Why Is Online Video Advertising Dying?

Consumers view over 14 billion videos a month, which has transformed the very nature of Web content and calls into question everything we knew about how Web sites attract, engage, convert and retain audiences. In order to deliver this massive river of content, sites have turned to specialized software and infrastructure providers.

Most importantly (and most expensively) they've turned to content delivery networks like Akamai, Limelight Networks and Panther Express. Sites will never be able to completely escape the high costs of content delivery, so publishers are looking for new methods of monetization. Foremost among these is video advertising: the delivery of either pre-roll or overlay ads that appear during video playback.

Early showings have been a disappointment, and with CPMs heading through the floor, this is a dynamic that is unlikely to change in the foreseeable future. There are many reasons for the failure of video advertising, but some of the foremost issues include: the dearth of monetizeable content, the high production costs of video ad creation, audience rejection of the format, and the resultant poor performance of video ads compared to other forms of advertising.

As a rule of thumb, assuming typical file sizes, CDN pricing, and completion rates, it costs about a dollar for every thousand videos delivered. In order to offset these costs of distribution, research shows video viewership needs to generate a $1 CPM. In the case of in-video advertising, whose dominant forms include pre-roll, post-roll, and overlay, that $1 is hard to come by. Because of completion rates, post-roll is a mostly ineffective form of advertising, and very few sites have the kind of content that makes possible persistent pre-roll without massive audience defection.

This leaves overlay, typically a form of PPC advertising delivered in a small pop-up within the video frame. Due to inventory constraints, typically no more than 50%, and often less than 25%, of all videos will display an advertisement, meaning that the true CPM must be between $2 and $4, a price point which is, practically speaking, impossible to secure in today's market.

In-page advertising may offer a more viable option for publishers, as the $1 CPM hurdle may be easier to overcome with traditional banner advertisement and sponsorships. This is well-trodden ground, however, with a decade of experimentation in online advertising providing lackluster results for all but a handful of sites.

As the market continues to develop, video advertising that commands both the spend of big brands and the attention of audiences may indeed come along. But that market is years away. In the interim, sites are best off doing what they have always done: monetizing banners where possible, and focusing on customer purchases and subscriptions elsewhere.

17 comments about "Why Is Online Video Advertising Dying? ".
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  1. Richard Monihan, March 23, 2009 at 5:01 p.m.

    I don't see video advertising as "dying" at all. In fact, almost all my advertisers have said more ad dollars will shift to online video in the coming months as CPMs have fallen.

    If anyone remembers responses I've had to previous online video posts for the past year (doubt anyone would), I've consistently said CPMs NEED to fall. Back when we were garnering $25-30 CPMs, there was little revenue coming in. As CPMs have fallen, I've seen overall revenue rise dramatically.

    This stands to reason. Too much video and not enough revenue means empty video running...monetizable video. It's better to sell through 90% at $12 than 40% at $30. And that's what's happening.

    On the unfortunate side, however, UG video will die a death of a thousand cuts, and this represents a large portion of online video. After all, how many videos can one view of teens dancing to music, or teen boys doing ridiculous and dangerous stunts? Not only that, who wants to advertise in that stuff?

    Advertising for good content will continue to find pre-roll partners who are willing to pay a reasonable CPM for 100% share of voice. Pre roll is a near guaranteed view of an ad, and at current levels of $15-18, it's a bargain versus on air advertising. I suspect online video advertising will grow dramatically in the second half of 2009, and continue upward from there...for PRIME content.

  2. Steven Comfort from Namo Media, March 23, 2009 at 5:08 p.m.

    "Dying" is the wrong word for the only category in all of advertising that is projected to grow 30+%/yr for the next several years (online video).

    I defy anyone to name a segment of the online ad world that will have more incremental media dollars allocated to it (from the Top 200 brands that move the U.S. ad market) over the next 3 years...

  3. Dan Yada from Pe'ahi Ventures, March 23, 2009 at 6:16 p.m.

    I agree that "dying" is the wrong term to label the current state of the video ad space. I'd rather call it a "correction in expecations" with regards to the forecasted hyper-growth of video advertising spend from a few years ago.

    Yes, the poor economy, CDN + ad serving fees , a plethora of video ad inventory & slashed corporate marketing budgets have all contributed to lower CPMs for publishers in 2009. However, the publishers who produce"top quality / premium content" are still garnering high CPMs and are selling out of their inventory (eg Hulu,+$40CPMs, ESPN,+$30 CPMs, CNET, +$30CPMs, etc.).

    OK, I do agree that video ad spend hasn't grown nearly as fast as we all had originally thought, but as Steven Comfort mentioned, no other online ad segment is expected to grow at +30% yr/yr growth for the next few years. I don't even think Search Marketing spend is even forecasted to grow at these %s over the next 5 years, right? Even though its all relative to the size / scale of each online ad segment since Search is on a much bigger scale.

