Monday, March 23, 2009

Video Insider: Why Is Online Video Advertising Dying?

Why Is Online Video Advertising Dying?

Consumers view over 14 billion videos a month, which has transformed the very nature of Web content and calls into question everything we knew about how Web sites attract, engage, convert and retain audiences. In order to deliver this massive river of content, sites have turned to specialized software and infrastructure providers.

Most importantly (and most expensively) they've turned to content delivery networks like Akamai, Limelight Networks and Panther Express. Sites will never be able to completely escape the high costs of content delivery, so publishers are looking for new methods of monetization. Foremost among these is video advertising: the delivery of either pre-roll or overlay ads that appear during video playback.

Early showings have been a disappointment, and with CPMs heading through the floor, this is a dynamic that is unlikely to change in the foreseeable future. There are many reasons for the failure of video advertising, but some of the foremost issues include: the dearth of monetizeable content, the high production costs of video ad creation, audience rejection of the format, and the resultant poor performance of video ads compared to other forms of advertising.

As a rule of thumb, assuming typical file sizes, CDN pricing, and completion rates, it costs about a dollar for every thousand videos delivered. In order to offset these costs of distribution, research shows video viewership needs to generate a $1 CPM. In the case of in-video advertising, whose dominant forms include pre-roll, post-roll, and overlay, that $1 is hard to come by. Because of completion rates, post-roll is a mostly ineffective form of advertising, and very few sites have the kind of content that makes possible persistent pre-roll without massive audience defection.

This leaves overlay, typically a form of PPC advertising delivered in a small pop-up within the video frame. Due to inventory constraints, typically no more than 50%, and often less than 25%, of all videos will display an advertisement, meaning that the true CPM must be between $2 and $4, a price point which is, practically speaking, impossible to secure in today's market.

In-page advertising may offer a more viable option for publishers, as the $1 CPM hurdle may be easier to overcome with traditional banner advertisement and sponsorships. This is well-trodden ground, however, with a decade of experimentation in online advertising providing lackluster results for all but a handful of sites.

As the market continues to develop, video advertising that commands both the spend of big brands and the attention of audiences may indeed come along. But that market is years away. In the interim, sites are best off doing what they have always done: monetizing banners where possible, and focusing on customer purchases and subscriptions elsewhere.

Benjamin Wayne is CEO of Fliqz (

Video Insider for Monday, March 23, 2009:

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