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Online Video Spend to Surge

  |  July 29, 2004   |  Comments

The rich and streaming media market is expected to undergo a nearly quadruple increase by 2009.

NEW YORK - Offline agencies are beginning to equate online video advertising with TV and that realization will propel spending to $657 million by 2009 – a fivefold increase over 2004.

Online Video Advertising Spending
2003 $77 million
2004 $121 million
2005 $198 million
2006 $282 million
2007 $372 million
2008 $509 million
2009 $657 million
Source: JupiterResearch

"This [video advertising] is really something that's just starting to get a lot of use and is just starting to get really popular, and we see it as something that's going to be very valuable for advertisers," said Nate Elliott, associate analyst, JupiterResearch (a unit of this site's corporate parent).

JupiterResearch attributes a combination of factors to the online video ad spend spurt. Increased video viewership, which JupiterResearch projects to grow from 24 percent in 2004 to 42 percent in 2009, and advertisers' desire for cross-media integration will heavily contribute to spending.

The primary propellant, according to Elliott, will be the offline agencies. "One of the trends that we see driving this industry forward is offline agencies starting to exert more control," said Elliott. "This is something we're seeing from Starcom right now that we really like. Have one group developing the creative and doing the planning and the buying."

The cohesion between the online and offline units is an important factor in building the market. Elliott says that the massive offline budgets will start to open up to include online, and cross-media planning will make the ads more effective.

"When you have different people planning and buying [online and off] the buys don't exactly go together. You want to have the chance to reinforce your buys in both media," said Elliott. "That's really going to be the biggest driver here. It's going to drive the industry to a point where it's five and a half times as big than it is right now," he continued.

Despite an optimistic future, the rich and streaming media market has obstacles to overcome. Picture quality is steadily improving, along with the caliber of sites offering the video ads. Yahoo's launch.com offers video ads, and Microsoft leverages content from NBC on MSN.

"You can get ads next to Tom Brokaw or Katie Couric on MSN now. That's something that wasn't possible a couple of years ago," said Elliott.

These obstacles are starting to go away. The one that remains now is the perception that audiences for online video are too small. "It's not the size of the audience that's the problem. It's the amount of inventory that's being offered that is a problem," said Elliott.

Online video sites have artificially limited the number of video ads available to advertisers, Elliott said. For example, Real Networks thinks if people are paying for content they shouldn't have to watch ads, while Yahoo and MSN want to integrate video ads into their content very slowly. "They want to make sure they don't overwhelm users. I think they've gone a bit too far in the other direction," Elliott remarked.

Another inhibitor, notes Elliott, are proprietary vendor formats. Publishers and advertisers that aren't using more universal formats like Microsoft video and Real video are actually limiting the ability to run those ads, he said. Not every site is able to run every creative format.

The online video ad spending forecast was a portion of the overall rich and streaming media spend projections announced at the Jupiter/ClickZ Advertising Forum Conference in New York today. The research firm expects the market to nearly quadruple from $1 billion in spending in 2004 to $3.8 billion in 2009.

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