• by Alex Rowland , February 28, 2012

This past November, AMC joined Turner in backing Neilsen’s Online+ TV rating system that attempts to provide a single currency for marketers looking to buy video ad impressions across both television networks and online properties. The general concept is that buyers can value video ad impressions within a single C3 rating -- ads viewed live and within three days of broadcast.

Digital video advertising surpassed $1.5 billion on the Web in 2011. Internet video is minuscule when compared to its older brother, television. Still, money spent on both media--while a gaping discrepancy--is proportionally closer than you’d expect.

In one corner is TV. Take a weekly hour-long program that runs on a major network. On average, there are 44 commercials that air during that show’s run time. Let’s say it’s a popular show, like “The X Factor,” which racked up 12.14 million viewers for its season premier. This would equate to roughly 534 million ads delivered for the premier last September.

In the other is online video. If we look at the largest online video ad properties, Hulu tops the list at 1.02 billion video ads served in that same month (September 2011). This means Hulu’s total ad load for a month represents a little under two weeks of the third-ranked show on a single network. “Modern Family” and “Criminal Minds” did better in that time slot.

So while the online video ad market only weighs in at about 2% of the television ad market in terms of spend, that spend is actually right about where it should be in relation to television budgets. That’s if you assume that online video will continue to be priced in a way that resembles broadcast television.

But what is becoming more apparent is that the quality and diversity of inventory online is far more varied than on television. On television, reach and frequency is everything. Online, pricing is based on many more factors.

When digital buyers look at inventory online, one of the first things they value is transparency in inventory characteristics across a variety of metrics because of a vast discrepancy in pricing. Today, a video ad impression can be purchased for as little as $0.002 or as much as $2.00. This isn’t due to pricing inefficiency; it is due mainly to variations in placement, user-intent, player size and other factors that TV buyers don’t consider.

The $0.002 view is likely manifested in as an auto-playing 300x250 banner unit across a network of mid-tier sites. In this case the user hasn’t elected to watch the ad, but the impression has been served. This is a rational pricing decision that enables brands to value that impression to a standard display unit

The $2.00 view is likely a view that is delivered in-page in a large format player in which the viewer is part of a tightly defined demographic and has expressed specific intent to watch the video. For many brands, this impression is three orders of magnitude more valuable.

As long as these attributes are clear to the buyer, they can accurately determine the value of that unit and make a rational decision as to how they want to spend their media budget. However, even if the market is perfectly transparent, which it isn’t, this variance in inventory types makes the job of a digital video buyer much more complicated.

But it also spells opportunity for publishers, networks and exchanges to create diverse revenue streams from their audience and to maximize the value of each level of audience engagement with video.

It is true that television spending will continue to slow as incremental daily video minutes viewed migrate online and merged ratings blur the distinction between online and broadcast interstitials.

But in a way, the relative size of these two markets as the primary metric to analyze the comparative value of each misses the point. This is not about digital’s ability to create more avails for 30 second spots, it’s about digital’s ability to create units beyond the 30-second spot.  

The television and digital video markets are simultaneously merging and becoming more distinct. This is leading to the creation of more avails for traditional interstitials, while exploding the diversity of ad units to satisfy every price point and engagement level.

Increases in total online viewership will continue to drive growth in online video ad budgets, greater transparency in placements, targeting, user-initiation and other metrics will result in digital video budgets expanding at a faster rate.

We have a long way to go before online video advertising can even begin to challenge television advertising in scale and budgets, but eventually, it will happen.

Digital devices have given publishers and networks a blank canvas to design a variety of inventory for every type of buyer. This Cambrian explosion in digital video units will be just as critical to growth and should put increasing pressure on television to mimic the interactivity of other video-enabled devices. Let the modern evolution of video advertising begin.