Why CPMs Are Going To Zero

We're looking at slower-than-anticipated growth of online video advertisement revenues.  According to Paid Content’s Jeff John Roberts, reporting on consulting firm PwC’s annual media report, "online video will increase from $2.3 billion in 2012 to $5.9 billion by 2017. The figure represents 9 percent of future online ad spending, but this is still a small amount compared to TV ads — which PwC predicts will pull in $81.6 billion, or 37 percent of allad dollars in 2017."

The hyper-fragmented landscape provides a  number of options for both users (listeners, readers or viewers) and marketers.

Meanwhile, time spent on mobile is surging, with CPMs on mobile making desktop CPMs look rich.  While mobile usage increases total time spent connected online, the revenue generated per user per visit continues to fall.  It doesn't help that Google now garners half of mobile revenues, and its share will only grow.

In turn, this creates a deflationary effect on the revenue generated from publishing and production of content.  Good times, we promise you.

Against this backdrop, new companies emerge, wooing the business media, thinking that somehow, fueled by VC capital, they will crack the code and come up with some kind of paradigm-shifting model.  Much like news is stronger than ever but the business of news is eternally doomed, publishing is facing a similar fate.

You're Just Not That Special

I've previously written about YouTube's resilience in years to come, in part propelled by its first-mover advantage in mobile (being embedded in the iPhone will go down in history as one of the defining moments in the company's history when we look back in decades).

As much as no one wants to admit it: when YouTube sneezes, the entire media industry catches a cold.  Ironically, those who are immune to that sneeze will become irrelevant over time, as this immunity signals a lack of readiness for a video-driven ecosystem and a lack of exposure to the world's biggest and most relevant content platform (possibly after Google the search engine), which is YouTube.

And part of the YouTube conundrum is the sheer speed and scale of new content being added to the platform: the number of hours of content that is uploaded to the site's servers each minute now stands at 100 hours.   The sheer numbers are unbelievable: for example, in one day, users watch 35 million minutes of my company's programming; that's nearly 8 years worth of content!  More importantly, that number is up fourfold in a few months. 

The Double Whammy Supply Problem

YouTube has slowly but surely fought two fronts: it has lured traditional programmers onto its platform, and it has convinced some marketers that some UGC is advertising-worthy.  Since viewers don't really discriminate between UGC and professional content, this means that YouTube has in fact dramatically grown the inventory of videos it can monetize.  However, while many argue (somewhat rightfully) that multichannel networks (MCNs) may not be viable or sustainable, one byproduct of signing up smaller third-party channels is they are lowering the barrier at which a content creator's channel can monetize.  So in addition to all of the UGC that is monetizable, a lot more professionally produced content (regardless of whether it's premium or prosumer) is monetizable all of a sudden.

The long-term impact of this is CPMs around video hitting a ceiling in perpetuity.  As a result, while the buzzwords (branded content, native advertising, etc) will come and go, a lot of professionally produced content will not be sold on CPMs, because if it had to, there would be none of it produced!   But "native advertising" will be something that everybody does, just not in any kind of meaningful scale.  If it's done at scale, it's because we've expanded the definition to include practically anything, partly to make the blended CPM more palatable.

So no, CPMs aren't going to zero in the literal sense, but figuratively speaking, they will continue to trend downward. This doesn't mean that the Wall Street Journal, for example, won't sell its 10,000 video views at $100 CPM -- it just means that the WSJ, which may only have 10,000 views, won't make a dent in the way every other trendline is pushing CPMs down.

It's the Cost, Stupid

All content -- in particular video -- will be DOA if you don't have the means to create it at low-enough cost. And the problem is,  the Web exposes the reality that what content user watch, marketers want to associate with, and distributors want to license and showcase, are in fact wildly different. When it comes to content produced for/by marketers: brands need to understand that the more, the content becomes an ad, the less likely the chances that users really care about it. There are exceptions, but...

3 comments about "Why CPMs Are Going To Zero".
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  1. Bob Gordon from The Auto Channel, June 17, 2013 at 4:20 p.m.

    The Auto Channel now has thousands of original and value added videos on its youtube channel...and with 16,038 subscribers and 39,012,010 views we are generating meaningful revenue...but no, apparently the only money maker is Youtube.. as an old TV guy it amazes me just how few viewers and how little profit a real producer can generate from the hype that is video on the web.

  2. Paula Lynn from Who Else Unlimited, June 17, 2013 at 5:56 p.m.

    The intelligence and common sense of this article speaks volumes of terabytes.

  3. Pete Austin from Fresh Relevance, June 18, 2013 at 5:23 a.m.

    The article is talking about pr0n, music and cat videos, right? The moral seems to be: find what people watch and then advertise stuff that fits in - you're not going to sell much if your brand's "face" doesn't fit.

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