What's Holding Back Online Video Ad Spending?

Can Fred Figglehorn save online video? That's a question raised by the morning keynote talk Tuesday by Eileen Naughton, director of media platforms for Google, at the OMMA Video conference. "Fred," in case you're unaware, is the obnoxious, frenetic 6-year-old portrayed in a series of Web videos by Nebraska teenager Lucas Cruikshank who's become a YouTube sensation.

With more than 1 million subscribers on the video site, he owns the most popular "channel" on the video site. What's more, he now commands "seven figures" and has generated "5 to 10 million" ad-supported views on the site, according to Naughton. "'Fred is the most valuable real estate on YouTube," she said.

The cranky character's emergence as a homegrown YouTube star has come about even as the company has stepped up efforts in the last year to offer more professional content through deals with the likes of Sony Pictures, CBS and MGM.

To lure advertisers, it has also introduced new ad programs including "promoted videos," allowing marketers and others to tie videos to particular search keywords, as well as offering more eye-catching display placements on the YouTube home page.

Under greater pressure from the economic downturn, YouTube and smaller Web video players like Metacafe have increasingly shifted away from user-generated material toward more advertiser-friendly content and ad units highlights this year to prove that online video can be a viable medium in its own right.

Magna Global, part of the Interpublic Group of Companies, has projected that online video advertising would not grow as fast this year as previously forecast, and that most of the growth would come from traditional players like ESPN.com, CNN.com and Hulu. The research unit revised its projection to 32% growth for the category, to $699 million -- down from a 45% increase to $805 million.

While referring to online video as the "bright light in the sky" compared to ad spending declines in 2009 in traditional media, Naughton nevertheless acknowledged the disparity between growth in online video consumption (77% of U.S. Web users watch online video) and the share of ad dollars it gets -- 4%. Analysts estimated that YouTube made only about $200 million last year in advertising, with the bulk of revenue coming from display ads.

So what's holding back more spending? The obstacles pointed out by Naughton are familiar by now: confusion around ad formats, questions about the ability to target specific audiences, and the need for standard metrics.

Fred's breakout on YouTube underscores some of the unpredictability and confusion for advertisers related to online video. The Web series is user-generated content -- "pro-sumer" at best -- but should it also be classified as "premium" video because of its popularity, with accompanying ad rates?

And how, if at all, should all the comments and other community interaction among Fred's rabid young fans be valued? Naughton seemed to agree with an audience member who suggested that Fred can't just be measured in CPM's. "What are the metrics against which we as providers of video platforms should be held to, and what are marketers looking for? That conversation keeps evolving as the functionality and tools keep expanding," she said.

More than likely, Fred will turn out to be another one-hit wonder like Lonelygirl15 and other short-lived video stars of yesteryear. After all, how long can he still play a 6-year-old when he's 32?

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2 comments about "What's Holding Back Online Video Ad Spending?".
  1. Lori Kuhn from TREMOR Media , June 17, 2009 at 12:18 p.m.

    Seriously???? Is this a trick question?
    Who are we trying to kid?....(pun intended)

  2. Foovius Foo from Foo, Inc. , June 17, 2009 at 5:53 p.m.

    What about Fred = one hit wonder? I'm not interested in his content, but he's got up to 10 million hits on his various videos, and *many* of them over 5M. Many network TV shows that finally get past the pilot nevertheless get canned within the first season--how does that make the networks more 'dependable' as far as ad revenue goes?

    The ad placement game is a short-term bet no matter the medium. Best to look toward your effective repeat producers whether they're Fred or MediocreFilms or Chad Vader or NBC. One hit wonders don't resurface--but the dedicated folks that build a brand--whether or not you think it's lowbrow--are the ones getting the eyeballs. And that's where you should place your ad dollars.