Online Video Advertising: What's Wrong With This Picture?

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The deal you signed was a rather promising 50-50 split of ad revenues. The agency said it would charge advertisers $10 for every 1,000 adverts that play. That means that for your 5 million video plays each month, you expect the agency to bill the advertisers $50,000. Fantastic! You will see $25,000 if the money comes through right.

However, you have to pay for the video to be delivered. Let’s conjecture that your distribution billing (which varies based on bitrate, view length, and more) at this level of video is $10,000 per month—not an unreasonable amount in this market. So your actual operating profits are $15,000 before you take out the business costs. Once you lose tax on this and take out the cost of promoting the portal to drive the traffic and employing a single full-time staff member (perhaps yourself) to manage the enquiries and other aspects of the business, it’s hard to see how this can be sustainable.

An Eerie Silence
I decided to find some people to talk to for this article. Normally, getting interviews for trade press is fairly straightforward, but this has been the scariest part of my journey recently. As an active participant on the Streaming Media forums, which are typically populated by a wide spread of engineers and interested parties in the streaming space, it seemed like an obvious place to put out a posting like this:

To the StreamingMedia.Com Advanced Forum
Guys: I am putting together an article on video distribution companies’ experiences with working with online advertisers.
[I’m] interested to hear from any of you who have had positive and negative experiences and looking at the distinction between ‘old’ TV-based models and ‘new’ new media models (so perhaps the difference between in-stream sponsorship deals and third-party managed click-through prerolls, etc.) and [whether] there is more success with either in comparison to the other.
Also interested in hearing from companies who have done a lot of work with ad providers to create technical integration, etc., but then not had any real follow up with successfully sold advertising space and, thus, making any real revenue.
Finally, I’m really interested in hearing from anyone who has any real success stories …
Happy to take off-list—either at my work email or on dom@—equally [I’ll] be watching the public thread if there is any general discussion following this email …
Regards and thanks for input,
(All contributions will be accredited in the article).
Dom Robinson

And I waited. There are several thousand users of these lists, and usually, any comment elicits some witty or technically accurate response. Nothing. Not even a flame.

So thinking that those advertising technologists on the forums were laying low, I thought I’d pick up on a posting Dan Rayburn recently placed widely on his blogs and the Streaming Media sites asking for someone to showcase an online advertising platform at Streaming Media East. I explained to Rayburn that I received no response from the forums and wondered if any of the respondents to his posting would be interested in talking to me while I compiled this article.

His response: “None responded. I had an agency respond, but none of the ad platform/network vendors.”

The Advertising Model
Now I started to wonder. Perhaps we are facing a new myth in the sector that everyone wants to believe but that is nowhere near what is being presented. So I called a few ad providers that all claimed immense market share and success, but all declined to refer me to any clients who could validate their success and the economics of their models. It is worth noting that with my declared interest in the market (as the CTO of Global-MIX at the time, CEO now), it was understandable for these companies to be guarded about their clients to some extent.

So I spoke with a few people who work at video sites with advertising prerolls; I had a very mixed response. Representatives from a music site I spoke with say the site makes in the range of 2 million video plays each month. The site was covered with advertising, mainly banners, but the adverts were not generating revenue in any real terms, being part of the system; also the CPM was incredibly small. But all of this served the purpose of making the site look busy. This enabled its ad people to sell preroll ads to specific sponsors on an occasional basis at a much higher and more profitable CPM because the sponsors felt that they were “in company”. There was something about the presence of ad banners that made it easier to attract bigger sponsors. Dave Wright of Wright Media, who manages the music site, went on to say that demographics were far more important to the value of the sponsorship deal than the volume of ads served.

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