Online video ad rates keep coming down, but that could be a good thing. BrightRoll, a large video ad network, is reporting that cost-per-thousand (CPM) rates for pre-roll video ads across its network are down on average by 37 percent from a year ago, but total revenues across its network are up 84 percent. Cheaper ads are leading to more spending by advertisers overall.

The chart above shows average CPMs on BrightRoll’s network indexed to 100 at the beginning of 2008. The average CPMs are now in the mid-teens, and seem to be leveling off. They were down 4.5 percent from last quarter.

BrightRoll says online video advertising started a rapid post-recession comeback in the first quarter of 2009 (which is about when video platform company Brightcove starting seeing an uptick in business also).

The third quarter saw an acceleration video advertising. BrightRoll tracked a 46 percent increase in the number of video ad campaigns, compared to the previous quarter, 31 percent more advertisers, and a 64 percent increase in requests for proposals (RFPs). If BrightRoll’s data is indicative of the industry as a whole, online video advertising should remain a bright spot this year.

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Video ads are the great hope of brand marketers on the Web. They are easy to understand (it’s just like on TV, kinda) and easy to create. That’s why pre-roll video ads will never die. Brand marketers love ‘em.

As the rates for pre-roll video ads on the Web go down, it looks like total video ad revenues keep going up. At least that is what is happening across BrightRoll’s video ad network. BrightRoll is one of the largest video ad networks, according to comScore VideoMetrix, with a reach of 51 million unique viewers in May, 2009, which is more than Yahoo’s video sites or Hulu. (But it doesn’t serve as many video streams as either one).

BrightRoll reports that in the second quarter:

• Avg. Pre-roll CPM: Q209 vs. Q109 – up 3.1%
• Avg. Pre-roll CPM: Q209 vs. Q208 – down 10.4%

So the CPM rate (cost per thousand views) for video pre-rolls is flat with last quarter at roughly $20. But it is down from last year by 10 percent, and they need to go down further to push video Web ads beyond novelty status. Even with CPMs keeping steady, BrightRoll saw network ad revenues double from last quarter:

• Revenue: Q209 vs. Q109 – up 217%

That is quite a jump. And brand advertisers are increasing their the amount of their Web video ad budgets they are spending on pre-roll ads as opposed to other types of clickable units which appeal more to performance-oriented marketers. As more and more professional content makes its way onto the Web, the more “safe” inventory there will be for those brand advertisers. Even YouTube is close to making money. CPMs still need to be cut in half, though.

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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?

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Some new data from video ad network BrightRoll suggests that Web video advertising is suffering along with every other category BrightRoll places video ads on top media and professional broadcast TV sites rather than user-generated video. In other words, this is the inventory that all the advertisers want, but there supposedly isn’t enough of it. Yet 50 percent of this “broadcast quality” video inventory goes unsold.

Amd while more advertising dollars keep pouring into this segment of Web video (BrightRoll claims its revenues grew 172 percent annually in the fourth quarter of 2008, up 12 percent sequentially from the third quarter—although it gives no absolute numbers), the rates advertisers are willing to pay keep coming down.

In the fourth quarter, across BrightRoll’s network ad rates for pre-roll ads were down 25 percent compared to the year before. It could have been worse. In comparison, remnant display ad rates were down 50 percent in the quarter.

For all of 2008, pre-roll CPMs were down 14 percent, and they were down 12.5 percent sequentially for the quarter.

Those awful pre-roll ads look like they are here to stay. BrightRoll reports that 83 percent of a typical video-ad campaign was made up of pre-roll ads, versus only 63 percent in the fourth quarter of 2007. BrightRoll CEO Tod Sacerdoti says this is because pre-rolls outperform other types of video ads in all the relevant measures: “duration viewed, click through rate, cost per view, brand lift and change in purchase intent.” BrightRoll served 620 million video ads during the fourth quarter.

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The primary implementation of BrightRoll is to help publishers monetize content that they were unable to sell ads against. The company says that there is far more video content online than there is ad coverage available. I went through the company’s ad insertion process and can confirm that it is very easy to do.

BrightRoll is also announcing that it has closed a series A round of funding, raising a total of $1 million from 9 angel investors and one institution, True Ventures. The angels include Jeff Clavier of SoftTechVC, Michael Tanne from Wink and Auren Hoffman, CEO of Rapleaf. The full list is available on the BrightRoll site.

BrightRoll’s technology is used to serve all of the pre and post roll ads on Metacafe and the company recently entered into a partnership with VideoEgg. The company launched in March and they are now live on 35 different sites.

BrightRoll is part of what seems to be a growing trend, web 2.0 service providers starting in the B2B space and branching out to serve consumers directly. See also our coverage of BrightCove and Rightmedia (disclosure: TC8 party sponsor), two companies that are similar in some ways.

BirghtRoll CEO Tod Sacerdoti previously worked at Plaxo where he was responsible for the company’s monetization strategy and was part of the deal that sent the Plaxo mailing widget to YouTube.

Today’s new direct to consumer offering from BrightRoll is largely targeting niche video sites around the web. When I asked whether online video wasn’t entirely dominated by a few large sites, CEO Tod Sacerdoti told me that there is a surprising number of niche video sites that see large amounts of traffic. He said that based on his observations of the space he believes there are hundreds of sites currently serving millions of video streams per day. Those niche sites can be particularly valuable to advertisers who want to “own a channel” for a short period of time before a product launch.

Sacerdoti says that there’s an industry belief that post roll ads are worthless because of abysmal conversion rates, but he says that on a large scale there is money to be made in post roll. He also believes it’s a good introduction to video publishers that may subsequently decide to use more lucrative preroll ads.

Automating the optimization of ad serving in remainder and consumer published video content sounds like a good strategy to me. Will the technology work well over time? Apparently it has so far, though that’s hard for me to judge directly. None the less, I think the ideas at work are smart. This sector is likely to become quite interesting as competition and innovation increase.

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