BUSINESS BLOGS
BUSINESS BLOGS
category: business
06 Jan 2009

JP Morgan analyst Imran Khan hits on two main challenges facing online video, but also shows why analysts are very reactive in their prognosis and lack much insight from the front lines.

—Bearish online video: Khan expects the accelerated shift to performance ads having a dampening effect on the growth of online video ads. Even in a series of downward revisions, online video ad growth still seemed poised for healthy gains this year. For example, at the end of November, eMarketer forecast online video growth of 44.9 percent, which was still nearly half of the 81 percent growth rate the researcher predicted for 2008.

1) Khan believes that online video is headed for a considerable slowdown because one, it’s still reliant on the CPM model, as opposed to performance-based measurements like cost-per-click or cost-per-action based display.

2) And unlike television, which still can count on advertisers to respond to CPMs, online video can’t guarantee viewership for any specific video the way TV does in the upfront model.

Plus, considering the unpredictability of popular videos, the uneven quality, and the continued battles over copyright, JP Morgan doesn’t expect online video to have great prospects for the next few years. However, Khan is intrigued by Google’s experiments with an e-commerce platform—i.e, performance-based model—for YouTube videos. For example, if a user watches a song featured in a music video, they can click on a link that lets them buy music directly Amazon and iTunes, with YouTube getting a cut of the revenue.

More on JP Morgan, via PaidContent.org:

Historically, when you try to estimate the value of a video stream, you would be limited to instream (such as preroll and overlays).  In fact, even the “vaunted” eMarketer radically under-estimates the size of the online video advertising pie.   By their measure, none of YouTube’s display ads would figure in the online video estimate, which is ridiculous in my humble opinion.

After all, content is content and if a site plays a video and sells ads around that, that revenue should be allocated to the estimate for video advertising.  I don’t think video content’s value is capped to instream and in-banner/in-text ad as eMarketer measures it… by their definition, they are excluding the majority of the revenue on the world’s largest video site.

I also disagree with the performance-based advertising mantra over the long term because high-end publishers will never agree to these deals for their prime real estate.  If they did, ad networks would be doing better.  In other words, ad networks’ wobbliness in 2009 has little to do with softness with display and more to do with performance-based advertising not paying the bills and being rejected by publishers.  Ultimately, it’s all about the inventory and content, not about getting impressions for CPC/CPA campaigns on bad quality pages.

For video content owners, I do agree that we need to shy away from strict CPM models even until the advertising model for online video matures.  What we do is strike licensing deals with the upside of advertising share proceeds once we cross certain tresholds…

Finally, I think Khan is stuck with his head in the sand: “And unlike television, (…) online video can’t guarantee viewership”.  Last time I checked, the only viewership that TV could guarantee was a declining and untracked one.

For more on what to expect in online video and online advertising.