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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.

This article appears in the February/March 2012 issue of Streaming Media magazine, our annual Streaming Media Industry Sourcebook.

Good economic news has been as endangered as the panda bear in recent years. So we're delighted to be able to report that, when it comes to the state of the online video advertising industry, the news is good—extremely good.

Brace yourself: "Internet advertising revenues in the U.S. hit $7.88 billion for the third quarter of 2011, representing a 22 percent increase over the same period in 2010," says Seneca Mudd. Mudd is director of the Interactive Advertising Bureau's (IAB) Industry Initiatives; he also heads up IAB's Digital Video Committee. "These figures also show a 2.7 percent uptick from the record-setting revenues of the second quarter of 2011," Mudd tells Streaming Media. "Results for Q3 2011 further mark the eighth consecutive quarter of year-over-year growth."

YuMe chief revenue officer Scot McLernon is certainly feeling the love. "The in-stream video advertising market has had an exemplary year," he says. "The ‘hockey stick' growth of 2010 has continued in 2011, and we expect that trajectory to continue throughout 2012."

"It has been an exciting year to work in this industry," echoes William A. ("Bill") Lederer, CEO of Kantar Video. "Simply put, online video advertising spend performed phenomenally this year, growing more than 40% over 2010."

Michael Shehan, CEO and president of SpotXchange, Inc., agrees. "One of the strongest areas in online advertising was real-time bidding (RTB) for video," he says. "For example, in the SpotXchange video marketplace, we saw more than 100% month-over-month growth over the past quarter, and we were the first company to RTB-enable 100% of our inventory, which has led to more than 5 billion RTB bid requests per month."

For advertisers, real-time bidding for online video spots has paid off: "Brands are seeing considerable lift from RTB video advertising," Shehan says. "Our preliminary data shows CPM lifts at 20% for publishers monetizing via RTB versus those that are not."

Online Video Advertising Growth Drivers

What's driving this growth? Online video viewing and social media, replies Atul Patel, CEO of OneScreen, Inc. Moreover, "The increased maturity of the systems and processes involved in online media buying, ranging from exchanges, DSPs, and SSPs, and real-time bidding have helped advertising dollars move to the online medium as a whole," he says.

In particular, 2011 "marked a point of maturity for automated, real-time bidding platforms, which continue to help online gain market share from other direct marketing channels like Direct Mail, Free Standing Inserts and Coupons," says Dave Morgan, CEO of Simulmedia, Inc. "It was also a huge year for Facebook, as it established itself as major player in online ads. And, it was another strong growth year, albeit from a small base, for web video advertising."

Mobile video advertising has yet to tap into the boom, says SpotXchange's Shehan. "But that will change over the next year, as mobile video advertising will become more widely accepted as advertisers realize the benefits of targeting consumers on the go."

The only bad news is that "2011 was a tough year for branded display," Morgan notes. "Banner ad prices dropped considerable during the year as supply exploded with social networking." This price drop motivated website publishers to try to make up the revenue with more ad units and more direct response ads, he says. Unfortunately, doing this had "the net effect of making their sites even less desirable for brand advertisers."

Online Video Advertising Trends

The explosive growth in online ad sales has been driven by a number of trends. One of these is the increasing range of devices that can access digital video, from web-connected TVs to iPads and smartphones.

In the same vein, "Time and device shifting have allowed video leisure time to become an out-of-home activity," says the IAB's Mudd. "As price points for tablets and phones come down, DV consumption will rise. [And] as the Arab Spring and Occupy [Wall Street] movements showed us, the revolution will be streamed."

Add the expanding variety in content types-from quickies to feature films-and the range of resolutions supported, and the result has been an online advertising market with spots available for all budgets, large and small.

Simulmedia's Morgan views social media as a major trend in online advertising, and he predicts that its growth is not over yet. "Facebook is on a march to capture a share of the online ad marketplace commensurate with its share of webpage views—25%," he says. Given Facebook's astounding popularity, this goal may not be as outlandish as it seems.

Behind the scenes, SpotXchange's Shehan sees RTB becoming an important trend, thanks to this format's major scale and efficiencies. "Though it's still early days, buyers and sellers using RTB in an exchange environment are benefiting from getting the prices they want due to increased competition, high volume, and the ability to optimize in real time," he says.

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