Realities of Online Video Advertising

Online video advertising is a tiny segment of the overall market, drawing a scant $121 million in spending last year compared with $9.5 billion for all online media, according to JupiterResearch. Other stats show Web video ad spending represents just under a tenth of a percent of the $250 billion total U.S. ad market. Yet marketers are really excited about it. Why?

Rapid growth, partly. The Online Publishers Association found more than a quarter of Internet users now watch video online weekly. Jupiter predicts a 64 percent jump in online video ad spending this year. The top video aggregators report daily streams in the millions. No question, the reach is there.

With growth comes the thrilling comparison online marketers get to make with television. Finally, the Web competes with the idiot box in its own language — video — with audiences approaching cable network proportions. Many publishers and agencies now believe broadband maturity and a healthy online ad market have converged to create an ideal environment for video ads to thrive.

For advertisers, many questions remain. Which publishers have the greatest inventory and service record? What are the dominant formats? Where should the creative come from?

The Formats

The lion’s share of the online video spend goes to in-banner advertising. While in-stream ads are widely considered most effective, media buyers report inventory is a constant problem.

“With pre-roll ads, the inventory is quite limited. It’s growing, but the majority of stuff we do is within ad units,” said Ian Schafer, president of Deep Focus, a full-service interactive shop serving the entertainment vertical.

Schafer’s firm buys three to five million video ad impressions a month. He and other agency heads with large video budgets agree inventory is a problem. On the bright side, he said in-banner ads are a much better prospect for clients than they once were.

“The state of that kind of ad has gotten a lot better, just in the past year,” Schafer said. He credits the improvement to better products from vendors like Klipmart, whose in-banner video ads let the user expand a spot to full-screen proportions. “That presents our clients’ marketing assets in a way they were meant to be seen. In many cases, we can have that be in a widescreen, letterbox format.”

Klipmart is only one of a seasoned pack of rich media vendors hard at work innovating around video. Others include Eyewonder, United Virtualities, Eyeblaster and Viewpoint.

New technical capabilities include adding an interactive Flash layer to streaming video, a practice Klipmart calls hotspotting. Such clickable video has obvious implications for product placement, long a gaining concept among marketers in general. Klipmart, eline Technologies and United Virtualities all either offer or are preparing to offer hotspotting.

“If you can integrate product placement into video and act on it, that’s very important,” said Cory Treffiletti, managing director of Carat Interactive San Francisco. “A savvy producer can incorporate that into their budgets.”

Klipmart also reports it’s working to support the streaming of live events for its clients. Cyrus Krohn, former publisher of Slate and now executive producer at MSN Video, said live event streaming looms large in MSN’s strategy. He said it’s one of the portal’s tactics to increase inventory in the coming year.

“The live events we’ve produced in collaboration with MSNBC are starting to look like real television numbers,” said Krohn. “With the Scott Peterson verdict, there was no pre-promotion or announcement. The judge just announced the ruling would be read in a couple minutes. We had over 300,000 streams for that reading.”

Considering Klipmart and MSN Video are close partners, you should expect to see ad-supported live streaming on MSN in the near future, courtesy of Klipmart.

The Advertisers

So who’s buying the most online video media?

Todd Herman, MSN Video’s streaming media evangelist, said 23 of the top 50 brands have advertised on the service since its official launch in August 2004. They include some of the very biggest companies: Pfizer, Procter & Gamble, General Motors, Johnson & Johnson.

Asked to describe the buy-in of various verticals, Herman said packaged goods jumped in first. “CPGs really led the way. Then you had the auto manufacturers come in. GM is in a very strong leadership position now in online video,” he said. “We are starting to see financial services companies now, too.” He added retail stores, Target among them, and media outlets to that list.

Entertainment is also big, for obvious reasons. Deep Focus represents MGM, Miramax and HBO on a range of online promotions into which video figures very highly.

The Aggregators

Where should marketers place their ads? The media buyers ClickZ spoke with for this story all ranked MSN highly in terms of service, implementation and original video content.

Yahoo, via its Yahoo Music audio and video destination (formerly LAUNCH), is primed for a big video roll-out. While there have been no official announcements, the online ad community seems poised for the portal to unleash a bevy of content. Yahoo is clearly eager to go deeper in the content business, considering the appointment of Hollywood powerbroker Lloyd Braun to head its media division, and the opening of the company’s new offices in Hollywood.

Braun has been quoted in media reports as saying the talent community in Los Angeles is eager to provide content for the Internet but are not sure of the best way to do it. Yahoo’s partnership with Mark Burnett Productions involving “The Apprentice” and “The Contender” is one possible model.

