Christine Peterson is engagement specialist and media supervisor at Carat Fusion. In her capacity, she has the power to shape a lot of the media bought on and off the Web. She writes for Mediapost and asks how to best manage online video in the marketing mix?
With all the hype about changing consumer behavior and continued media fragmentation, everyone wants a piece of the online video pie. Digital folks feel very comfortable planning and buying online video, but recognize the growth opportunities when they partner more with the TV groups. TV buyers want to expand their expertise and maintain their budgets within video, but face challenges when addressing execution and measurement. Additionally, if network groups are managing the buy, does this place the strategy in the hands of the traditional planners? These questions translate to the publishing industry as well. Agencies and vendors are currently addressing this in a myriad of ways, but most solutions still appear to be in beta format. Separation vs. integration, disconnected P&Ls, turf disputes, varying agendas; all of these are worthwhile concerns, but the advertiser only cares about one thing: What’s the best use of my media dollars? Read more here.
This is a great question and one that can impact the growth of online video. Note that online advertising (including display banner ads, search and online video) is a $15 billion industry, set to grow to $25 billion by 2011, or 9% of the total advertising market. Today search accounts for 40%, with a 43% growth rate until 2011. Display ads will grow 36% while rich media and video will grow 21-27%. These are all numbers by Jupiter Media.
But, online video is only poised to grow to a $1 billion industry in 2009. Not every online video company stands to make ad dollars, mind you. Online video firms can fall into the following categories:
1- content management platform technology companies (Brightcove)
2- advertising creation and management companies (Klipmart)
3- content aggregation and distribution (ROO)
4- video hosting and sharing (YouTube)
5- content producers (Our own WatchMojo.com)
What we know is that broadband penetration is rising rapidly, having grown 33% in 2005. Out of an Internet population of 211 million, there are now 50.2 million U.S. homes and businesses connecting online via broadband, according to a report released Wednesday by the Federal Communications Commission. Considering that there are more than a couple of Internet users per home, this translates to over 100 million people accessing the Web via broadband. Using a Nielsen//NetRatings’s report, which found that 72% of people have broadband, this translates to a whopping 150 million people who can watch video. But this does not mean that everyone watches video. After all, it’s hard to watch a video at work. That is why about 25% of people say they watch online video. So even if 100-150 million have broadband, “only” 50 million or so watch online video. This means that there is a lot of growth out there, but it also explains why video will only be a $1 billion industry by 2009. This past year some $235 million was spent on online video ads.
I think that is selling online video short. Of course, as producer of video clips on WatchMojo.com, I want the video industry to mushroom and be a $1 billion this year. Of course, that is not likely?
Why is that? The answer helps explain Ms. Peterson’s question.
Advertising agencies make 15% on every dollar advertisers entrust with them: 5% for strategy and planning, 5% for creating the ads, and 5% for buying. Of course this is not always the case, but it is the theory.
Guess how much advertisers spent on buying airtime on TV this past year? According to Jason Glickman’s article on Mediapost, the answer is a whopping $74 billion!
Let’s do some math: if advertisers spent $74 billion on TV airtime, they paid out 5% x 74 billion = $3.7 billion in buying fees alone. By that same formula above, they also paid some $3.7 billion for creatives, and an additional $3.7 billion in planning. Simply put, 15% of $74 billion is a massive $11.1 billion that agencies billed for their efforts. Of course the actual amount is probably less, but who knows?
Admittedly, it makes a lot of sense for TV advertisers to streamline online video buys into TV. But, the cost of making an ad for the Web is not the same as making an ad for TV. So while the advertisers might prefer spending money on online ads, and thus save money and spend it more effectively, I am not so sure there is an economic incentive for agencies to recommend this to companies.
This means that 15% x $235 million could be generated by agencies through online video, or $35.25 million; whereas TV buys generated $11.1 billion for agencies. If agencies have the influence on advertisers, where do you think the money will be spent, who do you think wants control of that? The TV side that commands the big budgets or the upstart web department who is experiencing torrid growth but on an absolute basis, is not generating as much revenue as the TV team?
Bottom line: Agencies do not have an incentive to separate online from offline, they might simply prefer to convert TV ads for online, that is unfair to clients but agencies are in the business of generating revenue, so who can blame them?
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Posted By: Ashkan Karbasfrooshan | Jul 31st
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