Distributors, Networks Push for More Ads in TV Shows Online

Current Models Not Earning Enough to Pay High Business Costs

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NEW YORK (AdAge.com) -- Want more ads with your free web video? Not to worry; they're coming.

Until now, online viewers have been able to watch TV with one substantial perk: fewer ads than if they watched the same show on TV.
Veoh CEO Steve Mitgang
Veoh CEO Steve Mitgang

But that will soon change. The networks and distributors putting TV online are facing some tough economics. Even if they're selling ads at a healthy $35 to $50 cost per thousand, there just aren't enough of them to pay the bills.

Distributors make just pennies streaming a full-length episode of, say, "The Office," which is generally not enough to cover bandwidth, hosting and technology costs. Those costs triple for video shown in high definition.

And that's forcing sites to consider breaking what has been a de facto rule in web video, that viewers only get one ad per break. "All the networks internally are pushing it," said Andrea Kerr Redniss, managing director-digital at Optimedia. "The CPMs are higher than they are on television and they're sold out."

Testing waters
ABC.com, which commands some of the highest advertising rates for online video, conducted tests with Nielsen earlier this year to gauge viewer reaction to more ads and is weighing increasing ad loads for shows such as "Desperate Housewives" and "Lost." As ABC Digital Exec VP Albert Cheng said recently at Streaming Media West: "We have to look at how much money we are making per episode on TV vs. the internet. From there, we can start to see what we need to do to make more from an episode viewed on the internet than we do from the same episode on TV."

Veoh, one of the biggest third-party distributors of TV content, is also considering upping the number of ads it runs on long-form video, particularly if they're behaviorally or contextually targeted. "Our research shows that there is an opportunity," said Veoh CEO Steve Mitgang. He said current video watchers are more inclined to tolerate a heavier ad load than newbies.

ABC.com, Hulu, Veoh and CBS's Audience Network have intentionally kept ad loads low while attempting to drive consumer demand and are reticent to do anything that might turn off viewers.

Indeed, Hulu became a top-10 video site in just a few months while keeping ads to a minimum. A spokeswoman said Hulu "is always experimenting" with different ad models, including fewer ads. Recently it offered viewers the option of watching a two-minute movie trailer in exchange for an ad-free show.

Upfront trouble
Video sites could face significant backlash from advertisers if they increase the ads, especially those marketers that reserved video spots in the upfront in May in part based on exclusivity within shows. That alone could delay a change until the coming upfront in the spring.

Importing a more TV-like model to the web also could inspire the kind of innovation the studios might not like: a DVR-type software or device that would record web programming and strip out the ads.

"Overall, this is not something consumers want," Ms. Kerr Redniss said. "But I don't know if the backlash will be enough to change their behavior. I think they'd be willing to sit through an additional minute and a half of ads, but they're going to gripe about it."
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