In a May 1st post to this column, my colleague Tom Wilde questioned whether direct response or brand marketing would lead the inflow of dollars to the online video advertising market. While both forms of advertising are potentially applicable to what is expected to be a $4B (eMarketer) to $7B (Jupiter) market by 2011, a key question for content producers and media companies is how to capture a meaningful share of these ad dollars.
To answer this question, it is useful to understand the key growth drivers and their relative contribution to the anticipated market growth. For video advertising, Audience Development, CPM Increases, and Video Consumption are the most relevant factors. According to eMarketer, video advertising represented a $410MM market in the US in 2006. Using this as a base, let’s analyze how these growth drivers might build to $4B by 2011:
Audience development: According to eMarketer, video consumption is expected to grow to 165MM US uniques by 2011, up from 88MM in 2006. This doubling of audience should yield a doubling of available advertising inventory and, holding fill rates constant, yield an additional $410MM of video advertising dollars, contributing 10% towards the $4B market. This increase in the online population consuming multimedia will be driven by broadband penetration and volume of video content available online.
CPM increases: As ad formats become standardized and as the supporting ad serving technology becomes more sophisticated, the contextual and behavioral approaches to targeting that Google, Overture (Yahoo!), and others pioneered will become applicable to instream ads. Combined with the accountability that online advertising provides, video consumers will find video ads more relevant to their interests and pay closer attention to their messages, hence increasing the value of video advertising to marketers. Looking at the historical CPM growth of Google and Overture, it is not unrealistic to expect video advertising CPM’s to increases 20 – 30% annually through 2011. To put this in perspective, this assumes that effective CPM’s grow from $10 to $30 and we already hear claims that the Wall Street Journal online commands multimedia CPM’s in excess of $50 and that news sites are selling at a rate card of $20 – $30 CPM’s. This growth would fuel another $1.2B of market growth, contributing 30% towards our goal of $4B.
Video consumption: Based on the existing market size and the assumed contributions of audience and CPM growth, we are still missing the $2B required to yield a $4B market. This will come from increases in video consumption of content – commonly referred to as engagement. According to eMarketer, video consumers watched an average of 85 minutes per month by the end of 2006. Assuming that the number of advertising impressions correlates with consumption, the average online video watcher would need to consume 425 minutes of video/month by 2011 to yield $2B in advertising dollars. Given that this number has already grown to 235 minutes/month as of March 2008 (comScore), it is not a huge stretch to imagine that video consumption will exceed 425 minutes/unique/month by 2011.
Based on the above analysis, the media industry needs to be focused on developing a highly engaged set of loyal customers in order to build video advertising market share online. Easier said than done. Currently (according to comSCore), YouTube attracts 62% of online video viewers and is responsible for over 37% of delivered streams, and, as we all know, most major media outlets don’t look favorably upon YouTube’s position in the market – very reminiscent of Google and Yahoo!’s triumphant march earlier this decade, when in 2005 they generated more advertising dollars than the top 10 global print publishers did online and offline.
To position themselves for maximum revenue generation, media companies need to pursue the following four strategies:
Publish more content to the web: Many media outlets only publish 10% of programming to their websites. As consumption shifts online, video consumers expect the full range of content and programming to be available. Like web search, comprehensiveness of the offering is key to building trust that information and entertainment needs will be satisfied.
Leverage the archive: Media companies’ most valuable assets potentially lie in their archives. If Wikipedia has created a dominate position as an online resource, imagine the power that a typical media company can unleash by offering its archive to consumers for research, entertainment, or pure nostalgia purposes.
Create “lean-forward” experiences: Unlike linear programming mediums, the web offers the ultimate in interactivity. From simple features, such as related videos and searching within video, to advanced interactivity, such as displaying relevant content from other sources – show me Derek Jeter’s latest stats when he is mentioned in a sports highlight – content sites must continue to give consumers a reason to spend time at their site vs. television and competitive online offerings.
Invest in “discovery” programs: Today it is difficult to find multimedia files on a typical content site. Investing in multimedia site search applications and editorially driven integration of multimedia will help draw visitor’s attention to video content. Similarly, pursuing video SEO and long-tail distribution/syndication strategies tap into existing and powerful content discovery paradigms. Lastly, YouTube can also be a powerful driver of audience to target sites as recent promotional efforts by Hulu are proving.
It’s still early days for online video advertising. Instead of focusing on the best way to monetize video content, media companies should be focused on how to attract and retain users. Innovation in product offerings and investing in unique experiences, combined with the natural competitive advantage that media companies have with regards to content should be the short-term focus that will yield future monetary success.
Stephen Baker is the Chief Revenue Officer of EveryZing, Inc, and has been in the search industry for over a decade, including Vice President of AlltheWeb (now part of Yahoo!), General Manager of FAST (now part of Microsoft), and CEO of Search for Reed Business Information. The Video Search column appears on Thursdays at Search Engine Land.
Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.