Online Video Ad Spending to Triple by 2007

Study Predicts Spending Shift Away From TV

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NEW YORK ( –- Spending on online video advertising will triple in the next two years, research firm eMarketer predicts.

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In 2007, the research firm expects the dollars committed to online video ads to climb to $640 million from the $225 million spent this year. By the end of the decade, advertisers will spend at least $1.5 billion on video ads online.

Clambering to get online
Marketers are clambering to get their messages into video ads. Some of the most memorable Web ads this year used video in a way that worked particularly well in the medium: Burger King's Subservient Chicken, Jeep's Webisodes and Volkswagen's short films for its Passat brand. Earlier this year, 21% of U.S. media planners and buyers said online video ads were their primary focus for 2005, according to the eMarketer report.

While $640 million is tiny compared with the $17.8 billion eMarketer predicts will be spent on all online advertising in 2007, it's significant because of the rate at which that spending is growing -- 66.7% in 2005 and an expected 71% in 2006.

Diverting money from TV
Most significantly, the report said, is that all of that growth represents money that would have been spent on traditional TV.

The central reason for this growth is that consumer broadband hookups have become nearly as commonplace as any other utility. By 2008, 84% of online households and 56% of total households will have broadband.

As important, video ad growth is at a tipping point. "Television and the Internet will find ways to complement each other; winner-take-all is not the name of the game," Mr. Hallerman wrote.

Also for traditional agencies accustomed to TV, online video makes the Internet more familiar. "Whether it's a repurposed commercial, extra footage, original advertising made just for online, it still is familiar," Mr. Hallerman said in an interview.

Actual convergence of TV and video online has not yet occurred. "Online video is inferior to TV in quality," Mr. Hallerman said. "Until it is better quality, there won't be convergence."

A major obstacle is that the there is a lack of inventory in pre-roll video -- the most effective and TV-like form of online video. Pre-roll, also known as in-stream video, is effective because it delivers a captive audience, those who have chosen to see a piece of content and are compelled to watch an ad first. Because these ads are sort of a quid pro quo -- you watch the ad in exchange for being able to view free content -- publishers limit the number of pre-rolls that can be shown.

Publishers are only now beginning to beef up their video content offerings enough to accommodate ads. As of earlier this year, only about 30% of all U.S. online publishing sites supported streaming content, according to research quoted in the report.

The lack of standardization among video and among video players on Web sites is also an issue. "Anything that forces people to download a player before using it makes it take that much longer," Mr. Hallerman said.

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