measured the same," Anderson said.
What to measure can also depend on a marketer's goals, David Cohen, EVP and U.S. director of digital communications at Universal McCann, said during the same panel. "The metrics of success are as varied as the clients you work with," he said, noting such possibilities as brand health metrics, completing a sale, in-store purchases, or lead generation.
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Kevin Newcomb joined ClickZ in August 2004, covering search marketing and other online marketing topics. He has been reporting on web-based businesses since 2000.
Before the bubble burst, Kevin was a marketing manager for an online computer reseller, handling copywriting, e-mail marketing, search marketing and running the affiliate program.
With a combination of real-world marketing experience and years of business journalism, Kevin brings to ClickZ a unique ability to deliver news and training materials that help online marketers do their jobs better.
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