    In fact, I've had many conversations over the past few months with several CMOs and agency media planners where they believe that 2009 is "The Year of Branded Video Content" creation where many brands will start to shift budgets towards the development of video content libraries on their own corporate websites. Verticals like CPG & Entertainment will lead the charge and many other verticals will follow. As more and more content producers and marketers pour more resources into video(ie content or ads), its only natural that there will be a 2nd wave of video ad spend growth once the economy comes back.

  4. Brett Hill from, March 23, 2009 at 6:34 p.m.

    I said in earlier posts--a year or so ago--there are other ways of providing video advertising and "other means of monetization."

    As the owner of one of those alternatives, we first thought about how to harness the power of video to extend motion advertising to the Web. Looking at the success of YouTube and viral/home made video, one would conclude there is great potential to extend video into the business world. But how?

    Focusing on a non-intrusive approach may get more consumers to view video ads. Keeping in mind people or "consumers" need to buy things almost on a daily basis. But serving them up in places that consumers are there to view other content is perceived by many as intrusive.

    Business Directory's in the past have for the most part failed--with the exception of the big players like Yellow Pages/Yellow Book. Replace the thumbnail pictures representing the company and their products with Video, and we believe you have something. Make it much more affordable (leave out CPM's) and create a low monthly fixed cost and people in a down economy can suddenly afford to pay for advertising. Add a social/business networking element and you have interaction. The interaction helps businesses perfect their product offerings. Add the ability for business to create and offer discount coupons and you have happy people paying less than retail.

    Altogether you have Hot Pluto; a non-intrusive, affordable, interactive and far reaching video advertising solution.

    We are the first to realize we have a long way to go with content and traffic but it is catching on! That is why we are offering FREE upgrades with the understanding there needs to be a convergence of content and traffic to make a site successful. We are patient but have a specific goal we get closer and closer to each day.

    Brett Hill-CEO

  5. Andre Szykier from maps capital management, March 23, 2009 at 6:44 p.m.

    I agree with the author. Our advertising experience with pre and post roll behavioral targeting shows that viewers resent the ad because it intrudes into the context of their interests. Normally, an ad displayed coexists in the browser space with the context and can be spatially ignored by the viewer. Not so with video ads because they are in the line of sight.

    One good example is, a fashion site which interviews good looking people (mostly women) on the street. While they describe the clothes and accessories that they wear, a frame next to the video puts up links for each product. Click on a link and an ad is shown in a window. A good example of advertising and content working together without friction.

  6. Pierre Wolff from Livefyre Inc., March 23, 2009 at 6:48 p.m.

    "the failure of video advertising"

    overstating things here a bit, wouldn't you say? perhaps you should clarify the objectives of the ads you claim are failing. I can certainly agree that direct marketing or CPC type advertising only interested in CTR is at risk in video. However, brand advertising, is not at all in the same boat. First off, on TV there is no click-through so let's keep that standard in mind. Second, one of the larger categories of brand advertisers are CPGs, most of which do not sell consumables online. Hence, the click-through measure is useless here. Third, recent tests on recall rates on brand advertising in online video have shown substantive positive results.

    Now as far as the $1CPM, that's been more in the UGC space and more of eCPM than a CPM. Hence, this may have more to do w/a need to better curate their sites than because CPMs are that low. Indeed some of those sites should get less than that given their content, but I've seen plenty of UGC sites do a great job w/curation. comes readily to mind, but so does Howcast and several others.

    It may be a tad early to sound the death knell of online video, but good luck w/that ;)

  7. Paula Lynn from Who Else Unlimited, March 23, 2009 at 8:15 p.m.

    1. Anybody who has any faith in some sort of supply and demand can figure out a part of this problem.

    2. Anyone who knows the dollars available overall are trekking through much muck and mire so gamely, that if you are looking for an increase in one place they have to be stolen from somewhere else. Picky choosey time here.

    3. Viewers will have to get used to seeing ads and that free mentality will eviscerate (spelling?) as they will be as common as TV or TV online, etc. Live with it or pay for it - which won't happen.

  8. R.J. Lewis from e-Healthcare Solutions, LLC, March 23, 2009 at 8:17 p.m.

    Online video is simply to new to write off in any form. As an advertising community, we are still in the early learning phases. No one (not even YouTube and Parent Google) has quite "figured it out" just yet - so it's WAY premature to be calling time of death. Online video may well surpass TV in 10-20 years... but I guarentee you it will be very different from what TV offers, and very different from what online offers today. Don't count video out yet.

