Clamoring for it
It's certainly not lack of interest from advertisers, who are clamoring to be around video content. Instead, several factors are holding back online video's ad-revenue growth: fragmented audiences, limited inventory, a lack of video created specifically for the web and a still-evolving ad-buying model.
Consider the response of Terry Semel, CEO of Yahoo, which serves video to 20 million users a month, according to ComScore, when asked on an earnings call by an analyst -- perhaps antsy to see Yahoo pick up some of the $65 billion TV ad market -- if online video would hit an inflection point this year.
"A lot of learning is starting to take place, and a lot of trials are taking place," Mr. Semel said. "I see it ultimately as something that becomes very significant, and it'll get there, but not quite yet." The easy piece, he said, is getting sponsorships from big brand advertisers.
Lack of inventory
The harder part, according to those betting on the space, is the lack of inventory. Some of the most well-known online publishers only get 1 million or so streams a month -- which pales in comparison to TV, where many believe the dollars for online-video advertising will come from.
"[Advertisers] can't buy enough impressions, and it's fragmented," said Todd Boes, VP-product marketing for Maven Networks, which helps media companies put video content online. Suzanne Johnson, senior product marketing manager at Akamai, agreed. "Overall consumption just needs to increase," she said.
But they and others in the space believe the climate is changing as more major media companies put their most popular content online, as devices and technologies create better viewing experiences, and as ad models sort themselves out. Maven believes 10% of the $65 billion spent on TV ads will shift online by 2010, primarily to professionally produced content. The company estimates 20% of the content will attract 80% of the ad dollars.
Content designed for web
Aaron Cohen, who sold his Silicon Valley stalwart Bolt Media to GoFish last week, recently hatched a business plan that marries Bolt's user-generated pedigree with professional made-for-internet programming. Those making the best video work in the TV business are used to shooting 22- or 44-minute episodes, which don't work as well online. The web, he believes, needs more content made specifically for the medium.
"We have to talk about Lonelygirl constantly because she's like one of five pieces of made-for-internet content," Bolt CEO Mr. Cohen said. "We really have very few examples of made-for-internet stars or brands in the video space."
Mr. Cohen said content producers will need to warm up to syndication in order to generate enough streams, which goes back to Mr. Boes' point that advertisers can't buy enough impressions. Enter online-video syndicators such as Broadband Enterprises, Tremor Media and NBBC, which help spread dollars among sites that can't match the scale of YouTube or Yahoo.
"Scale is an issue for the top brand-name advertisers," said Randy Kilgore, chief revenue officer, Tremor. And CBS may have broad reach on air, but CBS.com's reach resembles that of a small cable channel, said Broadband Enterprises CEO Matt Wasserlauf.
Traditional ratings measurements
Online video also doesn't have traditional ratings measurements or, of course, a clear ad model.
Mr. Wasserlauf said those problems are exacerbated at agencies where the TV budget is controlled by one group and online spending is controlled by another. "Who's going to be responsible for driving the business?" he asked. "Will [the creative model] be 15-second spots repurposed? Or a whole new generation of creative, Flash video and interactive spots that could be better created with the internet group?"
The $775 million spent on online-video advertising doesn't account for all the marketers bypassing paid media and entering online video directly -- Unilever creating mobisodes for Dove Calming Nights; General Motors launching mini-documentaries as part of its MyCadillacStory.com; and, of course, the ambitious Bud.tv project out of Anheuser-Busch.
"We have to question what's going to be the ultimate ad format," said Akamai's Ms. Johnson. "Is it going to be a paid sponsorship? Marketers are also investing a lot on their own."