Why Advertisers Haven’t Embraced VOD Like the Internet

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NEW YORK ( – After just three years of selling advertising, the Internet had reached ad revenues of $907 million. Last year, video on demand was 3 years old, but it has only reached ad revenues of around $50 million. Why such a big difference? Magna Global’s Brian Wieser thinks he knows.

In his latest “On Demand Quarterly” report, Mr. Wieser, Magna Global’s VP-director of industry analysis, outlines a framework for what drives advertiser adoption of new media to “help understand and explain why media will and won’t take off,” he said. “New-media entrepreneurs should consider this as stuff … it’s meant to be a generic framework for any potential ad supported medium.”

And that new media doesn’t just include video on demand, mobile or Web TV -- several of the hot topics discussed in the marketplace -- but also can help guide more futuristic concepts such as digital out-of-home and newspapers and magazines delivered by electronic readers, a la Sony’s eReader.

Avoiding VOD's fate
The idea is to avoid the fate that has befallen VOD, a medium that has lots of potential but hasn’t been able to generate impressive ad dollars.

According to the Magna report, at the end of 2005 VOD had been commercialized for about three years and had 21% household penetration. Yet ad revenues were only likely around $50 million. Contrast that with the Internet, which had been commercialized for three years by the end of 1997 and had about 19% penetration. Its ad revenues at the time were $907 million, composed primarily of banner ads.

In Mr. Wieser’s opinion, there are real barriers that have prevented money from coming into VOD. One of those issues is measurability. Another is to benchmark it against another type of media. And a third may be lack of technological and creative standards and dynamic ad insertion.

“VOD was talked about as an ad platform from its earliest days, but I don’t think anyone told the engineers,” he said. “These systems were not built to handle advertising originally, they’re always retrofitting it after the fact.” If the cable operators created a national VOD interconnect, which would mean taking a smaller piece of a larger pie, they’d be further ahead, he said.

Mr. Wieser noted that a key to helping Internet blossom as an ad medium was the Interactive Advertising Bureau’s creation of recommended banner sizes, which allowed advertisers to compare their ads on one site to another.

“It also allowed them to compare the amount of real estate they’re buying online with that amount you buy online or in a magazine,” he said. Internet was originally more like a print medium and benchmarked as such, which was helpful for advertisers who had newspaper or magazine expertise they could build on.

And as advertisers try to figure out where they fit in the mobile space, carriers “will be well advised to account for this in their networks,” he said.

Advertisers have thus far felt fairly shut out of mobile video plays but that will change, Mr. Wieser predicts. Recently Fox Mobile Entertainment announced it is launching global phone-content company Mobizzo and CBS said it will roll out two mobile news products -- none of which will be ad supported, at least for now. By 2009, 36 million users will be watching video on their mobile phones, according to a study by eMarketer.

Six criteria
“Mobile video is one of the most promising media in the future but to drive penetration it will likely need to be ad-supported,” he said. “It’ll take some infrastructure building, but there’s lots of anecdotal information from around the world about the promise of the medium.” While Apple’s video iPod and Sony’s PSP are dominating the space right now, he pegged cellphones as the best best mobile-marketing platform in the long run.

Mr. Weiser lays out six criteria that emerging technology needs to meet before it can be widely adopted by advertisers:

1) Critical mass of unduplicated or unique reach. Advertisers require depth within their target audiences, whether mass or niche.

2) Uniform technological standards so advertisers can deliver the same creative content to multiple service providers without having to reformat.

3) Research into optimal creative formats. Advertisers need standard creative formats so they can benchmark for price and effectiveness against other media.

4) Smooth buying processes, such as dynamic ad insertion and the ability to make last-minute changes, are critical.

5) Robust user data and metrics are important for advertisers to know if the commercial ran and how many and who saw it. This is an especially vital need as advertisers and agencies are pressured to demonstrate accountability.

6) Keeping advertisers away from potentially objectionable content continues to be important for mass advertisers.

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