• by Ashkan Karbasfrooshan , Op-Ed Contributor, January 10, 2011

In a previous article, I had mentioned in passing that "branded content will face headwinds in 2011," which prompted a couple of readers to ask: Why?

First, what is branded content?  Branded content (or entertainment) is when:

-      A marketer has subsidized part or all of a programming and

-      where the editorial in some ways promotes the marketers' goods or services.  This can be done through subtle or overt product placement in entertainment or through the explicit use of the goods or services to create informational content.

It's important to stress that branded content is nothing new: consumer packaged goods powerhouse Procter & Gamble pioneered soap operas in the 20^th century to target stay-at-home moms, and these days it's hard to sit through a Lady Gaga music video without getting barraged with product placement.

Today, new-media planners and content creators are now trying to balance church and state while media buyers and publishers swing the pendulum back and forth, in an exercise that will determine how big the branded content pie will become.

The "OMG" Moment

In 2010, online video advertising in the U.S. grew from $1 billion to $1.5 billion.  This year we should see online video settle somewhere between $2 billion to $3 billion in the U.S. alone.  More important, I'd compare online video's trajectory from 2010 to 2011 to where search was in the 2002-2003 period.  By 2002, the paid search market was rapidly growing and small and medium-sized businesses were shifting their budgets from print to the web.  In 2003, the "OMG" moment came when Google filed for its IPO and opened its books to reveal how massive was the business it had built around paid search.

I don't think we will experience an "I Love Lucy" moment in 2011 (partly because we've already had it, and partly because the Web is too fragmented for there to be only one such moment).  But we will experience a moment where we come to better appreciate the business of online video. 

That could come in the form of an IPO from Hulu or likely, Google (have you heard of them?) starting to break out YouTube's financials.  I could be wrong, of course, and it could be something else, like someone acquiring Netflix for a jaw-dropping price tag, which at the time of this article boasts a $9.7 billion market cap.  Mind you, it could also be because Big Media realizes the cat's out of the bag and will try to squeeze Netflix, at which point Netflix might be worth a lot less, and not more, than it is today (an occurrence that will still make us go: "OMG, this is big business.".

That has a lot to do with the "damned if they do, damned if they don't" position that movie studios and television networks find themselves in.  For new-media companies, the Web is all incremental, all opportunity; for traditional media, it's largely cannibalistic, all threat.

While online video will have a massive 2011, branded content will only really become meaningful in 2012 (if not later). 

Let's examine some of the headwinds that explain why.

1. Fragmentation and targeting. Fragmentation and targeting are advantages of advertising online, but if the audience becomes too splintered, it might be hard to justify the costs associated with branded content, which are usually not immaterial.

According to my friends over at TubeMogul,

-      about 53% of videos generate fewer than 500 views on YouTube;

-      the average viewer watches less than 60 seconds of a given video; and

-      a video will generate 25% of its lifetime views in the first four days.

In other words, you're not going to win over a big marketer to shift millions of dollars from television to online video with those numbers. Still, in 2011, marketers don't seem to need much convincing, given how expensive television advertising has become and how audiences are flocking to the Web.

2. Reach. The kind of marketers that will be interested in branded content are those who care about branding more than direct sales.  Problem?  Those are generally really large advertisers who want massive reach.  

There are options out there to buy traffic to drive views, but are you really reaching the most targeted audience -- or are you creating an audience that more or less targets the kind of audience that the marketer is looking for?  Not sure that's the same thing, is it? 

As a result, branded content will only really be pulled off (if done right on the editorial front) by companies like Yahoo, MSN, or AO, that have massive audiences and solid advertiser relationships.

Yes, it feels almost like 1999.  Next thing you know, we'll be talking about stickiness.

3. Push vs. pull. Obtaining massive reach via branded content is never easy or obvious, unless you use a "push" mechanism.  Using a "push" mechanism works well with television which has linear programming; online, it almost defeats the purpose.  And the reality is that no matter how "cool" and "genuine" you make branded content, large audiences won't "pull" that kind of information.  Just because online video and media professionals get excited about a marketer's product doesn't main folks on main street do too.

4. Upfronts. The other reality is that the kind of marketers that would be receptive to branded content deals are moving toward the upfront model, where they spend a lot of money on media at the end of one year to be spent for the subsequent one.  They allocate their budgets across multiple properties - often with the tried-and-tested publishers.  You've heard the saying: "No one gets fired for buying ads on [ESPN/Yahoo/Maxim/etc.]."  The problem is, it's easier to commit to an upfront when it's based on media; with production, there are a lot of externalities (and headwinds) to consider.

5. Time. Among those considerations is time.  We speak to a lot of ad agencies, and the impression we get is that video is definitely growing in importance and priority, but that, as is common in human nature, ad agencies and marketers will reach for the lowest-hanging fruit that can be implemented with as little friction: you can sign an insertion order (IO) and the next day run a preroll on thousands of sites, especially if you use a TV ad spot (not ideal, but many do it).  You can never do that with branded content.

6. Legal. The other constraint is legal.  The largest marketers have the infrastructure set up to conceive, approve and measure the effectiveness of advertising; they have yet to develop the systems to develop scripted entertainment.

In our experience, we've had marketers content themselves with licensing our existing videos to avoid having to run them through as extensive a legal process as they would have if we had created the content from scratch for them. 

7. Audiences want pure content. The biggest challenge to branded content is that audiences prefer pure content.  Once in a while, they will put up with product integration or placement if it adds to the content, but that is rare. For example, a video on how to mix a martini using a particular vodka or gin, using a spokesperson bartender .The problem is that, while useful, that kind of reference or informational content might be seen as bland or boring.

8. Scripted entertainment is hard. Which takes us to the idea that scripted entertainment is borderline-impossible to pull off online.   MySpace and Bebo gave it a run, but neither company was able to use it to turn around its challenges in online video.

9 Audience vs. content. Last but not least, for better or worse, we're seeing a tectonic shift in how some marketers buy media.  Historically, it was all about content and editorial (which implied a given audience).  Today, while these factors still make up a small piece of the pie, we've seen a shift to targeting by user.  It's not that branded content becomes any less important (technically, it would increase in importance); it's that targeting by user allows marketers to think that they can do less and be less creative.  That will prove false over time, as  -- sit down, folks -- audiences will find a way to block messages by advertisers, too (neat how technology is a double-edged sword, no?). 

But until then, it will create yet another headwind for branded content to prosper.

Go long on online video in 2011; but when it comes to branded content, hedge yourself.