New YouTube Rival Excites Ad Buyers

Mar 26, 2007  •  Post A Comment

Advertisers hungry to place spots next to Web videos—but hesitant to embrace the cat clips on YouTube—are endorsing the Internet venture formed last week by NBC Universal and News Corp.

“It’s been so difficult to advertise and to match brands with most of the user-generated content in environments that are difficult to categorize,” said Eric Bader, senior VP and director of Digital Connections at MediaVest USA. “Now we have professional content that has all the legal ramifications sorted. With all the outlets these network properties have, they’re going to generate a lot of traffic and the content is going to keep people.”

Wringing revenue from Web video was a key motivation for NBC Universal and News Corp. to get together on the joint-venture Web site, which will carry a broad array of network and movie content. The as-yet-unnamed venture will also reach 97 percent of Internet users through distribution on Yahoo!, AOL, MSN and MySpace. Content owners will receive a better split of ad revenues than the 70 percent now common in media Internet deals.

“On day one, it will be the largest distribution company on the Web,” said Peter Chernin, president and chief operating officer of News Corp., noting that the site offers advertisers one-stop shopping for premium content.

In fact, five advertisers—General Motors, Cadbury Schweppes, Intel, Cisco and Esurance—signed up in the four hours before the press release about the new venture was released March 22. More advertisers quickly joined, including Royal Caribbean Cruise Lines.

“We need a bat phone to get through” to chief marketing officers, said Tracey Scheppach, VP and video innovation director at Starcom.

Marketers are hot for online ads because they have high recall, low clutter and interactive opportunities, Ms. Scheppach said. Video advertising isn’t immune to consumer distraction, however. For instance, if a Web video viewer checks e-mail on MSN while watching an episode of “Heroes,” recall could diminish.

The advertisers involved with the NBC Universal-News Corp. venture made commitments to buy about $200,000 of advertising apiece. The operation will have its own sales force and at this point is offering packages of video on shows based on demographic profiles and program genres, buyers said. It is not selling ads on individual shows.

“This satisfies a huge thirst out there among advertisers for online video, and that’s why we think it makes a lot of sense,” said Jeff Zucker, president and CEO of NBC Universal.

Online video advertising sales will grow 89 percent this year to $775 million, according to research firm eMarketer.

NBC will continue to sell ads on the shows it streams on NBC.com, where the program will be surrounded by related content not available on joint venture sites.

Mr. Bader said he’s hoping that new video inventory will help moderate ad pricing on the Web. Rates on a cost-per-thousand basis online exceed those of prime-time TV.

“Up to this point we struggled to find enough content, especially video content, on which to advertise,” he said. “This bumps up supply in a major way.”

That holds particularly true in demographics not currently well-served by online video, such as women 35-plus, who buy a lot of products, Mr. Bader said.

News Corp. and NBC Universal were loath to position the new venture as an anti-Google/YouTube weapon. Mr. Chernin said he talked to Google CEO Eric Schmidt before the announcement and that Mr. Schmidt had said the Web-search giant was considering the venture’s terms.

“We’re not putting anyone out of business,” Mr. Zucker said, noting that YouTube has a lot of traffic “but not a lot of revenue.” The new venture, on the other hand, “already has a lot of revenue without any traffic.”

The NBC Universal-News Corp. enterprise came about as networks embrace the fact that consumer habits are changing and that media companies have to provide content where viewers—particularly younger ones—consume video, said Will Richmond, president of Broadband Directions.

“They had to have the ability to control their own destiny online,” he said.

Traditional video outlets could also be affected by the deal. Mr. Richmond said that NBC and Fox essentially have four new affiliates in Yahoo, AOL, MSN and MySpace.

And Ms. Scheppach said the deal puts pressure on cable operators such as Comcast.

“Programmers are finding ways to reach the consumer around cable” and are getting higher ad rates online in the bargain, she said.

Mr. Chernin and Mr. Zucker said that these deals would help, not hurt, traditional distribution partners.

“We have some real evidence that [webcasting programs] helps drive the traditional ratings on the traditional outlets,” Mr. Zucker said.

“We’re determined to add to our revenues, not to shift them from one medium to another,” Mr. Chernin said.