Commentary

A Penny for Your Thoughts?

A few years ago Jeff Zucker, head of NBC Universal, was quoted warning that the media industry needed to be careful during this period of transformation not to "end up trading analog dollars for digital pennies."  While his point is now quite famous, I'd argue that, as an industry, we're continuing to add pennies to the kitty, and building the pot for everyone. I see technology that enables new business models as key to ensuring that the value for online video continues to climb.

Today, the online video world continues to be dwarfed by traditional TV, but our day in the sun seems fast approaching.  According to comScore, the average U.S. Internet user watched approximately 12 hours of online video content last November alone, up from just three hours in 2008.  Impressive for sure, but by comparison with traditional TV it's still pretty small.  Nielsen reports that the average American watches somewhere north of 150 hours of TV every month, also up 2% from 2008.  In fact, consumption of media of all types continues to rise.  According to a recent study by the Kaiser Family Foundation, the average American teenager consumes nearly 11 hours of media (e.g. music, movies, video games, computer, TV, and print) each day - up from just six and a half hours in 2004.  In the study, video was not only the largest single category, it also showed strong growth.

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On the advertising (i.e. revenue) side, the story is similar.  Online video advertising accounts for a relatively small share of overall Internet ad spending, and it is dwarfed by television advertising budgets.  EMarketer projects that U.S. online video spending will equal a mere 1.6% of television ad spending.  Thus, while my enthusiasm for our industry has never been stronger, I think the online video market will truly "arrive" (and financially thrive) only once we get the revenue models sorted out and once the technology to support those new models are proven.

With that said, there are some clear signs that the market is starting to believe.  Just in the past few weeks, we've seen major new investments in online video advertising industry players such as Tremor Media ($40 million in venture capital), KIT Digital ($55 million from a public offering), and Black Arrow ($20 million in venture capital).  These companies all have a business model based on helping content providers monetize their online video assets.  Bearing further witness, online video advertising grew faster than any other category in the global advertising market in 2009 (up 50%).

The momentum is building, but the market will miss the boat if we simply look at the Web as simply a TV 2.0 platform, replicating the way TV has been monetized online.  Rather, we need to leverage the technology enabled by the Internet.  Advertisers should demand a much richer set of choices when it comes to online video advertising -- knowing exactly what's happening just before or just after their ad runs in the video, for example.  Advertising in context is likely to increase response rates, and thereby increase the value to both consumer and retailer.

As our audience grows, we should continue to work to enrich their experience and provide ever more sophisticated tools for content providers to monetize their assets.   By so doing, we'll continue to climb that mountain and help our industry achieve its goal of digital dollars.

3 comments about "A Penny for Your Thoughts?".
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  1. Ed Docnoc from Work From Home Dad, May 10, 2010 at 4:51 p.m.

    Proves My Point, we'll all be zonbies controlled by the Media?

    We need to get our more out often to smell the roses.

    Ed :)

    http://thenpn.biz/ar/1/99709/

  2. Ruth Barrett from EarthSayers.tv, May 10, 2010 at 5:36 p.m.

    Good points and the TV 2.0 perspective is database-less for starters blinding some to the efficacy of a relationship, rather than transaction business model, the latter which drives the heavy promotional and intrusive advertising campaigns that many TV-related media and advertising companies depend upon.

  3. Mike Kerans from CRO Partners, May 10, 2010 at 5:52 p.m.

    Nice, Ben, and agreed with a couple of comments... 1.) "minutes viewed" might not be the best metric in evaluating the totality of the online video ad category, as is favors long form (TV) viewing online rather than short-form video, and 2.) It shouldn't be for sellers to define how online video is bought or used by marketers. Some value online video for incremental reach TV is less and less efficient at securing against some demographic targets...others see the category as a rich interactive environment ideal for user engagement and customer acquisition. As sellers, our best strategy is to remove barriers to dollar migration (from TV and other media,) like GRP/TRP, and service the customer in the best way possible without judgement--whatever it is they'd like to buy.

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