The sharp growth in online video viewing, increasing availability of TV online, and proliferation of high-quality, web-originated content has made it easy to point the arrow for online video advertising up and to the right. But while video will probably continue to be a bright spot of growth in a dull economy, that’s mostly because it’s just getting started. The reality is revenues will be close to nothing for a long time, and the growing number of tech entrepreneurs and creative types in the space should probably be worried that industry watchers are now cutting their expectations for growth in online video revenues based on factors other than the shaky U.S. economy.
eMarketer, which has been putting out good research on online video recently, back in August chopped its estimate for 2008 U.S. video ad revenue by more than half, to $505 million from $1.3 billion. That’s a pretty significant downgrade more than halfway into the year, though eMarketer warned it was “more a change of methodology than of perspective.” But even with the methodology revision, eMarketer is forecasting growth to start declining after 2012.
In a market in which CPMs (cost per thousand impressions) for very similar ad formats can range from $10 to $100 depending on where they’re shown, it’s worth trying to pin down the factors affecting video advertising pricing. Everybody agrees that prices for video formats such as in-stream ads and overlays will stay at a premium vs. banner ads, but it’s not yet clear where rates will settle.
Jason Glickman, CEO of video ad network Tremor Media, attributes the major fluctuations in CPM prices for in-stream (mostly pre-roll) ads over the last two years to a combination of a few key factors. Initially, he says, there wasn’t much inventory, so CPMs were “north of $20 to $25 on a constant basis.” Then inventory started to increase, causing prices to drop to a range of $12-$20 about a year ago. They’ve managed to stay stable since then as budgets have started to migrate from television. Even by 2013, when eMarketer thinks advertisers will spend $5.8 billion on online video ads in the U.S., that will amount to just 7.6 percent of total TV ad spend and 9.8 percent of total Internet ad spend.
“We recently brought down the average CPM again, to between $15 and $35, because of the development of video widgets,” said Brett Garfinkel, SVP of the original online content site maniaTV. “We can now reach more eyeballs for the same cost and afford to cut costs to advertisers and remain competitive.”
But should advertisers accept UGC, it would open the floodgates for online inventory, which would surely come at a lower price. This is especially relevant for YouTube, which dominates the U.S. audience but only sells ads when it has a revenue-sharing relationship with the video’s creator, partly as a safeguard against profiting from unauthorized uploads. That means YouTube only makes money on an estimated 4 percent of its total videos.
On the whole, video ads are still looking like a good market. But just like everybody else, online content providers would be well-advised to keep an eye on their balance sheets.
Where’s the Money in Online Video? - GigaOM
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