Here is the stark reality of online video: nobody is making much money and the enthusiastic projections for online video advertising going from $500 million in 2008 to more than $5 billion in five years will undoubtedly be pared back in the coming weeks as analysts revisit their numbers. (Those numbers are from August—eMarketer).
The writing is already on the wall. YouTube is resorting to selling off video search results to the sexiest bidder and just today announced that it is extending overlay ads in YouTube Partner videos to embedded videos on other sites (previously these would only show up on YouTube itself). It is pulling out all the stops to try to get those revenues flowing. Meanwhile, smaller video startups such as Veoh and Revsion3 have already cut back on staff and shows in order to survive. So you can throw this slide out the window:
There is plenty of video inventory, just not a lot that advertisers want. Although YouTube streams more than 5 billion videos a month, estimates bandied about are that only 3 to 4 percent of those videos have ads. That is still a lot of videos, but it means that much smaller competitors such as Hulu that focus only on professionally-produced, advertiser-friendly videos are much closer in revenues to YouTube than the raw number of video streams would suggest.
But even the videos produced and distributed online by the TV networks are bringing in only a fraction of the advertising dollars that they do on regular TV. NBC CEO Jeff Zucker’s fear that the Web will turn “analog dollars” into “digital pennies is coming true. According to Dean Denhart, the CEO of BlackArrow (a company that provides an ad-management system for on-demand video across both cable and the Web), mainstream video fetches an average of about 50-cents per thousand viewer per hour watched on broadcast and cable TV, compared to 5 16 cents per thousand viewer per hour watched for the same video on the Web. [Correction: I got this slightly wrong. The BlackArrow comparison between the value of video on TV and the Web is not per ad impression, but rather per hour of video watched, and has been amended in the preceding sentence. The correct comparison is 50 cents per viewer for TV versus 16 cents per viewer for the Web].
In other words, TV and media companies can make ten times as much by putting a video on TV than they can by putting it on the Web, even if that video attracts the same size audience. Online video startups can look at that as an opportunity to close that gap, but they should also realize that the Web is not the only game in town. In fact, cable companies are striking back by gradually shifting up their video-on-demand channels to a bigger mix of free, advertising-supported video. Cable’s answer to Youtube will be more video-on-demand channels with better videos that advertisers will line up to buy ads for at ten times the price they are willing to pay for ads on YouTube, or Hulu for that matter.
Here’s a slide Denhart likes to show that puts things into perspective. In 2008, he estimates that people in the U.S. watched 389 billion hours of plain old TV. That compares to 95 billion hours of on-demand TV, which he breaks up into live DVR (59 billion hours), time-shifted DVR (23 billion), cable and satellite video-on-demand (6 billion hours), online video (7 billion hours), and digital downloads (800 million hours). So of all 484 billion hours people will spend watching video in the U.S. this year, only 1.4 percent will be online video.
By 2010, Denhart thinks the overall viewer-controlled portion of the video pie will increase from 20 percent of all time spent watching videos to 32 percent. And both online video and video-on-demand will both grow to 2.7 percent of time watched, or about 14 billion hours each. Which segment do you think will be making more money from advertising in two years?
Last month, I co-moderated a Beet.TV roundtable on online video where we discussed some of these issues. It was clear that the budding online video industry is still trying to figure out the best way to proceed to profitability. Below are two clips from that event.
In the first clip, Brightcove exec Adam Berrey suggests that focusing too much on video advertising inventory per se (pre-rolls, post-rolls, etc.) is the wrong way to think about it. Instead media companies should think more holistically about selling their audience instead of their inventory. And video is just one way to do that. Also brands that use online videos to tell stories about their products may end up creating closer connections to consumers than simply sticking a 15-second commercial on a million videos produced by somebody else.
In the second clip, MSNBC.com president Charlie Tillinghast paints a dour picture of the exit scenarios for Web video startups. Web video startups hoping to get bought by a bigger media company will likely be disappointed by the price they can get. And it is no longer enough to simply have built up an audience that a startup then can then sell to a bigger media company. The only startups that will be bought are those with “demonstrable” revenues or those that have attracted desirable audience niches that the bigger companies lack.
soon we’ll have commercials allover our video. dang.
I’m not sure. Remember the reaction to the announcement of ads on YouTube at the live Diggnation in London? People hate this sort of thing, with a passion. The moment it impacts a major players viewers, they will be forced to pare them back. That said, I advocate post roll ads. I don’t mind watching them, and they stay out of my way.
Pare it back to…regular TV commercial style, like people are already used to.
