Into the Mainstream: Advertising Year in Review
One reason for YouTube’s disappointing monetization efforts is that advertisers have been skittish about associating their carefully nurtured brands with YouTube’s sometimes-offensive user-generated content (UGC). In addition, YouTube has been reticent to run the linear in-stream, viewer-must-watch ads that advertisers prefer. "That’s the unit that branded advertisers have been buying for 50 years," says Sacerdoti. "And want to buy for the next 50 years."
YouTube has begun to address the content challenge by signing distribution deals with major studios for mainstream content. And in November 2008, YouTube initiated its Sponsored Videos program, which aims to harness YouTube video searches in the same way Google’s text searches trigger text ads. When a selected keyword is entered for a YouTube video search, sponsored videos are presented next to the returned content. Advertisers pay on a cost-per-click (CPC) basis, with priority determined by an auction in which advertisers choose how much they’re willing to pay per click. The CPC model may work for YouTube, since, as noted above, users might be more willing to click away from UGC than from the episode of Lost that they can’t wait to watch. YouTube delivers almost 45% of all the videos streamed in the U.S., and whatever new products it offers to advertisers will have an impact on the wider DVA landscape.
Figure 2. In November 2008, YouTube initiated its Sponsored Videos program, which aims to harness YouTube video searches in the same way Google’s text searches trigger text ads.
Much of the uncertainty that has accompanied the DVA space since its inception is shaking out. A wide range of publishers and content now offer venues for any category of product or service. Advertisers pushing cutting-edge products may have no compunctions about hooking up with YouTube’s UGC. For brand advertisers and agencies that do, there are plenty of premium content sites with inventory at similarly premium CPMs. With its recent partnerships for premium content, YouTube is hoping to take a big slice out of both pies.
IAB-defined formats for ad units are being widely adopted. Overlays are the current unit of choice for UGC, while linear prerolls with 15–30 second lengths (depending on the length of the associated content) are hitting the sweet spot for premium content. Experimentation and innovation within the confines of the IAB format definitions continues. For example, Hulu starts many of its shows with 4-second PSA prerolls and limits advertising to 2 minutes for every 22 minutes of video, as opposed to the 8 minutes of ads that typically run per 22-minute episode of prime-time broadcast TV. Many linear in-stream ads are accompanied by innovative companion ads.
According to eMarketer, total online video advertising spending is expected to rise tenfold over the next 5 years, from $505 million in 2008 to $5.8 billion in 2013. As a percentage of broadcast TV ad spending, online video advertising spending is expected to rise from 0.7% in 2008 to 1.7% in 2010. With the release of the IAB’s VAST document, operational inefficiencies are being mitigated, offering savings in transaction costs and removing yet more barriers to online video advertising spending. "2009 may not be the breakthrough revenue year because of economic problems, but it will be a breakthrough year operationally," says Paparo. "As the economy turns back, you would expect to see a real explosive growth in terms of the revenue coming through [the digital video] channel."
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