For years analysts have been suggesting that the video advertising market is primed for meteoric advance, with eMarketer estimating 40% growth this year alone, followed by significantly more in the future. Even as these predictions are made, other reports indicate that major spikes in advertising demand -- such as the upcoming presidential election -- will see marketers’ requests exceed the existing video ad supply.
While consistent demand is certainly a positive sign for a nascent market, it is not necessarily ideal for online video right now. Even though publishers will see increased sell-through of their video inventory, a complete sellout, for a finite duration of time, will equate to lost money, given the market’s failure to rise to advertiser demand. Subsequently, advertisers that are shut out of video will be forced to divert their budgets toward an alternative -- and in today’s hectic online media marketplace, those ad dollars may never be reallocated to the video space. Therefore, publishers that do their best to feature and drive quality scale to their video assets will stand to benefit the most during times of heightened demand.
At the core of this ongoing problem is the lack of access to premium desirable content that attracts big audiences. Despite major growth in video consumption, two companies, YouTube and Hulu, still control half of the online video ad market. Smaller publishers, whether they are newspapers, blogs, or niche content sites, can -- and need to -- do more to add video to their sites, and in most cases are doing so with video syndication partners, given the high costs of producing quality content on their own.
While it is important for publishers to explore syndication partnerships to implement the best available content on their pages, it is not as simple as adding clips from any available video library to the respective Web page. Since advertisers want to align themselves with the highest quality and relevant video available, it makes sense for publishers to explore partnerships that give them access to premium, conversation-worthy video content and the corresponding demand-side ad dollars.
One additional hurdle the industry is facing is that certain online video publishers operate on a conceit of artificial scarcity, where they’re constantly “sold out” of inventory, despite the ability to create more. If, as an industry, we’re still thinking “scarcity” will drive a spike in CPM, we will impede the industry’s growth -- and the ad dollars currently being reallocated from print, radio and other declining media will simply move elsewhere (in all likelihood social, mobile and even TV).
Demand is growing, and engaged video viewers are out there. If online video is unable to serve the demand this fall, it’s truly an industry failure to have prepared for something that we knew was coming. Don’t look at unprecedented demand as a reason to celebrate, but as motivation to push the industry into a new phase.
Start by focusing on how to create and monetize more quality video streams, and effectively kill the artificial scarcity issue once and for all.
The problem is scale…always has been, always will be (or will be for at least the next decade). Online video simply cannot hold a candle to television. No matter how bad television gets, from DVR penetration rates approaching 50% of US households to shrinking audiences in key (younger) demos, video ad dollars will continue to chase true scale – even though the value of a TV buy has fallen off a cliff in recent years, (with the notable exception of live sports).
Until there are either 100 more Hulu’s or Hulu viewers start watching 20 times more content (on Hulu), the online video advertising space will continue to fall short of expectations.
Even if the highly imbalanced “media consumption-to-ad-budget” ratio were to perfectly correct itself (i.e., quite a bit more money was allocated to online video), this still would not even begin to address the abject absence of legitimate scale (compared to TV).
As a guy building an online video network myself, I have often wished I had a hundred more Hulu-esque competitors, as this is exactly what must happen before “significant” budgets can be (or even should be) directed towards online video advertising.
As an industry, if we want to see $20 billion-plus spent on our sector annually, then we need $20 billion worth of content consumption – as well as the ability to reach at least 10 million people (relatively) simultaneously (while viewing premium content). And, as an industry, we’re still quite a way from such a feat; especially given the fact that one of our founding value propositions is the option to time-shift, thereby eliminating appointment viewing en masse…