VideoNuze Posts

Today's post is from TDG's Mugs Buckley, who discusses the confusing state of video advertising projections.

The Reality of Web Video Advertising Just Doesn't Seem to Add Up

by: Mugs Buckley, Contributing Analyst, The Diffusion Group

I used to think I was pretty good at math, but after trying to make sense of recent forecasts regarding web video advertising, I'm beginning to doubt my skills. Let it be known that I'm a big believer in the growth potential of the Internet video ad business; I'm simply struggling to follow the numbers that have been reported. Since no single analysis offers an "apples-to-apples" industry comparison, I thought I'd offer up some of the available forecasts and offer a few thoughts.

So here's where I'm stuck.

The estimates and forecasts for only video ads are all over the place. For example:

• eMarketer estimates that US marketers spent $775M in 2007 and will spend $1.3B in 2008 for online video streaming and in-page ads.
• Jupiter Research predicts that 2008 online video ads in the US will yield $768M.
• comScore reported that online viewers consumed 9.8B videos in January 2008 (down from December 2007's 10.1B) of which 3.4B were Google/YouTube videos.
• In a November 2007 Financial Times article, a leading media buyer for Starcom Media Group (who is well aware of her buys and rates) predicted that the 2007 market for "The Big Four" broadcast networks was likely to generate around $120M.

So here's where it gets a bit confusing.

• If we use the 3.4B monthly view Google/YouTube view estimate for January and run that out for a 12-month period, add some growth for fun, we come up with about 45B views for all of 2008.
• YouTube charges $15 CPMs for their in-video overlay ads (down from the initial $20 CPMs used during beta testing).
• If 100% of the 45B Google/YouTube videos were sold at $15 CPMs, that would yield revenue of $675M. But that assumes 100% inventory sold, which won't happen for a variety for reasons (in particular because YouTube only sells overly ads on their contracted partner deals, not user-generated content).
• According to Bear Stearns, YouTube is set to generate $22.6M in revenue for video ads, about 3.3% of the possible $675M at 100% inventory sold.

Hmmm. So if YouTube (at 34% of all web video consumed) could generate $22.6M in revenue in 2008, and the Big Four were running about $120M in 2007, how does one arrive at these impressive near-billion dollar predictions? Where else is this revenue coming from?

Let's not rule out operator error - I'll quickly admit that I may have misinterpreted how these numbers were derived and what they represent. That being said, however, there doesn't seem to be a rational way to reconcile these disparate estimates. Can anyone out there help to square these numbers? Is it simply a matter of under- or over-reporting? Are the measurement systems currently in place so poor and mutually exclusive in methodology that they necessarily offer conflicting estimates?

Something just isn't adding up. Yes, this may seem to be a bit nit-picky on my part; the rambling of an analyst with too much time on her hands. Then again, without accurate revenue and usage estimates, it is impossible to know the real value of any form of advertising, much less an emerging model such as web-based video advertising.

Please let us know what you think!

Next week I'll be at the NAB Show in Las Vegas on Tues and Wed and still have a few gaps in my schedule if you're interested in meeting up. I'll be moderating a session on Wed morning at 9:30 in the Content Theater entitled, "Broadband Media Workflow: Hitting the Viewing Window." We have an excellent group of panelists from CTV, MTV and Akamai and we'll be doing a deep dive into the opportunities and challenges of melding on-air and online video. If you're attending NAB Show, give me a shout and let's try to find time to meet up. Separately, I'll also be writing some posts for the NAB Show blog located here.

Yesterday brought the public release of Adobe Media Player 1.0, first announced almost a year ago. AMP enters a very crowded space of other media players including its own Flash player, plus Windows Media Player, RealPlayer, QuickTime, SilverLight and others.

At a time when the broadband video industry in general and mainstream users in particular crave standardization and simplicity, can another media player, with a "walled garden" content strategy to boot, add new value? While it's awfully tempting to say "no," I think there are reasons why AMP could well matter, subject to how well Adobe delivers on its vision. Here's why:

AMP offers 2 things that, in my opinion, the market still needs. First, a widely used downloadable app that specializes in delivering on FREE video content. Before some of you jump up and say, "Will, what about iTunes?" keep in mind that iTunes offers primarily a PAID video catalog (though to be sure there are some free video podcasts). Second, and related, AMP' provides a download environment in which advertising can be properly inserted, measured and reported on.

These are important because together they open up an entirely new consumer use case for broadband video: offline, free, ad-supported viewing. I've been saying for a while that an odd dichotomy has taken root in the broadband industry, particularly for network programs: users can get either free, ad-supported streamed video at lots of places (provided they're online) OR they can get paid, downloaded video (iTunes model) which allows offline viewing. But this has meant that someone who wants to watch a show offline, but isn't willing to pay for the pleasure of doing so is out of luck (one exception is NBC Direct). Having media stored locally in AMP would allow the offline, free use case I'm describing. This would open up a boatload of premium ad inventory that advertisers savor.

If that's AMP's opportunity, then the question is how well are they executing on it? Though it's never fair to judge a version 1.0 on its first day, my experience with AMP shows there's room for improvement. First is the currently thin content selection that needs to be massively built out to be appealing and competitive. Second is an inconsistent user experience in which some shows are downloadable, yet many are not (e.g. CSI, Hawaii Five-O, Melrose Place). Third are getting the basics right. In my case, when I did download some episodes successfully (blip.tv's "DadLabs" and "Goodnight Burbank") they didn't show up in my download section at all. Ugh. I'm hopeful that Adobe will be able to address all of these.

On the ad side, I think there will be plenty of enthusiasm from ad technology firms to integrate with AMP as Adobe proves it can drive millions of AMP downloads (in fact Kiptronic announced its integration yesterday and other will surely follow). Plus, advertisers should be expected to get on board.

