• by Gavin O'Malley  @mp_gavin, April 27, 2009

Despite the economic downturn and its inevitable strains on overall advertising expenditures, online video is clearly holding up as a beacon of change and growth, according to an online video forecast released Monday by Magna.

Magna -- a unit of Interpublic's Mediabrands division -- forecasts that the U.S. market for online video will grow by 32% this year, rising from $531 million in 2008 to $699 million in 2009.

"While these figures represent downward revisions from our forecast for the sector in the middle of last year -- prior to the subsequent escalation of the recession -- these gains will likely outpace growth rates for most other emerging media platforms," said Brian Wieser, global director of forecasting for Magna, and author of the report.

In total, by 2011, Magna expects online video to generate slightly more than $1 billion in net advertising revenues for video content. This represents a compounded annual growth rate of 36% for each year between 2006 and 2011.

Magna attributes the growth to that notion that advertisers are looking to reach their consumers in a more targeted and cost-effective manner as marketing budgets are reduced across industries.

Notably, user-generated content accounted for a significant volume of potential advertising inventory in the past, although little was considered desirable for larger brands, given their collective preference for association with professionally produced content.

In recent periods, however, the expanding availability of premium network and cable TV programming combined with increasing broadband penetration -- now covering 60% of U.S. homes by our estimates -- collectively led to a 24% increase in time with professionally produced online video during 2008, following a 50% rise during 2007, according to Accustream.

Still, this represents a limited volume of top-tier inventory, according to Magna. Few large advertisers can achieve broad-reaching objectives solely by using an online video-only campaign if there are any content preferences involved.

Over the next few years, Magna expects traditional TV content -- and traditional TV suppliers -- to continue to account for the bulk of online video budgets, but as user-generated content sites increasingly supply professional content to their mass audiences, these sites will produce faster rates of growth.

Ad networks, meanwhile, will continue to serve a valuable niche to the ecosystem, aggregating otherwise unsold inventory in an efficient manner, with cost-effective ways to reach large audiences.

Traditional print publishers will continue to hold valuable inventory, but few will produce significant volumes of content to capture much market share, Magna predicts.