We could, but I think there is a better option out there.. hulu style ads between videos.
As long as the ads don’t actually interrupt the video itself, I’m a happy camper
totally agree on this….
the amount of disk space required and the price you have to pay trying to maintain/buy it is enormous. That’s not all….the most important part is the ability to stream that much of data for which you need extremely expensive hardware. On a contrary scale, it is always a lot easier to maintain a website like say Flickr which handles images/pictures only.
http://www.livbit.com
fail
I’m guessing that its also reasonable to expect the cost of bandwidth to come down with the recession, anybody have projections/stats that they can share? Video still has a lot of potential, I just think people are still trying to figure out how to monetize it.
10% is a huge number of people waiting for video ads. I do not see that coming in the near future..
Ah, so the cat’s finally out of the bag! Thanks Erick!
This finally PROVES that online video is a GIANT boondoggle! It’s a total waste of money. Just watch as these scammers start responding to this by saying that they have new models etc… it’s ALL nonsense!
If it’s this bad for video, how bad is it for audio podcasting advertising?
I’m having an issue being a content creator for video sharing sites like Youtube and not having any ad revenue, site traffic or publicity associated with me personally. I mean, think about it – not only is it tough for companies to monetize videos but all the hard-working/creative video producers out there will most likely give up on web video (especially through big channels like YouTube, MyspaceTV, Yahoo Video) because there’s nothing in it for them.
It’s not enough to just upload a movie on the net and expect the ad dollars to roll in…nor is it smart to think indie content creators to continue investing so much time into video when simply updating text blog or twittering will generate the same, if not more views/traffic/personal publicity, etc.
That’s why you need to have a way to guide people from your YouTube “sample” to some sort of back-end that you can monetize. There are a lot of internet marketers that are taking advantage of YouTube and other free video hosting sites already, having their videos mass-distributed/uploaded through services such as TubeMogul (free) and TrafficGeyser (paid).
And quite a few are making real money doing this, in part because Google favors YouTube videos in its search results among other things. Obviously, you have to provide great content (entertainment or educational) to make this work, using a “moving the free line” approach, and know how to do direct response and list marketing, else you are wasting your time.
I believe that Google changed the game yesterday by beginning to sell “sponsored video” placements by YouTube keyword search (YouTube turns out to have become the second largest search engine according to ComScore, ahead of Yahoo and MSN/Live). If you want to find out more about the opportunities and pitfalls of this, and why context is THE key, go here:
http://business...etization-today
Shocking that advertisers aren’t lining up with their pocket books open to advertise on the “man lights his farts” or “dog on skateboard” videos. Shocking, I tell you.
You would think that with the 9000 conferences and meetings these Web 2.0 “geniuses” have seemingly ever month, one of them would be able to figure out how to adequately monetize online video.
Actually, and I’m speaking from experience, they are lining up.
It’s not the content that scares advertisers away (or at least, most of them), it’s the fact that there is little evidence to suggest a successful conversion from online advertising to actual profit.
I am much worried about this whole video ads. i mean i new to this blogging, adsense. I recently started a blog and have a handful of post in 55 days. So i applied for adsense last week and got it approved. Thanks to Google. This Video ads ? i am really confused. can anyone redirect me to a correct way to which i can also learn more about what the whole discussion is all about.
Thanks.
Kamal
http://burnyourfuel.com
Innovation is the key.
Can’t transfer mass media logic to the internet. True media startups are in a better position to profit from the interent format than established media outlets. Mainly because of the lack of pass investments in infrastructure that isn’t required to power a media stream successfully.
Now is the best time to take those creative risk.
YogiFish Studios Inc. (Taking Those Risk Now)
Video combined with some form of interactivity is the key to making a web experience valuable. Also, video in its current form is too easy to steal/copy (ever see a popular video on Youtube…and then see bogus/rip-off versions soon after on YT, Metacafe, Dailymotion, MyspaceTV,etc.). I know everyone is against DRM but really the only way companies are going to invest heavily in web video-based content and viewers are going to stick around and watch the ads is if there’s more to a web video than “Watch it for 5 seconds and move onto the next clip”. Also, content creators need to feel safe in knowing that 95% of the people watching their content is doing it through the site they chose to host it on.
I very much agree.
if i had to get rid of cable or the internet you know which one would go. consumers want to get rid of one. who wants to pay 2 bills when we can get virtually the same thing from one source for a third of the price. hulu anyone?
WatchLocator.com – you’ll see!