It should be noted however, that even for a mighty brand like Adobe, winning the hearts and minds of users to download and use AMP isn't a trivial undertaking. I have some personal experience with this from my early days consulting at Maven Networks, which offered an eerily similar download app as AMP when the company started up. Though that was in the Mesozoic broadband era of 2003 and Maven was an unknown entity, the company never got much traction with its download app and eventually transitioned over to a streaming model. Since then I've come to believe that premium content must drive the download process, not vice-versa. One successful example of this is ABC.com using its shows to drive millions of downloads of the Move Networks player.

Net, net, AMP is a timely product that could well matter. How well Adobe executes on its vision will determine to what extent it does.

You'd have to have slept through yesterday to miss the big news that ESPN is now syndicating video clips from a cluster of its programs to AOL, its first-ever such deal. I interpret the deal as an extremely strong indicator that the "Syndicated Video Economy" (as I described this trend 3 weeks ago) is inexorable, even for the richest and most powerful video brands.

With the proliferation of available broadband video comes a massive user navigation challenge. Modern Feed is launching today to address this. It is part search engine, part aggregator, with a specific focus on indexing professionally-produced programming, not user-generated video. It's also focused on actual programs, not promotional clips.

J.D. Heilprin, Modern Feed's founder/CEO told me yesterday that the company is targeting mainstream users providing the easiest way to find available, high-quality video. It employs a team of "Feeders" charged with curating the best videos to include on the site. The result is approximately 550 "networks" and 25,000 pieces of content now indexed, where "networks" is a loose term ranging from traditional broadcasters to indies new entrants like Boston Symphony or Architectural Digest.

Modern Feed is rights-holder friendly, not indexing any illegal or pirated video, and playing the video from the source's site (though sometimes with a thin Modern Feed navigation frame at the top of the screen). I played around with Modern Feed and found it to be easy-to-use and well-laid out. Modern Feed also offers an iPhone implementation that looks pretty cool, other devices are to follow.

Modern Feed's strong user experience, focus on mainstream users and device integrations are differentiators for the company. Whether these are ultimately success factors really depends on how user behavior unfolds in the nascent video navigation space. Modern Feed has raised several million dollars from angels and has 30 full-timers with aggressive growth planned.

What do you think? Post a comment and let everyone know!

See prior posts:

YouTube, C-SPAN Team Up for User-Generated, Multi-Platform Voter Project

Brightcove Partners for Enhanced Video Syndication

Broadband video's influence on Election Year 2008 grew further with today's announcement of the "YouTube Voter Video on C-SPAN" initiative.

To build momentum toward the Pennsylvania primaries on April 22nd, the companies are inviting viewers to upload to the C-SPAN channel on YouTube videos answering the questions "what issue in this election is most important to you, and why?" C-SPAN will air a selection of the videos on its "Road to the White House" program beginning April 13th.

I think this is a clever, fun idea to help drive awareness and share disparate views on the election. Though participation is completely self-selected, it will certainly offer much-needed dimension to the dry polling results constantly churning through the media. Combined with the CNN/YouTube debates from a couple months ago, Election Year 2008 continues to show how much more dynamic and inclusive the process becomes with broadband video's influence.

The broadband video market's focus on content syndication continued this morning as Brightcove, a leading video management platform, announced partnerships with Bebo, Meebo, RockYou, Slide and Veoh.

Enabling managed syndication is becoming an imperative for video management platforms like Brightcove as customers increasingly seek to proliferate their content to multiple distributors. In particular, social networks like Bebo and others are prime syndication targets. They have huge and highly engaged users who can drive huge volumes of video streams.

However, syndication raises a host of new operational issues, which in turn creates an opportunity for companies like Brightcove to add value to their platforms. Issues include rights management, monetization, tracking/reporting, business model implementation and others. Syndication is an exciting new push for many, but is already starting to pay off. One recent example is CBS Television Stations, which now derives more than 50% of its total monthly streams just through its syndication deal with Yahoo.

(Note: Brightcove is a VideoNuze sponsor)

Continuing VideoNuze's series of posts about the online video advertising industry, last week I spoke to Alistair Goodman, who's the VP of Strategic Marketing at Exponential Interactive, a media services company with hundreds of advertising clients and publishers in the digital media space.

Exponential recently released the results of a survey of 100 ad agency media planners' perceptions of online video advertising. To the best of my knowledge, the survey, "The Trials and Tribulations of Online Video Advertising," is the first one focused on what the people actually responsible for spending money in this new medium think (the survey is evenly split between those who have bought and those considering buying). Most prior research has focused on users' or publishers' attitudes. The research confirms many things I hear each day, and also reveals some new insights on the market.

I'm very pleased to offer a complimentary download of a subset of the Exponential's slides exclusively here at VideoNuze. If your business is reliant on video advertising, I highly suggest reviewing them. If you have questions or want to receive the full deck, there is contact info on the last slide.

The top 2 issues for planners who have actually bought video ads are operationally-oriented: "smooth delivery" and "detailed reporting." As Alistair described it, these factors (and others cited) confirm the complexity of executing a campaign at scale. The complexity results from lack of standards, multiple players/formats, fragmentation of viewership and non-standard metrics. None of this is unexpected in a market as nascent as online video; the challenge is addressing and resolving these quickly for online video to reach its full potential.

In the past I've mentioned repeatedly that monetization is the number 1 priority for both established and early stage video content providers. This is an urgent issue because lots of energy and money is being invested in creating online video content, but the financial returns are not there yet. These payoffs need to materialize if the enthusiasm around this new medium is to be sustained.

Click here to download the Exponential slides.

(Note: I have created a new section in VideoNuze to offer all downloads of all relevant market research. If you have complimentary industry data please contact me and I'll add it to the page.)