“Lloyd wasn’t hired to sell banner ads,” noted Jeff Lancot, VP of media for Avenue A/Razorfish.

With AOL, buyers are taking a wait-and-see attitude. They agree the portal has a great opportunity to leverage its ties with powerful media brands, and they’re cautiously optimistic about service improvements. It’s the video destination with the most to gain.

Plenty of other sites are offering very attractive video ad placements. AtomFilms, ifilm, CNN, ESPN and WWE were all variously mentioned by agencies as appealing targets for video ad placements.

The Creative

Most advertisers still choose to repurpose their TV assets when running online ad campaigns, despite near consensus that the :30 spot is too long.

“It’s easy to repurpose TV Ads, but it’s not a good idea. Everyone seems to agree, but they keep doing it,” said Avenue A/Razorfish’s Lanctot.

That’s changing a bit, as it turns out. Agencies report clients are more receptive to creating original spots for the Web. Ford has done so, for its Lincoln brand. And Klipmart is creating Web-only footage starring a big-name actor for a Hollywood client, said CEO Chris Young.

Carat’s Treffiletti affirms clients are allowing some wiggle room on the subject of original vs. repurposed content.

“We have some clients who have allowed us to actually shoot video for [the Internet”,” he said. “In addition, when they’re shooting a commercial and they have the A roll and the B roll, the B roll has a lot more life now. We can actually use that extra footage.”

The Inventory

Part of the blame for the inventory shortage can be laid at the feet of portals and other video aggregators. The OPA’s survey revealed 59 percent of people discover online video through random surfing. How much larger would the inventory be if portals did a better job of striking deals with content owners to bring video to their users?

“The publishers aren’t positioning this to consumers as a mainstream part of their offerings just yet,” said Ari Paparo, product manager for DoubleClick’s DART Motif. “Consumers and publishers aren’t seeing eye to eye on where this fits into their browsing experience.”

No surprise, then, that mid-sized video-focused sites are doing the best job of promoting their video content.

“[Pre-roll” has always been available on ifilm, AtomFilms and ESPN Motion,” said Treffiletti. “If more sites incorporate video into their sites in a meaningful way, the inventory will increase.”

To their credit, the portals are trying: Yahoo through its well-known film industry connections, and MSN through its exclusive deals with NBC and Fox Sports, among others.

“Whoever owns the rights to the content is what it’s going to boil down to,” said Schafer. “Finding it is one thing; consuming it is another. If we make it more available for people to consume, the sky’s the limit in terms of being able to integrate [ads” within that content.”

Some are looking to search as a possible way to accelerate user adoption of video.

“If we get a relevant video search engine, it will make a big impact on the adoption of video online,” said Lanctot.

Multimedia search engines like AOL’s Singingfish and new video search offerings from Google and Yahoo hope to realize that dream. Yet the content is limited to searchable shows and clips that have been provided online by networks and other video owners.

The Viral Video

Meanwhile, brands aren’t waiting for the portals or the search engines to figure out video. Facing a lack of inventory, advertisers have been creating their own programming, often in the form of viral spots and longer commercials.

The Super Bowl is the best recent example. When Fox cut the second airing of GoDaddy.com’s Bowl spot last Sunday, company CEO Bob Parsons wrote about the incident on his blog and linked to the hosted ad. The result was half a million streams in less than two days.

Advertisers ranging from Budweiser to Amex have also done well posting banned ads and extended versions of TV spots online.

“Not always will a TV ad play well on the Internet, but what you can do is take that theme and create content specifically geared for the Internet,” said Karen Howe, CEO of Singingfish. “Then you can associate that with audio/video search.”

The Outlook

Online video is still in its awkward phase. It’s a period akin to the state of rich media four or five years ago, says DoubleClick’s Paparo.

“The market is being pushed ahead by the publishers and they’re not standardizing,” he said. “You’ve got different formats, workflow differences, and widely varying reporting expectations. It’s lower quality video and it’s smaller. But it’s got a benefit in that the viewer is actively watching and there’s a response mechanism.”

Aside from its fumbles and its promise, online video brings a fundamental shift in media consumption.

“People are consuming their media mid-day,” said MSN’s Krohn. “It’s the new prime time… a period of the day they really couldn’t have before.”

But Krohn, a CNN vet himself, sees the evolution of television and the Internet as symbiotic rather than competitive. In the long term, TV and the Web will be one, he says.

“Television has got a lot on the Internet as far as history goes, but the evolution of products I’m envisioning will service both parties,” he said. “I don’t know how long it’s going to take, but you’re really going to have a hard time distinguishing between the monitor and the box.”