• by Joe Mandese , October 11, 2003

The broadband video ad marketplace, while small by conventional TV advertising standards, is not as nascent as many might believe. With upwards of $800 million being spent on broadband video ads, it would rank in ad volume alongside a mid-level network TV daypart such as late night, early morning news or evening news.

Those calculations are based on crude estimates derived from industry data by Feedroom, one of the major broadband video players, and the only one to have a pure play strategy in the emerging category. But even at half that amount, broadband video advertising still would have to be taken seriously as a TV advertising option, which explains the efforts of Starcom MediaVest Group (SMG) to establish a formal marketplace around the format.

"It's a great symbol of where this industry is going," says Jonathan Klein, CEO of Feedroom. "Broadband is basically television only better. Consumers don't make a distinction between broadband and television, but broadband allows them to watch TV in shorter bursts and when they want to watch it, which is the direction TV is heading in."

Broadband Video Share Of Online Ad Spend

                     Ad Spending  % Of Spending 
Online Ad Spending: $7.0 billion           100% 
Rich Media:         $2.5 billion            36% 
Broadband Video:    $0.8
billion            11% 

Source: Feedroom analysis based on industry estimates.

Feedroom, which is essentially a massive unwired network of leading broadband video sites, including Comcast, Reuters.com, Netscape and the NBC stations, was one of three major players to participate in a recent flurry of so-called broadband upfront buys made in the past couple of weeks by SMG. The others were Yahoo! and MSN and the agency plans to make other deals over the next weeks and quarters.

While SMG's base buy, $5 million across three providers, seems small by network TV standards and in the scope of the overall broadband video marketplace, Klein says it is symbolic, because it gives the market "validation" on Madison Avenue. Most of the leading broadband video buyers to date have been interactive agencies, such as Digitas, Zentropy, or Japan' s Dentsu.

The fact that a major U.S. media shop has turned its attention to broadband video is expected to spur the market, but more importantly, is expected to help define and develop a market structure that will make it an option that can be planned and bought alongside other forms of television.

"I have always been proud to be part of first-mover status in other forms of television, whether it was cable TV or syndication," SMG chief Jack Klues tells MediaDailyNews, alluding to SMG predecessor agency's (Leo Burnett's media department) role in developing the syndication marketplace before other big shops had sensed or seized on the opportunity. The current play into broadband video is being done for the same reasons, says Klues.

"I thought this was ridiculous," recalls Dan Buczaczer, who along with Saneel Radia, were named to head a broadband video buying team that is tapping the expertise of both the IP and network buying groups inside SMG. Buczaczer said he initially was dubious, because he couldn't imagine the notion of placing conventional 30-second spots into broadband video content online that would "just scream" at users. But along the way, he says, the agency has discovered new users and applications for broadband video that has also begun to reshape the way SMG thinks about conventional forms of TV advertising. In effect, they say the SMG group, is beginning to shape the seminal medium in much the same way that early TV ad agencies like Burnett and J. Walter Thompson shaped the medium of television in its early days.

"What we're doing now is version 1.0 of what we will be doing," adds Radia, utilizing an IP concept to make a TV evolution point. He says the bigger issues so far have not been how to utilize broadband video content and advertising, as much as they have been establishing business and trading practices for shaping a broadband advertising marketplace.

The unit has begun working closely with leading broadband measurement firms such as DART, Dynamic Logic and Nielsen//NetRatings, as well as with third-party broadband video servers to establish a basis for posting broadband video ads in much the same way the agency posts its TV ad buys.

Beyond that, the team says they are still establishing norms and parlance for negotiating a broadband marketplace, including ways of converting TV jargon and concept like gross rating points and CPMs into more relevant measures for broadband. One of the biggest sticking points so far has been how to define - and in some ways, constrain - the definition of broadband video and how to establish audience delivery guarantees against those bases.

Unlike TV, where an ad unit is based on the delivery of a single message across an unknown potential audience, broadband buys are based on the delivery of actual users. The old TV paradigm has enabled advertisers and agencies to hedge on the potential upside of TV ad buys, taking some risk in the upfront that new shows may or may not deliver, but benefiting with bonus deliver when they over-deliver.

"The inventory thing has really thrown us for a loop," acknowledges Buczaczer, adding, so far have balked at the notion of offering over-delivery as a bonus above and beyond the base buy.

"In some ways, it has been difficult to extend the TV analogy to broadband," he explains. "But imagine this is TV in the first few years. You think you' re in the ballpark, but it could end up being triple or quadruple the numbers you are expecting."