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The State of Online Video Advertising 2013
Online video advertising is taking in more money, but isn't growing as a percentage of total online advertising. What will it take for video ads to break out?
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When it comes to the global state of online video advertising as we enter 2013, the news is both "wow!" and "ho-hum."

Wow: Online video advertising earned just over $1 billion in the first two quarters of 2012. This total comes from the "IAB Internet Advertising Revenue Report," which was prepared for the Interactive Advertising Bureau (IAB) by PricewaterhouseCoopers and released on Oct. 11, 2012. In the same two-quarter period in 2011, online video advertising earned $891 million.

"This represents an 18 percent increase over the same period in 2011," says Randall Rothenberg, IAB president and CEO. "This is one of the strongest growth rates in the entire online advertising sector, which totaled $17 billion in the first six months of 2012." Ho-hum: When you compare online video advertising's performance to the entire video advertising sector -- including broadcast television -- its performance isn't that hot.

"In 2011, the total TV advertising market in the U.S. was worth more than $70 billion," says Bill Niemeyer, a senior analyst with The Diffusion Group. "In this context, the money online video advertising captured -- let's say $891 million times 2, which makes $1.782 billion -- a small share of the combined TV/video ad market."

More ho-hum: The IAB's report says online video advertising had a 6% share of total online advertising revenues in the first two quarters of 2011; the same percentage reported for the first two quarters of 2012. This could mean that online video advertising's growth is mainly due to the overall growth of online ad revenues as a total category -- rather than online video advertising staging a breakout on its own.

What's Driving Growth

Online advertising revenues are going up because more people are watching online video, and the people who provide that video are increasingly packaging it with "forced view" commercials.

In the forced view model, commercials are placed before the video runs (preroll), in the middle (midroll), or at the end (postroll). You wanna see the clip? Fine, you gotta watch our commercials.

Forced View Ad

The “forced view” commercial -- typically a 15- or 30-second preroll like this one on Vevo -- still dominates the video advertising market. 

As it turns out, forced view online video advertising works. According to comScore, Inc.'s Video Metrix service, in October 2012 alone, 183 million U.S. internet users watched more than 37 billion online content videos, while "video ad views reached nearly 11 billion."

This same trend is reflected in a report released in November 2012 by FreeWheel, an ad management technology company. FreeWheel says that, as of 3Q 2012, ad-supported online video viewership has grown 17% on a year-over-year basis. The company found that online videos 20 minutes or longer have an average of seven commercials -- and that viewers are watching 93% of these ads in their entirety. Overall, FreeWheel says that online ad viewing has grown by 49% in 2012.

Clearly, forced viewing works. "People are conditioned to sitting through commercials from watching broadcast television," says Rothenberg. "When watching ads became a condition of seeing content online -- which has increasingly become the case -- viewers have accepted this fact. They may not always like watching ads, but they understand that this is the price they have to pay to get content for free."

Currently, online viewers don't have to sit through nearly the number of ads endured by broadcast viewers. But given their willingness to endure online commercials -- many mercifully timed to 15 seconds, rather than 30 -- this could change. After all, "There is no reason digital ad loads should be any lighter than TV ad loads," observes JoAnna Foyle Abel, VP of marketing at FreeWheel. "It's all just TV content."

Alert advertisers will take note of these facts and adjust their spends accordingly, advises Patrick Hurley. He is VP of marketing with Skytide, a provider of online video analytics services.

"As online video begins to mirror traditional broadcast TV -- longer-form content, reliable quality, easily accessible on television sets, lots of channels and genres, ability to insert ads into the stream -- advertising will continue to migrate to it," Hurley predicts. "The rise of programmatic online video ad buying will also bring the efficiencies and accountability of the Internet to media buying, which should spur further growth."

Why Only 6%?

Hurley is bullish about online video advertising's prospects. This is because the time-honored transaction between TV viewers and TV broadcasters works on the web: "I give you a short burst of attention and, in return, you provide me with access to the content," he says. "I think that some form of that model is here to stay."

Meanwhile, online in general is finally winning advertisers' trust and faith as a must-have venue to reach consumers. This conclusion is borne out by the "IAB Internet Advertising Revenue Report," which states that $17 billion was spent on online advertising for the first 6 months of 2012.

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