Ad countdown begins for online video services

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Now that online goliaths Google and Yahoo have unleashed video-on-demand offerings, the question is what role-if any-advertising will have in a pay-for-play future.

Those who work in the trenches of the interactive industry rather than blog about it say neither Google Video Store nor Yahoo's Go suite of products will be able to make a profitable business without outside support. Within the year, they prognosticate, advertising will be part of both companies' services.

"I think there's going to be a market that will pay [for online video] but it will be a limited market," said Jeff Lanctot, VP- media, Avenue A/ Razorfish.

Indeed, in spite of the recent media fireworks surrounding the services, Jupiter Research data show that consumers are not yet widely viewing, renting and downloading video online. Only 16% of all consumers watched video online in 2005, those numbers show, and just 26% of online consumers cited interest in watching live or recorded TV on their PCs.

"That consumers need to be educated about video is a generous way to look at it," said Todd Chanko, analyst, Jupiter Research. "Another way to look at it is, the viewers have already voted."

Others say the 60% penetration of broadband among consumers is evidence that the popularity of VOD is guaranteed to grow.

But consumers don't want to pay. Another study by media-research firm Points North Group showed that by a greater than a three-to-one margin, consumers would prefer to get free on-demand TV programs and endure commercials.

Google Video Store rents top-rated shows from CBS such as "CSI" and "Amazing Race" for $1.99. Consumers can download classic programs like "The Brady Bunch" and "Star Trek Voyager" for $3.95. Google sells NBA games a day after they air live for $3.99. Other fare is presented free. Forty content providers have signed on to distribute content through Google in agreements that executives said give 70% of the revenue to the content providers.

Yahoo's new suite of products, called Go, is designed to extend Internet content from the PC browser to mobile devices, TV and the desktop. Yahoo will distribute material from many content providers as well as it own original productions, as it does now on

Neither company has attached advertising to their offerings, but both say they are "open" to the possibility.

What would such an ad model look like? There will be lots of variations, but media buyers envision pre-roll advertisements, sold on a cost-per-thousand basis. "You won't see TV ads baked into the shows and distributed across devices," Mr. Lancot said. "Eventually, you'll see device-specific advertising."

The look of the future?

One likely ad scheme customized for each type of device would be solo-sponsored content with a short pre-roll before the content plays, and a mention of the advertiser later on, but no interruptions within the show. In another scenario, brands would produce their own infomercials for downloading on multiple devices. "The message itself would be the content," said Rishad Tobaccowala, chief innovation officer, Publicis Groupe.

A third method would be the typical PC model-with spots appearing before the program runs. On mobile devices, they'd better be succinct. "I would recommend 10 to 15 seconds-30 seconds is too long for a PC ad," Mr. Lanctot said.

Advertising won't come cheap, either. Instead, it will be comparable to the $25 to $45 CPM that broadband video ads currently cost. Part of that price tag has to do with online inventory shortages, which will improve as these VOD programs roll out. But price-per-acquisition costs will still be high. "On TV you advertise to 10 million to reach 500,000," Mr. Tobaccowala said. "But online, you have to find that 500,000."

One of the biggest question marks is how to monetize consumer-generated content. Experts point to the Jib-Jab political-comedy videos as an example of how successful unknown content that becomes viral can be. But advertisers haven't yet figured out how to make money from other consumer-created material, such as portals' blog services or photo-share sites, because traffic in those places is typically so low.

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