September 2009: Digital Video Advertising: Where’s the Money?

 

Spending projections for online video advertising paint two seemingly opposing pictures—one of great growth that promises major new vehicles for brand marketers, the other of small shares that limit its potential ascendancy. On the growth side is the steady rise of ad spending, set to nearly quadruple from a bit more than $1 billion this year to over $4 billion in 2013.
 

 
Those dollar gains translate to annual growth rates of 40% or more through 2012, and a still-strong 30.6% in 2013. Support for considerable increases will come from several factors: 
  • There is a steep rise in professional video content coming online, which will sustain significantly more video advertising from a broad range of industries.
  • The number of total hours people will spend viewing online video will increase by over 90% in 2009 and will nearly double next year. The audience is there for brand marketers to reach, increasing scale to give them greater impetus to put more of their budgets against Internet video.
  • The technology is now ready for primetime. High-definition, full-screen video is becoming commonplace on the Web, with improved players—most notably Flash and Microsoft’s Silverlight. And higher-quality video boosts both the audience’s receptivity and the video’s usefulness for advertisers.
  • Targeting is barely developed for online video advertising. But as targeting technologies and marketers’ desire for more effective (targeted) buys develop further, that will encourage greater video ad spending.
  • Increasing sales of more expensive and more effective preroll ads on YouTube, the giant among video sites—as cited by Google on its July 2009 earnings call—could lead to a strong platform for video ad spending.
  • The recovering US economy will be a spending accelerator, especially after 2010.

 
Video advertising is growing rapidly, but remains a relatively small share of overall Internet ad spending. Furthermore, for online video to become a large market—with the scale to attract substantial dollars from major brand marketers—two types of convergence will need to mature, one for content and one for monetization: 
  • The convergence between video delivered on the Web and video delivered on the television.
  • The convergence of business models, with digital video increasingly supported by a mix of ad dollars subsidized by audience subscription fees—much like cable TV.
However, when measured by the ad dollars marketers spend relative to the amount of time individuals spend viewing video, online far outpaces TV. In 2009, for example, marketers will spend $0.17 per hour viewed for online video, but only $0.13 per hour viewed for television.
 

 
US advertisers in 2009 will spend $1.38 per hour of Internet video viewing for each $1.00 they spend per hour of TV viewing. That imbalance will need to end in order for marketers to find equivalent value for online video, rather than greater costs. By 2010, the difference between Internet video’s and TV’s spend per hour will start to even off—which indicates a potential tipping point for online video advertising.
 
Of course, in absolute dollars, there is no comparison between TV and online video. For every $1 marketers spent on Internet video ads in 2009, they will spend nearly $65 on TV commercials. The effectiveness of TV commercials for brand marketing is still unsurpassed.

 

Find out more about eMarketer’s digital marketing and the new report “Digital Video Advertising: Where’s the Money?

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