Users Prefer Ad-Supported Video

Online video downloads have a greater chance of success if they’re ad-supported rather than paid, according to a new report by Points North Group. The firm found that users prefer watching ads versus paying the now-standard $1.99 for commercial-free programs, by a margin of more than three to one.

When asked if they missed their favorite TV show and could order it later on-demand, 62 percent of survey respondents said they would prefer getting it free with commercials. Only 17 percent chose paying $1.99 for an ad-free version. Twenty-one percent were undecided.

“You’ll see a phase now where media companies and Internet providers will offer the $1.99 shows, and they’ll probably do pretty well at first,” Points North Group analyst, Craig Leddy, told ClickZ News. “When that starts to taper off, you’ll see more experimentation with subscriptions, advertising and other types of content packaging.”

If consumer behavior shapes up as the study indicates, it could usher in an era in which video inventory — currently in short supply — is able to keep up with demand from advertisers. Such an ad-supported model would serve advertisers, publishers and consumers.

“This is really good news for media companies and advertisers because it further demonstrates that advertising has a place in the on-demand environment,” said Leddy.

Leddy warns that not all video offerings will easily adapt an advertising model. “Apple has created this unique environment with the iPod, and they’ll have to tread very carefully on that consumer relationship if they want to add advertising to it,” he said.

As for providers like Google and others entering the arena, experimentation is necessary to find the right price point or ad unit to attach to each video.

“In think that in the on-demand environment, :60 commercials certainly aren’t going to work, :30 commercials probably won’t work, and even :15 commercials are probably too long,” said Leddy. “There are ways to run long-form ads, but not right up front.”

A paid model is necessary to get content to users initially, according to Leddy. “The $1.99 model is a great way for a network like CBS to jump into the game,” he said. “But long term, the business model doesn’t have legs.”

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