Promises, Promises: Will Online Video Ads Deliver This Year?

Online video advertising is finally making an impact on the digital space. Of the $28.5 billion that eMarketer predicts will be spent online next year, video advertising—as it hits almost $2 billion—will be the most dramatic growth story. Video spending has always accelerated faster than other online ad formats, but this may be the first year that trend will have demonstrable results.

Video ad spending will achieve the highest gains in market share among the formats. While other formats remained fairly static, video alone will double from a 5.5% share in 2010 to 11.3% in 2013, new eMarketer estimates show. And spending for video ads will continue to escalate at a furious clip in 2011—39% compared with 11% for banner ads and 10% growth for search.

One reason for the huge increase in video ad spending is that brand marketers will shift more of their ad budgets online. Since there is more professional video online than ever before, buyers have more inventory to choose from.

Brand marketers realize how central the internet is to consumers’ lives than it was even two years ago. More important, they see how much of that video content is professional, so they trust it and as a FreeWheel study shows, consumers tend to watch video ads to the end when they are up against professional video content.

For most brands—particularly the often traditional consumer goods marketers—perception is everything and the content that their ad runs up against is very much related to how the audience will perceive their brand. So, when it’s content that the audience already knows (like TV shows) they can be sure their brand image will not be tarnished.

Will the shift in ad dollars come from TV? I wish I could say for sure. TV is certainly not declining. It’s growing in solid single digits, according to eMarketer’s comparative estimates. Some industry watchers say that the dollars for online video ads are still shifting from TV, others say it is shifting from print.

But I predict that a major key to the shift into online video will come from the rich consumer goods companies because that ad format gives them more of what they need for branding than any other online format. As important, advertising against professional video content is the most comfortable parallel to the way they’ve been advertising on TV. Twenty-one of Ad Age’s 100 Leading National Advertisers are consumer goods brands, and those 21 spent over 22% of the entire pool of measured media advertising, according to our analysis of the Ad Age data.

That’s not to say the Unilevers and Procter & Gambles of the world will get the internet religion wholeheartedly. Consumer goods brands tend to be conservative, and they will continue to tread carefully and experimentally. But they will continue to spend. After all, for brands with such large ad budgets, a little bit goes a long way. Further, consumer goods brands need to market the brand, since in most cases their products are interchangeable.

Online video CPMs tend to be more expensive than TV CPMs, or even cable. But video ads online also tend to be more targeted. Marketers are not reaching a mass audience of millions as they would on TV. Instead they are reaching a focused, engaged audience. There is less of an ad load online, so people tend to sit through the ads, rather than flipping channels or taking a snack break as they would with TV.

Better still, there is a higher completion rate for watching mid-roll ads compared with preroll and postroll, according to FreeWheel. Why? A consumer has already committed to watching the content, so they might as well watch the ad. Most surprising, half of the post-roll ads served are viewed to the end. With TV shows nowadays, both online and on the tube, you never know what scintillating little bit of content from the show might follow the ad.

There are three caveats to all this great growth news.

With more and more content pouring online from the TV networks, Hulu Plus and possibly Google TV, growth seems certain. Don’t forget, though, these entities are still quite new. They may falter, or fade away and video ads will not grow at the same rate.

In addition, the growth of Netflix in particular, as well as Apple TV, point to a huge quantity of digital video content that will be subscriber-based or pay-per-view, and therefore creates no video ad inventory.

Bandwidth limits are another problem. If large ISPs, which are predominantly cable companies, start to meter bandwidth, consumers will become more picky about how much video they view. As they become more selective, that could decimate the amount of video inventory available.

If those caveats don’t come to pass, the future holds huge promise for digital video. There will not only be a surge in video on the internet, but an explosion of video everywhere. People will watch online, on their iPads, their smartphones or internet video streamed through the TV. And marketers will buy those ads in packaged deals across screens.