Agreed- I’m a working professional in my late 20s and I haven’t had cable for years. Incoming freshmen are not bringing TVs to college anymore. The number of people who don’t consume any traditional media (TV, cable, radio) gets bigger everyday, and the only this group is with advertising on the web. The ad companies are idiots if they don’t realize that.
YOU DARE QUESTION THE PROFITABILITY OF A POPULAR WEB 2.0 STARTUP! HERETIC!
One of the major problems now is that a company video or commercial is a gold mine when it comes to SEO or optimizing your video with all of these vblog sites, and post it your self sites.
Remember, premium online video is only three years old (Iger putting D.Housewives episode on Itunes in Fall of 2005.) It’s the bottom of the second inning.
Many video sites have been focusing too heavily on M18-34, tech savy audience. No one has yet to make a simple to use interface for the “late majority” that aggregates content that they are truly interested in. When this service/platform emerges I think you will see the shift we’ve all been predicting.
I’ve already canceled my movie channels on cable-saving $75 a month (which i can reallocate to VOD and watch movies I actually want to see.) With people looking to cut back and cable bills out of control, I think the market will continue to develop. Someone will figure this out and make a killing.
Adam Berrey makes a smart point. For me, premium online video sites allow me to keep in touch with shows that might otherwise falloff my “watch list” because I’ve missed too many episodes. I have kids and I’m busy (tired) at night and can’t always cut the time out to watch something on the network’s clock. So, if I can catch it at Hulu later, great! I’ve won because I got to see the show, and the network has won because I have not abandoned the show and will likely continue to seek out future episodes, online and off.
And some things are not meant to be monitized – they are projects, not businesses. People (VC’s included) often are confused about that.
“There is plenty of video inventory, just not a lot that advertisers want…” Soooo, what type of inventory or videos are advertisers looking for?
Unfortunately advertisers don’t want the same video consumers want. “Safe” video is boring for users, but “attractive” for brands (big ad dollars). “Risky” video is too unsafe for advertisers (remnant ad dollars), but its what everyone wants to watch. That’s why you have to pay for HBO/Showtime/etc. Its still unclear how all this will “translate” to the web. Perhaps there is hope for some “indie” content that bridges the gap, but indie video may be forever niche given how corporate dollars are manipulated, uh, spent on “big media”…
Indie content aye? Very Interesting. Thanks for the reply.
Excellent post, Erick. The problem beneath the problem is attempts by Madison Avenue (and a whole lot of publishers/broadcasters, too) to create a static system, which can be swapped out for the one that serves on-air or cable video. I think that’s a long way off. To understand what’s happening with monetizing video, you have to look at local or small niche markets, where advertising is more closely connected with the media source. Video classifieds, long-form infomercials, video ad channels and ads attached to local news content are bringing in significant dollars.
I think as long as video drives traffic, sites will just see it as a loss leader. Do you really think Yahoo and Google are going to start paring back their video efforts? They are buying more server racks as we speak.
Of course the little guys could go away, but they always do when the capital dries up. There may just be a few major players in video that make it, but they will all be around for years to come.
I think you mean $.50 per viewer per hour on linear TV, not $.50 per thousand viewers per hour. Same goes for Dean’s online video metric. Even if you were to only show one ad during that entire hour of programming (which is unlikely), TV networks and online video publishers are charging more than $.50 and $.05 average CPM respectively. Now consider that in an hour of programing, you’ll see anywhere from 5 ads to 25 ads depending on the venue (TV or online).
Regardless you are correct. No doubt TV is making more money per hour than online video.
I think there’s a disconnect here. I agree it can’t be 50 cents per thousand (CPM), but nor can it be 50 cents per viewer which is a $500 CPM. I think its 2 digits off not 3 – meaning its a $50 CPM for linear TV and a $5 CPM for video ads. That makes more sense to me. Any idiot can get 60 cents or more as a CPM just through Google adsense, but to get to $5 as a CPM online takes real work and good content.
I think I read this post a couple of years ago. Catch up.
I believe that advertising on the TV was not seen as a ‘must have’ marketing platform during its infancy days. The same is true of most, if not all, new marketing channels.
There will be ads on YouTube video – it is just a matter of time.
my comments at http://www.commentino.com/orim
Hmmm. I watch TV (cable no PVR) and mute the ads. I find the ads annoying as hell. I resent the ads. I can’t recall any ads I have seen recently on TV — even as of last night.
I watch Hulu. I don’t resent the ads. I watch the ads without a negative feeling — actually I appreciate their minimal footprint so that Hulu can pay for itself.
I can remember a good number of Hulu ads – Capital One series with Ed Begley, McD’s with the b-ball player and game ad, something about feedthepig which is related to personal savings PSA.
