The ad rates for online video keep coming down, and that is a good thing. Video ad network BrightRoll is about to release some data from the first quarter of 2009 which shows ad rates as measured in cost-per-thousand impressions (CPMs) dropping 12 percent annually. The rate of decline is slowing from the 25 percent drop that video ad CPMs experienced during the fourth quarter of 2008. But if they fall farther that could be a good thing.
In a survey of 150 advertising executives in the U.S., more than half (53 percent) expect video CPM rates to be “marginally lower” a year from now, while another 20 percent think CPMS will drop in half. Video CPMs range broadly depending on whether the ads are being sold directly by sites with large video inventories or by ad networks, but a $20 CPM is a broad industry average. These still need to come down to between $7 and $9 to roughly match what advertisers are paying for commercials on TV on average (more like $15 for primetime, and as high as $50 for niche, targeted cable channels). These declining CPMs probably have something to do with the downward revision in ad video revenue estimates that we are starting to see.
The high price of online video ads is only one factor limiting its growth, however. Others include poor targeting capabilities, and a still somewhat limited reach for those mostly professionally-produced videos that companies want to place ads on. In the survey, here were the biggest limiting factors:
In your view, what are the factors limiting online video advertising’s growth today?
• Lack of targeting capabilities: 31%
• High price of video: 27%
• Limited reach of online video: 18%
• Ad format limitations: 12%
• Poor inventory quality: 7%
• Other: 5% 


 


And here are the factors corporate clients are worried about. Again, targeting comes up top. Corporations don’t seem as concerned about price as ad agency executives, but overall they have roughly the same concerns.
Which aspect of online video do your clients have the most significant concerns about?
• Targeting capabilities: 28%
• Reach: 24%
• Price relative to TV: 17%
• Other: 15%
• Ability to reuse creative: 9%
• Ad unit format: 7%
But let’s get back to falling prices because it is really important to understand how that will play out. The lower the rates fall, the more comfortable advertisers are buying online video ad inventory in bulk, and if the prices come down to be more in line with television ad rates then it will be easier for them to think of TV ads and online video ads in the same vein. In fact, 71 percent of the survey respondents think of online video ads as complementary to TV ads. Like anybody else, ad executives like to feel comfortable about what they are buying. The more that online video ads look like TV ads and are priced like TV ads, the more comfortable Madison Avenue and its corporate clients will be.
This rigidity partly explains why the pre-roll ad is more dominant than ever. During the first quarter, pre-rolls (video ads that appear in the player before the actual clip) accounted for 81 percent of campaign budgets, up from 63 percent a year ago. In the survey, ad executives perceived the pre-roll as delivering better response rates than other video ad units and “easier to compare it apples-to-apples to a TV: 30 spot.” They also like the fact that they can re-purpose their TV ads for the Web. In other words, they’ve learned nothing about the benefits of molding their advertising to the medium.
Everyone in the advertising industry may love pre-rolls, yet very few of them have even done studies to measure their effectiveness or that of any video advertising. According to BrightRoll’s survey, 87 percent have not done any in-house research on online video effectiveness. However, 56 percent believe clients would spend more on online video advertising if they could prove its effectiveness with data. If they did conduct research, here is what they would want to find out:
What areas of online video advertising do you believe need to be researched further?
• Impact on offline purchase behavior: 39%
• Change in purchase intent or brand lift: 36%
• Performance vs. TV advertising: 25%
Those all sound like important and reasonable things to start measuring. So what is the holdup?
“According to BrightRoll’s survey, 87 percent have not done any in-house research on online video effectiveness.”
And why is that? Because they believe in the hype of YouTube?
It just seems odd to me to invest large sum of money into advertising without knowing what you’re getting into.
Oh wait, isn’t that what the bailout is about?
It is odd, and so is this:
“The lower the rates fall, the more comfortable advertisers are buying online video ad inventory in bulk, and if the prices come down to be more in line with television ad rates then it will be easier for them to think of TV ads and online video ads in the same vein.”
TV, like newspapers is decreasing in viewership/effectiveness, the web is increasing. Why does the article make it sound as if we should be striving for online ads to be at the same price level as TV? TV, as it continues to decrease in viewership, should be the one decreasing its pricing, not the web.
If I know one thing, prices on online ads need to go up!
An ad page at Vogue Magazine cost $120,000 for a distribution of 1.2M people. Now this ad could be on page 226, nothing too viable. A video ad on the other hand captures the audience attention for 10-30 seconds and therefore need to cost more than Vogues $100 CPM, there are forces that are saying that rates should go down, if they will continue, not even one person would make a living out of the web in the video world, the small players will go under together with Hulu and YouTube who lost $400M this year.
Google / YouTube are charging huge amount of money $2-5 CPC (cost per click) for all normal keywords. I think video ads are cheaper, when targeted right are more influential than TV, and could influence a large target at the same time.
Uncontrolled video is for tv, interactive media ads is for internet. Mouse-over interaction over on-click.
Great piece, Erick, and another factor limiting growth in online video spending right now is the lack of a standard around what a “view” is.
Agreed an apples-to-apples comparison between the effectiveness of a TV buy vs. a Web video buy would greatly help the Web video industry – and especially measuring not just purchase intent and brand lift, but (as your survey indicates) actual purchasing.
Hello Dina,
I have read your comment, and i had to reply back and say that you have hit the target with your reply on Video selling. I ran into a site called DealitLive.com, the site actually lets you create your own HSN channel, but with LIVE VIDEO broadcast, so if you have a product you want to sell, you can sell it Live with Live viewers, and the viewers can actually interact with you LIVE, they can ask questions via chat tool, and the seller answers on Live Video. it lets you Subscribe to sellers and notifies you when sellers have upcoming showes to your Iphone, Blackberry or PC. They are launching May 6th., i think this will change everything as far as selling on the web. Hope you like it.
Looking at charging for advertsising on a shuttle bus and need to try and determine at what CPM to charge out. Audience is a captive audience that rides vehicle for up to 5 minutes…Just trying to come up with an idea