Video Ad Spending Finally Getting Into The Picture
Rocketing rates reflect the growth of the online video ad market.
Rates have jumped 15% to 30% the past year, say ad executives, boosted by demand and a limited amount of the most-coveted slots.
As consumers move online to view video, advertisers follow.
Matt Wasserlauf, CEO of online ad agency BBE, says the firm’s clients, such as Kraft Foods, General Motors and Johnson & Johnson, are chasing the growing viewers.
“We put online ads in everything from TV shows and major league baseball games to short clips and news stories,” he said. “The viewership has grown exponentially.”
How this shakes out for media companies and ad agencies is difficult to tell. Some of the rise in online video ads is simply a shift of spending, especially from TV ads.
U.S. online video ad spending is expected to jump nearly 40% this year, much greater growth than any other type of ad and far above the overall expected rise of 5.5% for all online advertising, says eMarketer.
U.S. TV ad spending this year, by contrast, is expected to rise less than 1%, says Forrester Research. Yet U.S. online video ad spending came to just $908 million last year compared with $68.9 billion for U.S. TV ad spending.
Still, the trend is clear, forcing advertisers and ad agencies to get up to speed on online video advertising, which can differ significantly from TV advertising.
In the fourth quarter, U.S. online video ad spending jumped 72% from the year-earlier period to $315 million, says PricewaterhouseCoopers and the Interactive Advertising Bureau.
“The vast majority of online video dollars is coming from TV,” Wasserlauf said. “TV viewership has leveled off and viewership is growing in online video.”
Advertisers are jumping on board, realizing the Internet could one day rival TV for distributing video, says Michael Henry, president of Outrigger Media, an ad agency specializing in video ad services. Its clients include Best Buy, Microsoft and Warner Music Group.
Big Spenders Coming Online
“Advertisers realize that online video advertising can play an important role in their overall media marketing mix, and this is starting to appeal to advertisers that have the real spending power,” he said.
A March-April poll of 97 U.S. ad agency executives found that 94% planned to spend more on online video ads in the first quarter of this year vs. 87% in the same period a year ago, says BrightRoll, an ad firm.
“Video ad prices are up 30% over last year, and we’re probably going to see an additional increase this year,” said Leah Woolford, chief executive of USDM.net (U.S. Destination Marketing).
BBE’s Wasserlauf says his firm has seen rates rise 20% from last year. Outrigger’s Henry puts the hikes closer to 15%.
The most popular online video ads are called pre-roll. These are TV-like ads of 5 to 30 seconds that appear before a video starts. There is seldom more than a single pre-roll ad, with advertisers unwilling to test the patience of viewers.
Pre-Roll Most Popular
Pre-roll ads are sold by the number of times viewed. Today those rates often range from $15 to $50 per 1,000 views, depending on length and where the ad appears.
Limited inventory often dictates the highest prices, says Wasserlauf.
“An investment bank that wants to reach a high net wealth individual will spend $50 (per 1,000 views) on a site like the Wall Street Journal, because the Journal has a limited amount of video content on their site,” he said.
Less popular but gaining traction are video overlay ads. These are text-based ads that appear for a few seconds near the bottom of a video program while it airs. Rates are $5 to $12 per 1,000 views.
Online video ads are more engaging than other types, say ad executives. Woolford says a good example is Toyota’s “Swagger Wagon” ads for its Sienna minivan. In one, a father and mother relate, in rapper style, about how cool their minivan is. It’s a viral hit, nearing 1 million views on YouTube in two weeks.
“You can engage the consumer much better with video than with a static (display) ad,” Woolford said.
More than 180 million people in the U.S. watched 31.2 billion videos on the Internet in March, says research firm ComScore. That’s up from 174 million and 28.1 billion in February and 152 million and 16.8 billion in April 2009.
TV networks are grappling with the question of free vs. fee in online video. They’re putting more of their current fare online for free, often targeting the younger demographic coveted by advertisers.
An online survey of 1,050 consumers in February found that 23% of those under 25 watch all or most TV shows online; 54% watch at least some TV shows online, says survey taker Retrevo, a research firm.
The rise of more portable devices such as Apple’s iPad tablet computer will only accelerate the amount of video viewed online, which should boost ad rates, says Retrevo co-founder Manish Rathi.
“People are spending more time online and with mobile devices,” he said. “It’s becoming easier to watch your TV wherever you are. That’s pulling up online (ad) rates.”
Walt Disney said on May 4 that iPad users have viewed 1.5 million episodes of ABC TV shows on iPads since they went on sale April 3.
Analysts say online video ad prices are rising for another reason: People watch them much more than they do TV ads, says Outrigger’s Henry. “When somebody is watching a video online, they have to watch a 15-second or a 30-second pre-roll — they can’t skip it before the content starts, so their attention is 100% focused,” he said. “The ads are definitely more effective.”
The Web sites of TV and cable broadcasters are popular with video advertisers, so the shift from TV ad spending to online video ads might not hurt them much in the long run.
Also popular are top Web portals such as Yahoo and Microsoft, but the dollar numbers are still too low to have much impact on their top or bottom lines. The Web properties don’t break out ad revenue by type, and broadcasters don’t break out online ad revenue.
Sports sites also are a draw for online video ads. Over 30 firms advertised during the CBS Webcast of the National Collegiate Athletic Association’s men’s basketball tournament in March. That’s up from over 20 last year. The 17-day tourney drew a record 8.3 million online visitors, up from 7.5 million a year ago. They watched 11.7 million hours of video vs. 8.6 million in 2009.
CBS won’t say what advertisers paid for online video ads. But rates likely will rise next year due to the turnout this year, says Jason Kint, CBSSports.com’s general manager.
“You are certainly going to be able to charge higher ad rates for higher quality, compelling content,” he said.