  9. Tom Des jardins from Affine Systems, March 23, 2009 at 10:16 p.m.

    I don't buy the assumption that the market hasn't priced ad prices correctly. I think as costs are removed from production of content, marketing and packaging of audiences, monitization strategies for those clusters will emerge that correctly offset the costs. This reminds me of the CD folks just a bit ago saying they couldn't unbundle a single cause the economics didn't work. It's true, the days of block buster programs and their audiences are gone.

    Instead, programming and audience will focus on tighter communication and ad dollars will find those clusters. While the revenue exchanged in each cluster will be smaller in that cluster, overall the total volume will expand. We all tend to forget that even the best TV broadcasters had to bundle sup-par inventory with their prime time, and we focus our economics on the best case ads, not the "popeil pocket fisherman" (You know you can still get them?)

    Does anyone _really_ want to go back to the yellow pages and newspaper ads instead of craigslist and google?

    No one wants to admit they are still the "buggy whip" manufacturer....

    full disclosure: In addition to starting Lightningcast, the ad technology behind Platform-A that Hulu and others use, I'm an advisor to Zadby, a Launchboxdigital funded startup, that has a model for placing advertisers with audience clusters on YouTube content that I believe is very cost effective, and I manage product development at AffineSystems, which looks for logos and other objects inside of online video.

  10. Robert Black from EyeWonder, March 24, 2009 at 9:11 a.m.

    I have to disagree with Benjamin, video advertising is not dying, it is growing.

    We operate Utarget.Fox, a global video ad network (

    Pre-roll is the most popular way of monetizing video content and cpm’s have fallen from heady experimental days to allow for commercially viable campaigns. Also, ComScore research shows UK online video viewing has grown by 10% over the past year.

    Contrary to your view that user have rejected pre-roll as a format, the majority of research I have seen says the opposite. Users have grown up believing content should be free online. In the offline world the same people are prepared to pay for that content when delivered via their mobile phone or television set. Users know there is a trade off and that is seeing a targeted, relevant pre-roll ad before the content they see. If that content is short form then the ad should be between 10-15 seconds or else, yes, you will risk alienating your audience.

    We are running more and more campaigns planned and bought by the TV agencies. Traditionally there has been a problem that the creative agencies have not been briefed to include online video when shooting their TV campaigns. The cost of re-cutting creative after the event is expensive. Include online video at the beginning of the planning cycle and you remove the additional cost. As a result we are seeing online video included in more and more campaigns.

    Therefore the CPG entry into video advertising is commencing. One of the ingredient for them to jump on board was always price. Your acknowledgement that publishers are under pressure to recoup their CDN charges, allows for Brand advertisers to achieve a favourable pricing point for volume commitments.

    As for poor performance, ADTECH ran a European wide piece of research in December 08. Online video proved more responsive than all other online formats. You even state on your own website that videos are 400% more likely to convert.

    The market is maturing, and is tipping, and will evolve to become the dominant advertising market globally. There is no doubt this jump will take time, but it will happen!

  11. David Britton from The Voltage Group, March 24, 2009 at 12:16 p.m.

    Perhaps if you walked away from ad networks and sold your own inventory, you wouldn't see these CPM's. Actually my clients are seeing $25-$30 CPMs for pre-roll and $20+ for overlays.

  12. Diaz Nesamoney from Jivox, March 24, 2009 at 12:30 p.m.

    I have to strongly disagree with the conclusion Benjamin is making. While I do agree that there are several challenges with instream video ads including lack of inventory, audience acceptance and pricing. Video advertising overall is anything but dead. In-banner video ads (i.e. ads served in display ad inventory, typically 300x250 ad units) are doing extremely well both in terms of available inventory, pricing and performance.

    Tying video ads to video content is the disconnect here. Video ads can be placed in almost any form of content much like display ads can and so have almost infinite amounts of available inventory.

    Even with instream video, many TV station and newspaper groups (several of whom we work with) are seeing an increasing adoption of video ads and commanding healthy CPMs given the effectiveness of video above almost all other forms of online advertising.

    I know catchy titles usually get lots of reaction, but the thinking here is dated and doesnt represent the current market. Market research shows online video as the fastest growing segment of online advertising, so "dying" would be a word that comes to mind when you look at the facts.