Hulu works. I watch shows on it rather than TV because the experience is MUCH better. I find the ads OK, and I remember them. Still lots of room to improve ads on Hulu — mostly they seem to be reruns on TV stuff. (Advertisers should tell a story with several ads in a single show vs. one-offs.)
I have even read some comments similar to mine from folks who have made comments below the episodes.
This story seems an overall analysis that is not allowing for common-sense for Hulu’s success making ads something other than *resented* (based on my one-person anecdote).
I think there will be some breakthroughs here — not on YouTube. I also think Netflix’s instant play has some real potential with pre-rolls — it is such a fantastic service I’d be willing to watch a bit of ads before the show starts.
My personal experience, so YMMV. I wish Hulu and NetFlix instant all the best. Two of the best experiences on the web today.
My brother and I just launched a website called lyvegyde that provides links to live online events. We gather links for live video webcasts, live text web chats, etc. for events such as speeches, concerts, ceremonies, and more. We have found that there are a lot of great live videos and events out there even if online video is only 1.4% of all video watched. Please check us out and watch the webcast of the Space Shuttle Endeavor launch tomorrow!
Erik,
You’re grouping user generated with professional content and distorting the argument. Professional content is getting $35 CPM for an ad during a primetime show streamed online, vs about half that when it’s shown during the broadcast. There is an easy argument to make that online should be as effective (if not more) per user hour.
The problem is that the media companies haven’t reached a “pain point” to deal with their inventory management problems which cause the overall revenue per user hour to be less than broadcast.
The minute they start targeting and managing the inventory better (when there is more scale), you’ll see the economic argument change. Hulu is already getting there due to their 150 million plus monthly streams.
When million dollar opportunity costs become tens of millions of dollars in opportunity costs, you’ll see the economics for online video (professional specifically) be discussed very differently.
You can dump on User Generated all you want. It’s like social media (much less valuable content only a valuable audience). The value is giving the advertiser both (the audience and content) which professional online video content does.
I think online video can be monetized to an extent and it will work itself out over time.
But as online video works out the monetization kinks, I think TV CPMs are going to drop precipitously. It’s kinda like “The Emperor’s New Clothes” – advertisers are going to realize that traditional TV ads are grossly overvalued when compared to the targeting, tracking and conversion advantages of online video.
http://www.shoo...rt-more-on.html
@Nirav Good point. I just went to those. Similar to this article we continued to discuss and focus on inventory, farts, *rolls and VoD as % of online video market share ad nauseum. Still, these are definitely some of the most beautiful, well-spoken and deeply thoughtful trees I have ever seen from the forest.
Doesn’t this just mean that companies who pay to advertise on TV are paying too much and still haven’t figured that out yet? The advertising market for television is completely based on what really big companies are willing to pay for it.
They don’t really have any way to measure if its worth it. TV companies are getting killed right now because car companies aren’t buying what they used to and that is sending the cost of TV ads down. I think the gap of .05 and .50 cents will probably meet somewhere in the middle as there is no way companies will continue to pay increased television advertising costs when there are so much options online. The one exception will be the Superbowl because they know people are intently watching the commercials and not skipping over them with their TIVO and that is more valuable then ever.
Agree with Adam and Erick’s math is wrong.
Each user watching online video for an hour will be exposed to anywhere between 5-25 adverts (depending on the average length of a video and the sell through rate). Assuming that there is a 50% sell through rate and that avg video length is 3 minutes, then the number of adverts that viewer sees is 10.
For PGC the average CPM would be between 20 and 40 and for UGC between 3 and 10, so using the midpoint, each user for an hour is worth 30/1000*10 or $0.3 for premium content and $0.05 for a UGC site. IMO, the biggest growth due to targeting and rights management will be in the rate for UGC so all boats will rise with this tide.
@Adam and @Marcelo
I agree – the other major point imho is that there is a middle ground. Call it pro-sumer or protail or somesuch, but it is actually neither UGC nor premium and it will absolutely continue to buoy the boat.
Sorry one more request.
Beet.TV – please insert some ads in those videos! Quick…
kthxbai
Ok here is the big hint on where the money is in video…
http://furrier....l-and-olympics/
A bit too hasty, Erick. The US online video market has a much rosier future than you think.
Consider that online ad spend in the US is still a relatively small portion of total ad spend. So there is going to be a massive shift in ad spend towards online and the obvious beneficiary of this will be online video, particularly professional.
