Will online video ads hit $989 million this year?

In October 2007, my very smart colleague Shar VanBoskirk, a principal analyst serving Interactive Marketers, authored our 5-year interactive marketing forecast. For the first time, she was able to break out online video separately from display ads and other interactive marketing avenues.

I won’t give away her hard-earned insight here beyond saying that in 2007, our forecast pegged the online video advertising business at $471 million, at least half of which — in my estimation — came from the 2007 advertising upfronts, where the networks aggressively bundled in online advertising to keep the broadcast ad numbers from flattening.

This forecast for 2008 put the number at double that — $989 million, close to the magic threshhold of a billion. Throughout the year I have been asked whether we think the assumptions of the model have held up. My answer is no: some assumptions fell below expectations and others came in above, chiefly: 

  1. YouTube hasn’t monetized its traffic effectively enough yet. This magic vein of cash has yet to be properly tapped. We saw an interesting interim announcement on how YouTube can add some cash through click-to-buy, but it’s really advertising that can bring in the dough once YouTube figures out how to make money without Viacom asking for all of it in the form of damages. Result: online video ad revenue not as big as you would hope.
  2. Online TV is bigger than expected. Remember, watching TV online is something that in 2006, only 10% of online video viewers did. By the end of 2007, it was 24% (see the report “What It Really Means To Watch TV Online”), a number we did not have in time to feed Shar’s forecast. Looking at the increased supply of online video — most of it from Hulu.com which increased supply both in amount of content and the breadth of distribution — that 24% number should double this year.  

The point is that even though YouTube didn’t come through for us, online TV has certainly more than made up for it, largely because the CPM on those shows is so awesome, ranging from $30 – $60 on a CPM basis. 

As a result, we stand by this number. As part of the validation exercise, I went through the following logic (which is summarized in the context of other valuable online video statistics in my Online Video FAQs):

  • In a typical week, 109 million hours of online video are watched.
  • If every hour of video has an average of 10 ads in it (video or companion banner), that means that just over 1 billion video ads are served each week, a run-rate of nearly 57 billion ads a year.
  • To hit our forecast of $989 million, the average CPM on the 57 billion ads run has to be $17.45 

The big assumption here is the number of ads per hour. For long-form content, 10 seems a tad high as a 45-minute episode usually has 6 ads. But add in another 2 ads for the whole hour and the possibility of a few pause ads and companion banners and the 10 assumption is reasonable. 

The real question is the CPM. For long-form content, that’s easy. For short-form content, overlay and companion banner ad CPMs can fall below a buck if sold as remnant inventory on an ad network. What do you think? Will online video ads hit this mark? Why or why not? What evidence do you have or signs do you see? I’m interested in your comments.

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3 Responses to Will online video ads hit $989 million this year?

  1. […] Will online video ads hit $989 million this year? […]

  2. […] ready with some questions about the growth of online video advertising (I’ll be sharing the forecast I recently blogged about), and the formats that are likely to dominate for now. Should be a great conversation. Talk to you […]

  3. […] This is really needed for the user-posted video market which up until now had no hope of every making real money. I say real money because advertisers don’t want to touch all the video genuinely created by average people, because: 1) it’s often inappropriate, and 2) no one knows how well it engages viewers. In contrast, professional content like the MTV Networks clips that often make their way onto MySpace are advertiser-friendly. Once we can monetize those millions of video views, there’s a chance that revenue will rush into that vacuum, helping the market hit its online video advertising goals.  […]

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