Internet Video: Imploding or Exploding?

I recently read a McKinsey report about how limited online video advertising inventory will limit the medium’s growth. It got me thinking; we’ve artificially stagnated this market to some extent, and a lot of factors drive that. We aren’t growing inventory fast enough in areas in which advertisers are willing to pay a premium. If we want to grow this market, there are a few things that must be addressed.

Lack of Content

One problem is a lack of content. If there’s enough good content in enough places, consumers will watch it. It’s a vicious cycle: we need good content to drive audience growth, which drives content growth. We’re not hitting the right mix of content to drive audience growth in the content types advertisers value the most. There are four types of content, and not all are valued equally:

• Short-form premium content: MSN Video is a good example of this. It’s primarily a body of short-form content from premium sources. Advertisers are very willing to run major brands alongside it, and they pay a premium for this slot.
• Long-form premium content: This is television content, which is finally being distributed online in an ad-funded way. ABC is now letting consumers watch its premium content in a streaming video format, for example. The content is free to consumers, supported by ads. Advertisers are clearly interested in being associated with this type of content.
• Premium user-generated content: There are actually two categories of premium user-generated content. One is handled by using human editorial mechanisms, such as “America’s Funniest Videos.” The show solicits the content and selects what to run based on many criteria, including audience appropriateness. That, in turn, makes it advertiser friendly. The second tier category is really based on the content — and production — quality. Typically, this content is created by very talented amateurs or by professionals in their spare time.
• General user-generated content: All other kinds of user-generated content, some of which is humorous and catches the audience’s attention, some of which is compelling, and some of which is simply inappropriate for advertisers to be associated with.

Stagnant Ad Formats

Other problems include stagnant ad formats and the fact consumers don’t find any of the current solutions to be overly compelling value propositions. Today, there are essentially three types of ads that support online video:

• Pre-roll ads. These are simply ads that run before a video plays or between video clips that are being watched in sequence.
• In-page banner-type ads. These ads are placed adjacent to the video and are typically switched on based on either time or the number of clips that have been consumed.
• Ad pods. This is the TV ad model. Blocks of ads interrupt a long-form piece of content or run between short clips.

We need much better ad formats. The big players must be willing to experiment with other types of ads, and advertisers to be willing to spend the production money on new formats. Even a :15 pre-roll is too long for most short video clips. Adjacent banner ads don’t provide the value of video advertising. Placing pods of :30 ads into a piece of long-form content online is simply unacceptable.

Ultimately, we’ll see a :05 ad standard develop. For clips, we’ll have :05 pre-rolls, and for long form content we’ll see pods of four or five :05 ads. We’ll also see some innovation of video interactivity, with ad telescoping on these :05 spots, meaning users who find the brand or creative interesting can click on the ad and see a longer piece of video or some interactivity (not clicking through to a Web site, mind you, rather something right on the page).

Distribution

Finally, we need better content distribution. Right now consumers have to hunt for content all over the place. You may kill some time on a site featuring consumer-generated content, then go to ABC.com to see an episode of “Lost,” then go to In2TV to see an episode of “Welcome Back, Kotter.” But that’s a bad consumer experience.

If the TV networks really want Internet distribution to succeed as a model, they must figure out how to have all their content consolidated in specific locations. If they want something like a TV experience for users, they must enable consumers to easily find that content.