The vast sums spent on broadcast TV advertising will move quite rapidly in the next five years to much more effective and measurable online video.
http://alexgues...m-tomorrow.html
Nice post Erick.
It seems to me that what you are really identifying are two elements:
1) That TV advertising is far too expensive (and w/ the rise of DVR becoming incredibly less impactful); and
2) That YouTube and most other online video sites have yet to figure out a model that is effective in reaching consumers but not overly invasive (Eg. in-stream ads).
I agree with Adam Berrey that the future of online video content is more about engaging viewers implictely through production introduction than streaming a random ad before-after-or-during a 2 minute video clip that has nothing to do w/ the video’s content.
This is a very interesting article that Mike Arrington wrote a couple of weeks back:
http://www.tech...cent-tv-market/
In the article you see Chad Hurley drawing basically the same conclusion as Adam Berrey. Great minds think alike don’t they?
Cheers.
R
If you’re a brand, why not just create your own advertising? http://www.attl...stinamerica.com
I love the way the Onion video news podcast does it:
1) A very brief “the following is brought to you by…” logo splash
2) Their hilarious video – the thing you came to see
3) A 20-second post-roll video advertisement from the same sponsor mentioned in #1
4) A final “moment of zen” joke to keep you watching through the ad
What is so hard about that?
The article brings up a good point. Perhaps there can be niche video sites that bring value in their audiences. Such as sports video sites, or news, politics, sci-fi etc. that will bring value to online video.
I would like to thank Google for purchasing YouTube, cause if they did not acquire everyones favourite video website, then YouTube could have folded due to their huge monthly bandwidth bills.
There are so many hidden video nuggets on YouTube, which you will never find anywhere else online.
Its a shame that Google is clueless as to how they can generate cash flows for YouTube. But guys keep up the great work in assembling the greatest online video library around.
Definitely true, even video communities are less and less interested in the big video sites…groups of seasoned video bloggers like http://www.vloggerheads.com/ have already splintered off and created their own sub-communities…
Nice post and great comments!
Would be great to distinguish between the UGC, amateur, and studio offerings and their perceived value to viewers and advertisers.
It’s interesting to see how many studios are moving their back-catalog onto youtube and other syndication services (mgm, cbs, etc.). Even if the analog dollars mean digital pennies, seems like folks are interested in collecting pennies.
Does this scenario bode well for the video remnant ad networks? Seems like there’s an opportunity buried in there somewhere.
CG
http://greacen.com
I’m surprised people are making money at all… when everything is free… maybe online revenue has to wait for globalization to hit…
We can see more and more sponsored links on these sites. I’m just wondering who clicks on them since when you are on these sites, you look for videos and you don’t even notice texts…
Jeff Zucker’s fearthat the Web will turn “analog dollars” into “digital pennies” is coming true –
Someone should explain to Jeff that great theory called “Long Tail” – you know, that theory that says if you stretch out far enough into the future (or in this case, content creators grab an eyeball and there’s like a billion content creators) and everyone gets a nickle, the market actually grew and therefore it’s good for everyone! right?! right? … wrong. Long Tail sucks, always has and Jeff, welcome to realizing it…. but I’ve got some advice for you… just give it a few hundred years… eventually that clip that would earn you 50 on TV will earn you 51 on the net… so grow that pie man, grow it! lol. Gotta love the Long Tail… sure to keep everyone starving.
how about youporn? is that website making any money? according to alexa it has a ton of traffic and adult content never really cathed up to these video sites (until now it seems).
It was interesting that they did not mention Hulu.
The full article is correct though – an online-video-only play is risky except for “those that have attracted desirable audience niches that the bigger companies lack.”
The strength is the audience, not the online video. The biggest winners will be those that can do more with the audience than just stream video with ads to them.
I like the FearNet model most.
Gorilla Nation just launched this week a new video platform (out of private beta) for mid tail web publishers to manage, widgetize and monetize video content: springboard.
Good targeted content attracts loyal visitors, which attract advertisers. The monetization model for springboard is based on the same rev share model used by GN for brand display advertising.
http://springbo...illanation.com/
this is where and how subscription services, i think, will grow – for long-form content anyway
Personally, I think that we have just reached the tip of the ice-burg when it comes to audience adoption of the web as a medium for television. Monetization will come in fits and bursts as the audience moves from the one-screen paradigm (TV) to the many.
Will someone please provide a convincing case that online VoD is a superior commercial proposition for advertisers? We know it sucks for content providers like NBCU but why shd. Bud or P&G be better off?
Share my comments on this topic:
Online Video: Where to go?
http://youping.cn/archives/207