• by Mukund Ramachandran , June 11, 2013

Online video consumption continues to skyrocket. Americans watched 38.8 billion online videos last month. On average, viewers spend 40 minutes a day doing it. Is it any wonder that Netflix just bowed Season 4 of “Arrested Development” in its entirety on the Web?

Are you surprised that Yahoo is in talks to buy Hulu? Anything shocking about Amazon announcing 5 web-first original series?  I spent time at this year’s New Fronts where 18 companies announced their video slate for the year. No one was surprised.

And yet online video advertising makes up a tiny fraction of marketer’s overall digital budgets. According to eMarketer, of the $37 billion spent online last year, only 6% (or $2.3B) was spent on digital video.

It’s even worse when you compare online video with TV advertising.   U.S. marketers spent $65 billion on TV advertising last year.  Online video’s $2.3 billion represents just 3.4% of the overall video pie. Does anyone except the TV industry think that still makes sense? Should 96.6% of your video budget be going to TV?

A thought experiment

But facts are facts – 96.6% of the money *did* go to TV last year and in that sense it’s inarguable.  But what if you didn’t operate under the burden of past “best practices?” What if you could start planning with a clean sheet of paper? Would you spend 96.6% of your video money on TV today?  Let’s look at some facts.

Facts that argue for TV

• Scale.   Lots and lots of scale.   The average American still watches about five hours of TV every day.   Okay, here’s another way to think about it.  If you live to be 80, you’ll spend more than 16 years in front of the TV.  

• Bigger screens.   Whether you’re a showrunner or an advertiser, you can do a lot with a big canvas -- and today’s TVs are bigger, and the home theater experience is better, than ever. That means TV advertising has a better chance of holding your attention in today’s attention-fractured landscape. 

• Great content.  A lot of people say we’re living in one of Television’s golden ages – from “Mad Men” to “Modern Family,” there is a lot of great TV out there to watch.

Facts that argue for online video

• Ad Skipping:  DVR’s are now present in 44% of households -- up 80% from 2007.   If you are a marketer and are reading this article, think about your own viewing habits.  Odds are, you have a DVR in your house and you skip ads when you are catching up with six episodes of “Modern Family” over the weekend.

• Multi-Screening:  According to Google, 77% of TV viewers use another device when they are watching TV. Even if that viewer isn’t skipping ads, multi-screening as a trend is here to stay.  There are 2 types of multi-screening:  sequential usage – where the user skips from one screen to another, and simultaneous usage – where the user engages with multiple screens at the same time.  TV viewing, which is inherently passive, is particularly susceptive to the second trend of simultaneous usage.  

• Eyes:   If you follow the growth in online video consumption, there is no shortage of statistics to prove the trend. My vote is for this:  Just the past month, more than 180 million Americans watched some online video in the last month
  

• Demographics:   TV execs love to highlight “5 hours per day per viewer on average.” But like the old joke says, a TV exec is a person who, with his head in an oven and his feet in an ice bucket, will say that on the average he feels fine. What do I mean? Advertisers who want to reach the coveted A18-49 need to rethink their exclusive devotion to “New Girl” and “How I Met Your Mother. “

 

This chart from Nielsen shows the demo composition of consumers of various channels.

	A 18-24	A 25-34	A 35-49	Total: A 18-49
Traditional TV	7%	12%	21%	40%
On the Internet (Computer)	10%	17%	27%	54%
On the Mobile Phone	24%	28%	24%	76%

 

• Great Ads:  You’re thinking, “Come on. This is ridiculous.” I’m serious. Video ads are getting better in part because we’re building creative that is native to the medium. Case in point: Interactive pre-roll that allows viewers to stop, start, explore, expand, investigate, customize, colorize, and more the product being advertised.  Try doing that with an analog: 15 or :30.

So where do I net out? Don’t get me wrong. I am not arguing against  TV spend at all. But 96.6%? It is clear that consumers have really moved on, and online video presents better advertising options.  When will advertisers catch on?