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The State of Online Video Advertising 2012
The online video advertising market has been slow to take off, but with the growth in tablet usage and social media—not to mention real-time bidding and other innovations in advertising networks and formats—it's finally moving toward maturity.
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"On the pricing front [in 2011], the industry began to experiment more with non-CPM pricing models in video," Shehan continues. In particular, he says the cost-per-engagement (CPE), cost-per-view (CPV), and cost-per-time-spent (CPTS) models for
video advertising were some of the pricing models "that gained traction in 2011 and will continue to do so next year."

A word of warning to website owners: The success of CPV and CPTS "has opened up the likelihood advertisers will seek to buy on what they consider to be relevant Key Performance Indicators rather than simple audience ratings or engagement metrics,"
says Patel. "As this is the most measurable of media, it is only logical the advertisers will continue to push for greater and more relevant accountability."

The Paradox of Online Video Advertising Effectiveness

As they reflect on 2011's superb economic performance, online advertising experts have been wondering which models deliver the "biggest bang for the buck."

According to Kantar Video's Lederer, the best online advertising is specifically made or adapted for the medium, with interactivity built in to grab the viewer's attention. "Those ads targeted to the right audience in the right context can be extremely effective," he says. "Ads that are simply repurposed commercials from television typically don't work as well. They are missing the full impact of [online] video by assuming the experience is just like television."

"SpotXchange has found that interactive video ad units perform very well overall," agrees Shehan, "especially as you add different ways to engage with a video ad-via social media outlets like Facebook, Twitter, and YouTube, for example. These tools can turn any preroll video ad campaign into an interactive user experience."

To prove his point, Shehan cites the online video campaign of SpotXchange client MSC Cruises. "The campaign featured a 30-second preroll video, which had a link to the cruise line's Facebook page and the ability to link to more MSC videos in YouTube," he says. The results speak for themselves: "MSC achieved an average engagement rate of four times the industry average," says Shehan. "That's performance, and we think it's an effective form of advertising for streaming media."

Now for the paradox: The traditional broadcast TV model of linear ads (commercials) "that interrupts the experience continues to work the best, as compared to nonlinear overlays which do not capture the user's attention enough," says OneScreen's
Patel. "This was solidified in 2011 with overlays providing only incremental exposure for advertisers and incremental revenue for publishers."

Again, hearkening back to old-fashioned broadcast media, "Radio-like audio advertising works very well for streaming media, even if it doesn't get the attention of other streaming formats like video preroll," says Simulmedia's Morgan. Ironically, this
lack of attention explains the success of streamed audio ads: "It mimics the unique power and position of radio as a background ad medium."

Online ads made for the medium work best, especially if they incorporate interactivity and support viewer choice. This said, linear TV and radio commercial models work better online, compared to overlays and other modern, nonlinear ads that are easy to ignore.

Looking Ahead

With 2012 now here, our experts are more than hopeful that the booking online ad market will continue to grow. As for what else will occur in the year ahead, the experts are not short on predictions.

"In 2012, advertising will see continued maturity across all the digital channels with high volume and revenue growth in video and social and efficiency gains in display and mobile," says OneScreen's Patel. "However, large publishers and content owners will gain back control with new tools that empower them to provide their advertiser clients with more integrated advertising formats that ad networks cannot provide. ... Advertisers, on the other hand, will begin to target beyond sites and audiences by looking at the actual content and context in which their messages are placed."

"Better targeting, third-party content, and campaign measurement/optimization based on a combination of online and offline behavior, audience, and context will result in data and supporting technologies growing to a larger percentage of video advertising spend," Lederer forecasts.

That's not all: "The demand side of the video ad market will become far better organized and effective helped by more inventory, the availability of a vast selection of third-party tools, and driven by strengthening advertiser appetite for this new medium," says Lederer. "Multi-platform video execution at scale will begin to emerge as a reality. Growing video viewing on mobile phones and tablets will hit critical mass before year-end 2012, demonstrating the arrival of mobile video as a commercially viable medium in the U.S."

Meanwhile, internet-connected TVs will have an impact on web advertising at last, says Morgan. "Finally, we will see a marriage between the viewer reach and engagement of TV and the interactivity, personalization, and on-demand services of the web," he predicts. "The ad market share for web apps on TV will be small in 2012, but the foundation will be set for many years of substantial growth."

Michael Shehan believes that 2012 will see the "RTB for video" market outpace "RTB for display," with RTB for video gaining a larger share of total online advertising revenue. "The infrastructure for RTB in video already exists, and both buyers and sellers are realizing the massive efficiencies that can be gained as a result, let alone the benefits of real-time optimization," Shehan explains. "Another prediction is that private exchanges in video will become more mainstream: Publishers that set up private exchanges for video inventory benefit from their existing brand power and direct relationships with advertisers, while enjoying all the market efficiencies that a real-time exchange provides."

"Lastly, the online video market will continue to get bigger and smaller at the same time," he predicts. "As spend for video advertising increases, marketing investments will also begin to materialize at the hyper-local level, with regional and local marketers taking their share of the increasing video supply."

While all this is happening, online advertising is poised to become mature and corporate, just as radio and TV advertising grew up after their heady early days. "The online advertising industry will continue to settle down in 2012, as it moves away from the ‘Wild West' approach of a few years ago," says YuMe's McLernon. "With increasing size comes maturity and professionalism. We've come a long way from the early days of the internet."

Finally, the IAB's Mudd offers this roundup of predictions: "Streaming will become faster, lighter, and richer. User-generated content-driven campaigns will become increasingly important as social channels amplify commercial productions. More consumers will utilize daily video briefing digests for quick news and entertainment roundups."

As for the winners and losers in the 2012 online advertising market, "First-movers will be rewarded," Mudd replies. "Others will be envious."

The very lucrative bottom line is that online advertising is a shining beacon of light in an otherwise dark and gloomy world economy. For those in the industry, the news is very good indeed, with even better times yet to come.

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