Online Video Ads: Just Wait

Online Video Ads: Just Wait

July 16, 2007, 12:01AM EST

A study by eMarketer predicts the floodgates will open after 2011, when the lines between TV and Web video will be blurred

Poke around on Yahoo! (YHOO)
a bit, and you’d think online video advertising is already flourishing.
A trailer for the latest Harry Potter film is prominently located on
Yahoo’s home page. On the portal’s food site, there’s a Hellmann’s
mayonnaise ad that features a video of a man steaming salmon on his car
engine. And a search for "funny videos" reveals an entire Yahoo channel
devoted to online commercials.

But a new report by eMarketer,
released July 16, suggests Web surfers ain’t seen nothing yet. Video ad
sales are expected to grow from an estimated $775 million this year to
$3.1 billion in 2010 and then to $4.3 billion in 2011. That’s up from a
November projection in which eMarketer estimated 2010’s video ad sales
at less than $3 billion (see BusinessWeek.com, 11/7/06, "Up Next: Online Video Ad Boom?").

Though the numbers sound large, the expected activity over the next
four years suggests that advertisers will be merely experimenting with
the medium. Even at $4.3 billion, spending on video ads would account
for just $1 of every $10 of Internet advertising.

Much More to Come

It’s after 2011 that the floodgates will really open, says eMarketer
senior analyst David Hallerman. By then, the distinction between
television and Web video will be so blurred that advertisers will begin
directing more of their marketing budgets to the online version. "All
you have to do is take a few percentages off of a TV advertiser’s
typical budget and that is going to be a large amount of money," says
Hallerman. Television advertising is expected to top $46.3 billion in
2011, according to PricewaterhouseCoopers.

The lines are already blurring. Sony plans to transform its online
video site Grouper into a farm team, of sorts, for professional media
talent. The decision marks a move away from the riskier user-generated
content that advertisers have been reluctant to embrace, and toward
making online video more television-quality, and presumably more
advertiser-friendly.

By 2011, online commercials will likely appear in multiple forms
beyond today’s pre-roll ads, which users must sit through before
watching a video clip. For example, some interactive banners will play
an ad whenever a user clicks it or rolls the cursor over it. And
graphics along the bottom or side of a video clip will encourage users
to watch a commercial.

Hallerman also expects that more online video ads will offer rewards
in exchange for the user’s time. Potential payoffs may include free
content, games, coupons, or ways for users to personalize commercials.
Ads that don’t offer such compensation will have to be sufficiently
entertaining so that users aren’t turned off. A study by Burst Media
found that 77% of users find video ads intrusive.

New Formats in the Offing

Companies are already experimenting with the new video ad formats.
Yahoo, for example, is working with animated window-shade ads that a
user can pull down over a video. It is also testing graphical ads that
appear during a video in the same way that TV networks now show ads at
the bottom of the screen—say, to promote a new sitcom—while another
program is being aired. "Ads will change to be less obtrusive to the
user," says Mike Folgner, general manager of Yahoo! Video and former
CEO of Jumpcut, which Yahoo acquired in September (see
BusinessWeek.com, 10/2/06, "Yahoo’s Strategy: Growth by Acquisition"). Folgner also sees advertisers integrating more user-generated video in ad campaigns. Already, PepsiCo’s (PEP) Doritos and other brands have held contests with Yahoo encouraging users to create videos about their products.

VideoEgg,
a startup that distributes video ads in its own player across social
networks, has been serving overlaid graphic ads with its video content.
The company is working with close to 100 advertisers, including Rockstar Games and General Motors (GM),
says Troy Young, VideoEgg’s chief marketing officer. Young says new
formats are necessary to keep from annoying audiences. "Pre-roll is a
really challenging advertising execution in terms of meeting the needs
of the community. You don’t want to start off alienating someone," says
Young. "We are trying to bring a variety of ad types to the market."

Making the Medium More Accessible

The new forms of online video advertising are only partly
responsible for marketer interest in the medium. The other culprit is
cost. Internet video is relatively cheap compared to the millions it
can cost to produce a regular TV commercial and secure a 30-second
network slot.

TurnHere, a startup that produces Internet videos for businesses
ranging from the corner bistro to global hotel chains, can produce an
online commercial for as little as $500, says Bradley Inman, TurnHere’s
founder and CEO. Producers of conventional TV commercials "spend more
on the catering trucks than we do on the video," says Inman.

The company has 2,000 independent filmmakers around the world
available to shoot films for local businesses. Many of TurnHere’s
commercials take the form of short documentaries about each business.
Think of the concierge at a hotel showing users around the grounds. The
ads can be featured on a company’s Web page or on local search sites
such as IAC/InterActive Corp.’s (IACI) Citysearch.com.

Internet advertising leader Google (GOOG)
is also trying to make the medium more accessible. In May, it began
distributing click-to-play commercials through its AdSense network, a
group of Web sites that post ads in exchange for a slice of the revenue
(see BusinessWeek.com, 5/24/07, "Google’s In-Video Ad Experiment").

No doubt online video advertising still has a way to go before every
business has an Internet commercial. But users should be prepared for
the Web to look a lot more like TV.

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