2005 Is Online Video’s Tipping Point

This year will be the tipping point for online video. We’re ready. About 55 percent of American households use broadband Internet connections. Advertisers are finally realizing online video’s combined branding and direct response value. Many publishers are scrambling to redesign sites to deliver additional video content. The dream of an online video mass market is finally starting to be realized.

Jupiter Research (a Jupitermedia Corp. division) projects Internet video ad spending will increase 64 percent, from $121 million in 2004 to $198 million in 2005. To put these numbers in context, total online advertising for 2004 was an estimated $9.5 billion, or 4 percent of the $250 billion total advertising market.

“While online video advertising is still a small segment,” Interactive Advertising Bureau (IAB) president Greg Stuart says, “we recognize it as a big opportunity since it gives marketers an easy way to transition their television advertising to online.”

This year’s Super Bowl, always one of advertising’s most expensive forums, will showcase how major spenders increasingly extend their TV investment online. Internet video growth is driving this transition. For many Super Bowl advertisers, online marketing still represents a tiny portion of their total ad spend and isn’t necessarily integrated into overall marketing.

After being rejected by Fox and the NFL, Budweiser’s “Wardrobe Malfunction” spoof appears only on its own Web site. Advertisers can extend offline reach by adding online components to a campaign, such as voting, coupons, and forward-to-a-friend capabilities. Just as the NFL Network will broadcast a 30-minute Super Bowl ad special, online video venue iFilm will showcase 2005’s Super Bowl spots. Executive producer Roger Jackson anticipates eight times the site’s average 1 million daily users.

It makes sense that online video advertising, like TV, improves brand metrics. “Online video ads increase brand awareness by 10 percentage points, often at lower frequencies than other standard online ad formats,” said Dynamic Logic’s COO, Tom Deierlein, citing a December 2004 study.

Online video advertising can deliver strong direct response and branding results. Even TV can’t achieve those results. This was proven by a 60-second online spot for John Kerry. According to Morra Aarons, campaign Internet director, it stirred an emotional reaction, resulting in a 70 percent watch-to-complete rate and a 12 percent click-to-sale rate. That’s three times higher than average.

To maximize an online video campaign’s marketing effect, the consumer and his needs must be the focus. Translate and integrate offline video assets into the online experience. Better upfront strategy and planning ensures campaign integrity and adaptation to an online “lean-in” audience, yielding decreased costs and improved response. Allow users to mute or close video windows to reduce annoyance and related negative branding effect.

Some ways online video can attract and retain users:

  • Advertise both repurposed TV spots and content developed specifically for the online medium. Klipmart’s CEO Chris Young, whose clients range from film studios to financial services, says, “The most effective video advertising is adapted to the online medium and utilizes involvement options to enhance interaction and brand recognition.”

  • Stream such content as TV shows, music videos, action sports, news clips, licensed assets, and original video. Jon Stewart’s Crossfire appearance, iFilm’s most viewed clip of the last six months, generated about 2.6 million streams — over three times the number of people who saw it broadcast on television! AOL has even converted original online video content to offline formats to attract new users.
  • Offer live Webcam feeds from fixed locations to enable viewers to see what’s happening in real time. “At the core of our premium offering, Surfline‘s 85-camera network generates content 24/7,” says Dave Gilovitch, Surfline’s SVP of marketing. “One-third of subscribers cite our surfcams as their primary reason for subscribing.”
  • Offer user-generated content to involve customers and aid viral impact. Include legal in the process to ensure your rights to use provided clips. Verify you’re posting only original content that belongs to the person who uploaded it.

Generating Revenue

Using online video content to attract and retain visitors often is sufficient financial justification in itself. Incorporate forward-to-a-friend functionality to extend visibility and drive new users. For marketers with show- me-the-money CFOs, more directly measurable approaches include:

  • Premium content. Users pay for content, either on a pay-per-view basis or as a subscription. Average price points for business-to-consumer services range from $9.95 to $19.95 per month.

  • Advertising. Video formats often require expensive technical accommodations to ensure an optimal user experience. Higher video ad rates defer these costs. To improve marketing results, make ads useful and entertaining for target consumers.
  • Sponsorships. This tailored advertising form can be implemented in multiple ways to provide online video content users want. Integrate the advertiser into the experience to maximize results.

Analysis

Analyze online video’s effect based on execution and monetization.

The basics:

  • Assess improved branding metrics through surveys. Surveys can control for other variables contributing to purchase and provide context in terms of attitudes, perceptions, and behavior besides purchase.

  • Measure CTRs (define) and conversion rates (CRs). Compare these rates to non-video-enabled campaign rates.

    CTR = number of clicks/number of impressions served

    CR = number of purchasers/number of clicks

  • Calculate fully loaded costs. Include all expenses (video product, streaming costs, incremental creative, and related technology and support). Broadband Enterprises‘ president, Matt Wasserlauf, estimates “the back-end technology adds 10 to 20 percent for advertising delivery costs. Generally, publishers assume these costs, incorporating them into their advertising rates.” Use these costs to develop a cost per acquisition (CPA).

    CPA = total fully loaded costs/number of customers

  • Track revenues generated from advertising, customers acquired, or both.

    Revenue per customer = total revenue/number of customers

  • Calculate marketing allowable for advertising acquisition. Your fully loaded cost per customer to deliver the content should be less than or equal to revenue after variable costs each delivers.

    Marketing allowable = contribution margin – [fully loaded marketing costs + relevant overhead]

    where contribution margin = net revenues – variable costs

  • Measure churn, the percent of users who cancel each month who must be replaced to keep subscriptions at the same level. “No one officially talks about churn rates,” says Anne Holland, MarketingSherpa‘s publisher. “Many subscription sites’ average account lifetime ranges from 3 to 10 months. Although some do better, credit card processing problems mean churn will always be there.”

    Churn = number of cancels per month/number of total subscribers

With increased broadband and online video usage, marketers should consider how to utilize these new capabilities. Advertisers and publishers alike are rethinking how offline advertising can be integrated into the online experience. This year may be the tipping point not just for online video, but also for online advertising! With online video adding to its value proposition, interactive advertising may finally start grabbing double-digit percentages of ad budgets. Interactive components will begin to drive marketing campaigns because every aspect of the customer experience will soon interact with online.

Meet Heidi at Search Engine Strategies in New York City, February 28-March 3.

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