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The State of Video Advertising 2014

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According to comScore, the American online video audience has swelled to 56 percent of the population, meaning that about 189 million Americans watch video online each month. That is almost 50 percent more than the percentage that turned out for the 2012 presidential election.

So, in order to reach the American public, turn to online video advertising.

What Came Before

As with children, video advertising has gone through several stages since its inception. It started by looking up to its elder siblings’ search and display for guidance. Later, it realized that it was strong enough to stand on its own and didn’t need to follow in their footsteps or in the footsteps of its parental unit, TV advertising. However, video advertising still retains some similarities and ties to them all.

In the first half of 2012, online video advertising topped $1.1 billion in revenues, while in 2013, it was almost $1.4 billion, or 24 percent higher. Twenty-four percent growth year over year means that online video advertising, as a segment, is growing faster than online advertising in general, which grew just 18 percent in the same time. In fact, in terms of percentage of total revenue, all digital ad formats are seeing a downward trend because of the growth of mobile (Table 1). All, that is, except for video.

All digital ad formats are declining in popularity, except for online video, according to comScore. 

At the same time, YouTube cost per mille (CPM) rates have dropped from an average of $25 to close to $2, so how can video advertising be growing revenue so fast?

Driving Forces

Performance-based pricing is the vital driving force right now as it accounts for 65 percent of revenue for the whole digital advertising industry, according to the Interactive Advertising Bureau (IAB). Key to that is programmatic buying, the big buzzword right now in digital video advertising. Several other factors pushing online video advertising forward are more expansive TV Everywhere choices, packaging of traditional TV ads with video on demand (VOD) and DVR ads, expanded use of gross rating point (GRP)-like metrics online, more innovative and interesting ad formats, and video advertising against mobile apps and games.

Programmatic Buying: The Key to the Future?

Programmatic buying is the use of artificial intelligence (AI), mostly algorithms that watch trends in data, to optimize ad placements based on a set of criteria targeting a specific audience. The AI then automatically makes a specific ad buy to meet or exceed the criteria.

Programmatic buying is the long-awaited marriage of Big Data and online video advertising. It will allow advertisers to drill down into that massive amount of data, from a variety of sources, in order to better target the demographics they want. On top of that, it will also allow for tracking across platforms to the point where the brand message and experience can finally be totally cohesive and consistent, everywhere the consumer goes.

Programmatic buying is not only about automated buying; it’s also about optimizing campaigns and ad placements. The algorithms will watch the data and buy ad placements when they see a favorable trend or environment emerging, based on the information that an advertiser has input into the system. For example, say a clothing retailer wants to sell more shorts, T-shirts, and sandals at its Chicago location. It put in parameters for an ad buy that amounts to “a sunny day in the Chicago area when the temperature is above 70 degrees” and specifies a list of content publishers that are known to be popular with Chicago-area users. One day in April, much to everyone’s surprise, the clouds clear up and the temperature rises, which triggers the algorithm into buying ad placements across a dozen sites that are popular with people in Chicago. It could even go so far as to customize those ads, from variables input into the system, to tailor them for specific users whose buying habits the retailer might have information on already.

Talking about AI automatically targeting people with ads might bring a sense of dread to many consumers who may begin opting out of any kind of behavioral tracking online or offline. That means it will have to be done with a delicate touch and will need to explain to the consumers the benefits that they will get, and maybe even incentivize it for them in some say.

As AI systems become more complex and are better able to make sense of the complex and massive datasets they are given, the better the targeting will get over time. That means better ROI on video advertising across the board, because the ads should be in front of more receptive eyes (theoretically anyway).

TV Everywhere Means TV Ads Everywhere?

TV broadcasters and cable companies have bemoaned their lost revenues for some time. TV Everywhere was put forward as one of the answers to move the broadcasters and cable companies forward into the digital era regaining that revenue and, perhaps, to grow revenue. 2013 was a breakout year with FreeWheel reporting a 20 percent jump in TV Everywhere video viewing and, more importantly for this article, a 31 percent jump in video ad viewing year-to-year 3Q 2012 to 3Q 2013 (Table 2). Along with that, mobile TV Everywhere video viewing skyrocketed 200 percent, with tablets rising 365 percent and smartphones 235 percent in the same time. This is the front line of screen convergence for not only content, but advertising.

According to FreeWheel, video ad viewing rose 31 percent in 2013, outpacing the increase in total video viewing. 

Advertising revenues are shifting as well. In the past, more of the ad revenue on TV Everywhere content was coming in on multichannel video programming distributors (MVPDs), as in a combination of linear TV and IP-based video. However, digital-only distribution is beginning to bite more into the overall ad revenue pie. The split in 3Q 2013, from FreeWheel’s “Video Monetization Report” for the quarter, was 52.9 percent for MVPD and 47.1 percent for digital-only distributors, a shift from 54.1 percent and 45.9 percent, respectively, in 3Q 2012.

Advertising loads are on the rise as well in TV Everywhere, with present ad loads at around 11.6 ads per video and a 91 percent completion rate, most likely because of the viewer’s inability to fast-forward through them, as in the case of Hulu. Those ads are also trending toward 30-second spots more this year than last, with that ad length netting almost 65 percent of ad views.

Packaging TV Ads With On-Demand and Online

Now that multisystem operators (MSOs) such as Comcast, DirecTV, and Time Warner Cable are becoming MVPDs, it is becoming increasingly easier to bundle on-air advertising with on-demand. Broadcasters can now begin offering multiple distribution channel advertising deals where an advertiser could place an ad on the first run of a TV episode on linear TV and couple it with advertising placed in the VOD episode coming from its main website, or app, the day after, or for several days after.

Another initiative that is gaining speed and could be a major factor in 2014–2015 is injecting up-to-date advertising in VOD and even DVR-recorded television shows. This could be used to ensure advertisers that, regardless of when an episode is seen, their ads will be there. Or, if the episode is viewed after some time, the advertiser could have the ability to insert an updated advertisement from their then-current ad campaign. But all of this needs to be tracked, and that leads us to the next big topic in 2013 and the future: online TV-like metrics.

iGRP Means More TV Dollars?

The gross rating point (GRP) has long been the metric for television advertising. In a nutshell, it is the reach of advertisements in terms of percentage of the entire U.S. population multiplied by the average frequency of the ad. This has been the main metric for television ad buying, and it is now coming to digital video advertising.

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