Posts by Lindsey Herring
Watching video on the Internet has experienced exponential growth over the past few years. According to the IAB, 33 billion videos were streamed online in December 2009, which was a 230% increase over just 18 months prior. Broadband Internet connectivity has played a big part in this growth given that almost everyone on the Web, 93% of the U.S., has access, making it easier to view video online. But even with this momentum and penetration, video is still seeing some hurdles when it comes to budget allocation because of reach and efficiency issues.
One of the biggest challenges facing online video advertisers is the lack of premium content on the Web. eMarketer reports that almost 63% of videos consumed online in December 2009 were user-generated content (UGC). If the online video marketplace is going to grow, more premium video content is going to have to find its way to the Web since UGC is not going to entice advertisers who are looking for a safe environment to market their brand. The biggest inroad for providing premium content has come from aggregators such as Hulu, who have tapped inventory from television networks and movie studios, providing free content to consumers in exchange for incorporating limited commercials within the programming. These types of efforts have begun to expand online video reach, which has been a big concern for major advertisers.
A large untapped market has been original cable programming. Until recently, watching most cable programming online hasn’t been an option for consumers since cable networks are reluctant to make the content available for free online while consumers are currently paying for the service offline. One solution for moving more premium content online is TV Everywhere, a system strongly supported by the top two cable companies, Comcast and Time Warner. TV Everywhere allows paid cable subscribers access to cable programming online. Before viewing the content, consumers must first prove they have a subscription to a cable provider offline, giving them access to all their paid cable programming online. Comcast rolled out the system to its 16 million subscribers last December, but adoption has been slow. Blame that on the 11-step authentication process that turned off a lot of consumers. Time Warner’s rollout hasn’t been quite so aggressive, testing the service with 6,000 subscribers in New York before potentially rolling it out nationally. If successful, this would help increase online video’s reach potential.
However, as more premium content moves to the Web, there is a concern that sites will start charging for it. There have been rumors swirling for months that Hulu will move from an ad-supported model to a paid-subscription model or some hybrid of the two, which could negatively affect viewing levels online. Critics of TV Everywhere worry that if consumers flock to services such as Hulu to watch premium cable content, they’ll cancel their current cable subscriptions. Depending on how much content a person consumes, an online subscription to a site such as Hulu is likely to be considerably less than a consumer’s cable bill, which could positively affect viewing levels online.
Another hurdle for advertisers moving video dollars online is the cost. Pre-roll and in-program CPMs for premium content can be two to three times higher than CPMs for the same programming on television. A lot of marketers are already unsure about shifting dollars from television to online, and higher online CPMs aren’t making the conversation any easier.
However, to combat this premium pricing, there is research that online video contributes to significant lifts across brand metrics much more than television. In a 2008-2009 study by Nielsen, brand recall for an online video advertisement was 22% higher than brand recall for a television advertisement.
So while CPMs for premium online content are higher than television CPMs, value should be associated with knowing a consumer is engaged with a brand for a full 15 or 30 seconds, and it is often reflected in the metrics.
Although everything regarding the Internet seems to happen at lightning speeds and it’s easy to get caught up in the excitement, it’s important to remember that the online video marketplace is still in its infancy. The first U.S. television ad was broadcast almost 70 years ago. The first online video ad ran less than a decade ago. It will be years before online video spending matches TV spending, but online video advertising will continue to thrive as more content becomes available online and CPMs level out.
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