  13. John Love from SpotMixer, March 24, 2009 at 4:50 p.m.

    I have to strongly disagree with Benjamin's conclusion, but I do agree with his assertion that there are several key issues inhibiting the rapid adoption of online video advertising. In addition to inventory concerns, a fundamental barrier to rapid adoption is the high production cost of video ad creation. <P>
    At SpotMixer, we have found that when you remove the barrier of creation, businesses of any size can benefit from video advertising. Many of our customers have experienced much higher CTR than their display advertising (5% verses 1%) and their cost-per-click rates are often better than their CPC search marketing rates. <P>
    The rapid growth of online video advertising will come as solutions like SpotMixer democratize access and more businesses experience the effectiveness of video advertising. <P>

  14. Joe Hoyle from Open, March 25, 2009 at 8:53 a.m.

    Display ad formats are being forced to evolve very quickly, which is good news. It's nonsense to suggest that display advertising is going to disappear from our screens completely. In fact, I would suggest that we are going to see more of it. Just yesterday You Tube announced that they are testing new bigger ad units known as "Cross Talk” formats.

    Now, video is just one medium that will be used a in new generation of integrated, interactive ads. These can be grabbed and shared into blogs, start pages and social networks transforming into fully integrated, rich applications when they are embedded. Effectively what will we have are fully interactive broadcast units, which are served as ads.

    Once awareness of these new ad formats reaches some sort of tipping point we are going to see an increase in clicks and engagement. The user is more likely to engage with them due to the utility they provide and the continuous fresh content they have the ability deliver.

    And this brings me to my final point. When these new ads start rolling out, media owners and ad servers will have to change their attitudes and update their old models of "rich media". The 30-40k file size limit is exactly that – limiting – and antiquated at nearly 10 years old. It seems completely ridiculous that users are still being served these dreadful formats and it’s not surprising that the click through rates are falling below 0.1%.

    Oh! And forget those metrics too. Engagement and interaction will be the yard sticks measuring all new online advertising activity.

  15. Pinaki Saha from Me!Box Media Inc., March 25, 2009 at 4:31 p.m.

    The biggest mis-approach to this problem of monetization through CPM and ad insertion is majority of stakeholders (brands, producers, distributors, and Ad networks) look at the problem from top down. The general perception is like 'If I blanket content with ad-rolls through superior distribution scale - I have met my numbers and conversion got to happen'! However, as many say here, a huge percentage of content in online video space is going unmonetized! But why? Is it the quality of content? the quality of message? or the quality of discoverability on the platform (Youtube and others)? One thing we have noticed that 70-80% of online inventory is coming from tier-3 independent production channels as opposed to premiums. So, it remains to see what content classification mapped against usage needs truly define the quality and quantity of CPM dollars.

    Again... the problem is nobody has included the consumer in the discussion. It is the bottom up method of addressing the challenge. What aspires your audience? what generates interest among your audience? What in a content they are subscribing more and more to? Do you have that nano-scale information?

    Pre-roll ads: well.. when I watch MSNBC videos, whenever there is a pre-roll I surf web content below it and then revert back to the video once the roll is over. Isn't it natural the these CPMs can't find a bottom yet???

    So the fundamental approach will be to go back to the drawing board, look at the target audience and their needs, evaluate the pain points around audiences that are driving them to the property and then take a stock of your inventory, realign with the message category and hypertarget brand messages through user aspired activities. HOW?? we are trying to hack it ;)

  16. Bruce May from Bizperity, March 27, 2009 at 5:23 p.m.

    Let's be clear, video content itself is evolving into distinct categories and we need to address these independently. We have had almost nothing to work with except for UGC (referred to as "stupid cat videos" by my friends in the entertainment business) and pre-roll video. Now that the television networks have embraced online distribution we have a new category of professionally produced entertainment. In between these two extremes lies a market that is only now coming online. These content producers are still waiting for the interstitial video commercial which they need to monetize long form content. We are closer than most think to seeing this third phase kick in. In banner video ads are actually little more attractive than plain banner ads to most web viewers (you've seen the eye tracking charts). The big story for compelling video content will begin with the introduction of intestinal video ads. In the meantime we should all be studying Hulu and taking notes.

  17. Vincent Vandeputte from You, April 14, 2009 at 2:56 p.m.

    Forgive me for saying that you are absolutely wrong. The poor results video sharing sites are delivering in combination with the most irritating Pre Roll (or Post Roll, or whatever) does NOT mean Online Video is dead! On the contrary, it paves the way for what internet users are really waiting for: Original Online Video Content. The end of the 'slap stick' online video is near, we will finally be able to look at the real interesting stuff! By the way, remember where this problem came from? A couple of young guyswho found a way to enlighten the world, for free...everyone can upload their 'drop from the roof' and all their friends will laugh. Andy Wharhol was right, everybody wants their 15 minutes of fame, but you know what...nobody cares about the other person's fame... What is really dying is not Online Video, it's free uploads of stupid video's nobody cares about. So the days of the Video Sharing sites as we know them, are counted. (but don't worry, Google has a few tricks up its sleeve for You Tube, no need to start crying about them).
    Posted by: You View TV, the makers of and

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