High Online Video Ad Costs Could Drop

  |  September 29, 2008   |  Comments

eMarketer reports U.S. spending on online video ads will hit about $5.8 billion by 2013.

Online video ads cost advertisers substantially more than display or text advertising, but prices might drop as its novelty fades, says a new report by eMarketer.

Citing research by Bain and Company for the Interactive Advertising Bureau (IAB), the eMarketer "Video Advertising Online: Spending and Pricing" report says the average video CPM among seven Web publishers surveyed was $43, about three times the average display ad CPM of $15.

The study says U.S. spending on online video ads will hit about $5.8 billion by 2013. It currently stands at about $505 million. The researchers also predict online video ad spending will constitute almost 10 percent of the total spent on online advertising by 2013. It currently constitutes about 2 percent.

The report notes that some premium sites are charging a CPM approaching $100. It notes the Associated Press found that TV networks are charging higher CPMs for online video ads than for over-the-airwaves ads. "Where the average for a primetime show is about $25," experts say the online rate ranges between $35 to $50 per thousand.

However, while eMarketer believes video CPMs will increase through 2013, it predicts the trend is not likely to last forever. "Part of the pricing for professional-quality online video is based on scarcity," says the report.

It also says a decline in online video CPMs might come about as companies realize Internet users are less likely than their TV-watching counterparts to view video ads. "While the Internet promises extra value -- with audience tracking and targeting not currently available for TV -- the Web is also a more lean-forward environment than TV's lean-back experience," the study stated. As the novelty of Web video fades so will the video ad CPM pricing, suggests the report.

The study comes on the heels of a survey by ABI Research that found the number of consumers who watch video "streamed through a browser" doubled during the past year, going from 32 percent a year ago to 63 percent today. The firm attributes that growth to the large amount of ad-supported multimedia content on portals and social networking sites."

In discussing the CPM situation, eMarketer waved several caution flags. It noted that advertisers "rarely reveal exactly what they pay for ads, and publishers hardly ever let on exactly what they charge." Additionally, the researchers said online ad cost is based on a number of factors including rate card cost in addition to inventory- timing- and consumer-dependent discounted cost.

The report says there is wide diversity in online video CPM rates. Online-only video sites such as blip.tv , for instance, charged CPMs in the area of $10, while big-name traditional media company properties, the CBS and NBC Universals of the world, can flirt with the $100 CPM. It said most Web publishers sell the majority of their video ad inventory directly, which leads to higher CPMs than if they used ad networks.

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