• by Lynn Russo , March 21, 2006

As viewership of online video content increases, ads are coming along for the ride. According to eMarketer's "Online Video Advertising: Promises and Challenges" report, U.S. online video ad spending will reach $640 million by 2007 and $1 billion by 2008, up from $225 million in 2005. By the end of the decade, advertisers -- which currently include Burger King, Volkswagen, Jeep, and Unilever -- will be allotting upward of $1.5 billion to online video ads.

"Critical mass of video content offerings is rapidly approaching, and that's what's fueling the growth," says David Hallerman, eMarketer senior analyst. Expanding home broadband use is also a major contributing factor.

A recent survey conducted by Points North Group and Horowitz Associates Inc. showed that 62 percent of consumers polled would prefer to get free on-demand TV programs with commercials rather than pay $1.99 for commercial-free content. A similar survey by Starcom USA showed that consumers "were more willing to download ad-supported video content" to their mobile devices when given the alternative of paying for non-ad-supported content, according to Richard Fielding, vice president and director of Starcom's Insights and Analytics Group.

There is evidence that online video ads work. The Online Publishers Association reports that 34 percent of people surveyed who viewed a video ad checked out the company's Web site; 15 percent requested information; 14 percent went to the store; and 10 percent forwarded the ad to a friend or family member.

Average viewing time spent with a video ad averages 21 seconds, eMarketer says. And the highest-performing metrics include message association, which generated a 347 percent lift; online ad awareness, with a 198 percent lift; and brand favorability, with a 26 percent lift. PointRoll tracking data show that a call to action results in a higher interaction rate than video alone.

The creative needs work, though. Hallerman notes that most online video ads today are simply repurposed TV commercials. In the future, the industry is likely to budget an extra day or half-day of studio time to create a distinct but well-integrated online version of a campaign.

But several factors could inhibit online video ad growth. The first is lack of inventory. "One survey we saw showed that Web publishers are only able to run streaming video for about one-fourth of their content," Hallerman says. Cost, lack of format consistency, and the wrong mindset also present challenges. "A lot of companies still call their Internet divisions 'new media' and still consider e-mail and paid search 'emergent' marketing strategies," he says. "Being that video is even more 'emergent,' it is still being approached tentatively by many advertisers."

Agencies will have to keep up, too, the eMarketer report says. "Traditional agencies, which generally handle video, don't understand the online space necessarily, while online agencies don't necessarily understand video," Hallerman says. "There are very few full-service agencies that can handle it all, and there needs to be a change there."