Boon for Direct Response as Audience Buying Comes to Video
Will Wall Street-style, real-time buying and selling of advertising -- now the rage in online display -- ever come to video?
Waves of technology have swept over the online-display-ad business in the past few years, and now as much as 10% of display ad spending is transacted on exchanges at Google, Yahoo, WPP's 24/7 Real Media and others, creating a vast, fluid market.
Now Google is slowly feeding YouTube video inventory onto its real-time exchange. Because YouTube accounts for 40% of all web video viewing worldwide, that means a whole lot more video supply is coming. Soon, a significant percentage of YouTube ad spots will be sold this way. That will be a boon for direct-response advertisers.
"The driving motivation for this has been demand from agency and advertiser partners telling us they want to buy YouTube inventory the same way they buy display," said Google VP-Product Neal Mohan. About 60% of Google's display exchange inventory is transacted in real time. "We expect the ramp-up of video to be just as rapid," he said.
For Google, feeding YouTube inventory into its exchange is just the first step. The next is signing up other publishers to do the same -- much as it's successfully done in display, where so much ad inventory moves through its DoubleClick platform. Real-time bidding may help YouTube bring in more revenue, but the bigger game lies in owning the platform on which video is bought and sold.
But premium video on the web -- TV shows and other professionally produced content -- has not joined the real-time revolution. So it's not clear whether major brand marketers, which want the safety of professional content and often fear user-generated clips, will be able to buy in either.
A few small video exchanges have been operating since last year, including BrightRoll and Adap.tv. The exchanges launched in part as a hedge on the standard ad-network business, which is quickly consolidating into a few big players.
Other than that, however, premium video sales are stuck in an analog world, with deals conducted over the phone and over lunch -- not exactly the high-tech frontier that display ads have reached over the past few years.
Why? Premium TV and professionally created video -- the kind of video that brand advertisers want -- is mostly sold out at any given moment. TV networks, studios and third parties like Hulu keep tight control over that kind of inventory. That contrasts with the display marketplace, where even premium publishers have lots of ad inventory they can't sell, and feeding that into exchanges makes more sense. "In online video today, the primary challenge is simply access to inventory at scale," said BrightRoll CEO Tod Sacerdoti.
The shortage of premium inventory might accrue to YouTube's benefit as it floods the exchange market with impressions. Since exchanges interconnect and plug into agency trading desks like Publicis' Vivaki, Interpublic's Cadreon and WPP's B3, YouTube videos will be exposed to quite a few deep-pocketed bidders.
"Premium content providers are not going to deliver on the needs that we have," said Chris Allen, VP at Starcom USA, adding that categories like insurance, quick-serve restaurants and entertainment -- which generally look to expose as many people as possible to a video -- will be buyers. "That bodes well for mid- and long-tail content," he said.
Long-tail video, of course, isn't every marketer's cup of tea. Yahoo's Right Media, the world's largest display exchange, sees mobile as a better business than video going forward. "Our premium publishers [including Yahoo] tend to have high sell-through on their professionally-curated video, while video on exchanges tends to be far lower quality," said Right Media head Ramsey McGrory.
Publishers selling premium video directly to advertisers can command CPMs -- the cost per thousand impressions -- as high as $40, while video that's sold through exchanges can move for as little as $2.
Agency trading desks will look to layer data onto impressions to find gold amid the straw, much as they do in display advertising. What's more difficult is assuring that the video is appropriate for the advertiser. That's the main proposition for ad networks, which usually make some sort of claim about the quality of the inventory they represent. If they sell shoddy video to an advertiser once, that advertiser won't be coming back. Exchanges, which don't make such promises, won't have the same incentive to vet for quality.