The Future of Online Video Ads

By: Bruce Clay, June 2006

The online video ad market hit $225 million in 2005 and is projected to reach $640 million in 2007 and $1.5 billion by 2009 (eMarketer). Other projections range as high as $2.5 billion in 2010. There is no doubt that as broadband penetration multiplies, and video technology advances, most major advertisers will want to use this branding strategy because of its ability to engage viewers.

A recent study by F. N. Magid Associates for the Online Publishers Association shows that 5 percent of consumers view online video daily, 24 percent view once a week and 46 percent view once a month.

While many are attracted to humor, video news clips are the most popular, being viewed by more than 25% of visitors each at least once a week.

Online video ads have the potential to become big moneymakers on the Web, appealing to a young, wired demographic. As the number of video ads increase, the likelihood that users will be exposed to them also increases. This can also work in reverse: As more viewers click on ads, advertisers will create and distribute more ads to attract potential clicks and conversions.

Consumers Like Freebies

Consumers don't mind viewing ads if they can get TV programs gratis on the Web through their mobile devices. A recent survey reports that 62 percent will watch free on-demand TV programs with commercials rather than have to pay $1.99 for commercial-free content (Points North Group and Horowitz Associates).

Starcom USA reports the same. Consumers prefer to download ad-supported video content rather than paying to view programs without ads.

Online Video Ads Work

Many consumers still don't know that videos can be viewed via the Internet, but the number of video watchers is growing. The early adopters who view videos are very engaged with the advertising they encounter, especially when it is relevant to their needs.

The Online Publishers Association study, which was conducted in February 2006, surveyed a representative U.S. population sample of 1,241 Internet users aged 12 to 64 and reported the following:

• 40 percent clicked a link or visited a web site mentioned in the video ad
• 34 percent went to the advertiser's web site
• 15 percent requested product information
• 14 percent visited the store to check out a product
• 10 percent forwarded the ad to a friend or family member
• 8 percent made a purchase
• Average viewing time spent with a video ad was 21 seconds

The above findings suggest the power of video ads to engage viewers.

Attractive Demographics

The study found that frequent viewers of online video are more likely to be young, male and affluent. These heavy viewers were 65 percent male with an age mean of 33 years, putting them in the coveted 18 to 34 demographic. Eleven percent had household incomes of $100k/year, and over 80 percent had broadband at home and at work.

Heavy Viewers Engage

The heavy viewer profile differed from the norm. For instance, 50 percent of heavy viewers visited a web site mentioned in the video ad, versus 40 percent for the total sample. Up to 45 percent of the heavy viewers went to a search engine to find more information on an advertised product, whereas only 33 percent of total viewers did so.

It is important to note that clicking a hyperlink was less popular, even among the heavy viewers of video ads, with only 20 percent doing so versus 17 percent for the total sample. Overall, only 20 percent of the heavy viewers took no action, while 31 percent of the total sample took no action.

Video Viewers Are Wired

Viewers of online video are frequent consumers of multiple media. Ninety-one percent use the Internet for email, instant messaging or chat, while 84 percent also use the Internet for other purposes. Fifty-nine percent read newspapers online, 48 percent watch videos or DVDs, 46 percent read magazines and 43 percent play online video games.

Video Creatives Need Work

The video ad creative must advance to be more effective. Currently, most online video ads are merely repackaged television commercials. When creatives are designed specifically for online campaigns, response will likely improve. While original creatives will be more successful, this will require increased budgeting for studio production costs necessary to create more appropriate online ads.

The challenge is to create video ads for the short-attention span of web surfers who demand high-quality content presented as a compact viewing experience. While some video ads run 10 to 15 seconds, others run 30-seconds like a standard TV spot. Trends lean toward shorter ads, especially on mobile devices.

Obstacles to Growth

There are some limiting factors that can affect online video ad growth. The most obvious was mentioned above: cost. And while cost is an obstacle, video also has a lack of format consistency as a number of video formats exist, which include but are not limited to the video technologies like Quicktime, RealVideo, Windows Media Player and Adobe Flash.

These formats have created a lack of interoperability between devices, and it is not yet clear which will emerge as the video standard in the future.

Another obstacle is the lack of inventory. Right now, publishers are only equipped to run streaming video in about one-quarter of their content.

Lastly, there is a need for interactive and traditional ad agencies to integrate their skills. Currently, the dilemma is that traditional agencies, which normally handle video, do not understand the online environment. But the interactive agencies that do understand the online space are not skilled at making videos. Few full-service ad agencies can do both effectively, and this will need to change in the future.

Future Adoption

Because video is an emerging marketing strategy, advertisers may be slow to embrace video ads. Nevertheless, the potential for growth is there. Several startups enabling video production also provide the technology to serve ads with their offerings.

Rewer, a video technology startup, developed a means to insert a one-frame ad at the end of a video, tracking the number of times a video is viewed and the ad is clicked. Rewer plans to split ad sales with video producers.

Another startup, DAVE (Distributed Audio Video Entertainment), plans to launch MyDAVE.TV for user-generated content. The company also provides technology, allowing advertisers to insert ads based on specific video content. For instance, a sports video could be followed by a Spaulding ad or another appropriate ad depending on the video content (e.g., Rawlings in a baseball video). Ads could be targeted based on the keywords used in the video a la Google AdSense.

Many video producers are already using contextually appropriate ads. As an example, a video on MTV.com is often preceded by a demographically appropriate ad. Using these emerging technologies, ads could further be targeted based on the genre of the music or even the time of day the video is being watched.

Other vendors include:

• Brightcove -- distributes a platform enabling web publishers and content creators to put ad-supported web video on their web site.
• Tremor Network – a video advertising network that provides video serving, content and ad sales.
• PointRoll -- a veteran rich media provider specializing in video.
• Rovion, Inc. – has the new (patent-pending) inPerson technology that inserts a person moving onscreen delivering a welcome message.
• Maven Networks -- delivers video publishing platforms that create revenue for content providers.
• Klipmart -- has provided online video services for advertising campaigns since 1999.

Google, Yahoo! and MSN are busy developing video search capabilities and implementing video ads into their paid search offerings. In May 2006, Yahoo! announced they would begin laying the groundwork to include click-to-call and video content into their next Yahoo! Search Marketing update. However, later that month Google beat them to it by officially integrating video ads into their AdSense network, exposing online advertising to a much larger mainstream audience. Google's video ads will be very non-intrusive by presenting a static screenshot that won't play unless the user clicks.

With Google and Yahoo! now in the online ad game, it won't be long before third-ranked MSN and others finds themselves in the game as well. Users can expect online videos and ads to grow in popularity as people move from the TV screen to computer and mobile device screens. This method of ad delivery has promise because most people don't mind viewing relevant ads on the fly that are short and catchy. This is a pleasant alternative to being inundated with TV ads over which they have no control.

Online video ads are in still in just the beginning stage. Technologies need to converge and improve. Video ads should make a goal for the future providing advertisers with the means to offer different versions or different executions for a video message across multiple platforms like TV, the Internet and mobile devices. We predict this could happen in two to three years.