Web-Video Ad Prices: Cringe-and-Wait Mode

Nov 16, 2008  •  Post A Comment

Despite fourth-quarter advertising cutbacks, online video ad prices in the slumping economy appear to be holding steady so far.
Media agency executives expect this sector of the Internet advertising ecosystem to suffer price decreases early next year, as nearly all ad prices drop.
Online video will take its lumps, but the medium counts several points in its favor that may lessen the blow.
Experts say more advertisers will enter the online video market in the coming months, including smaller advertisers who now can afford the rates. Plus, marketers likely will shift away from less accountable mediums and into more targeted ones, like Web video. Finally, the online video ad business has operated under an inventory shortage to date, which may protect it against deeper price erosion.
“Pre-roll inventory still seems to be tight. However, if the economy further cools, we anticipate inventory to loosen up and rates to come down,” said Michael Hayes, executive VP/managing director at Initiative North America.
There are scattered signs of price declines already. Some Web publishers are starting to sell video impressions at lower rates, said Adam Kasper, senior VP and director of digital media at media agency MediaContacts, a division of MPG.
Prices likely will drop anywhere from 10% to 15% in the next few quarters for online video, said James Kiernan, VP and group client director at MediaVest. He said agencies are starting to get “inbound sales calls” with last-minute deals from Web publishers for unsold inventory.
The medium is counting on new buyers to enter the market.
“I do not believe the bottom will fall out of this market, though, because as it gets pushed down due to economic pressures, it will be bolstered by advertisers shifting dollars from other marketing channels due to continued confidence in the effectiveness of video,” Mr. Kasper said.
Plus, the cost-per-thousand prices for online video have traditionally been high in comparison to TV because there are fewer ads in an online TV show. Online video viewers also tend to be more engaged with the content, making the ads more desirable.
The pricing pressure, though, will lead to a CPM correction over the next six to 12 months.
“We’ll see the herd of online video publishers and networks thin, which will bring supply more in line with demand,” said Jason Tsai, senior VP/group communications director at Universal McCann. “As we saw with the dot-com bust, we’ll see some of the companies without deep pockets either go out of business or get acquired, reducing the number of players in the space and stabilizing the marketplace.”
Stable or Rising
On the flip side, some ad networks and sites say prices are stable or rising.
Online video ad network Tremor Media has seen CPM increases in the last few months, said Randy Kilgore, the company’s chief revenue officer. Advertisers want to sponsor premium Web programming and the supply of that is limited, he said. He added that spending in the entertainment and automotive categories has grown recently, perhaps as troubled automakers turn to the more efficient Web to try to move cars off their lots.
CPMs are trending up at MySpace TV, said spokesman Paul Armstrong. “Demand outstrips supply, keeping CPMs higher,” he said.
Hulu also reports continued demand. CPMs still exceed those of broadcast prime time on the site and revenue is outpacing early expectations, with more than 100 major brand advertisers on the site, said spokeswoman Christina Lee.
So advertisers remain bullish on the future of online video.
“I still believe that in the long term, online video advertising has a very bright future,” Mr. Tsai said. “It remains one of the few online media types that has the potential for storytelling and making emotional connections with consumers, but things are likely to get worse for most online video publishers before they get better.”


  1. On the plus side, the cost-effectiveness of video ads relative to other delivery mechanisms is rising, which should continue to attract more first time online video advertisers. That the capacity of video ad servers has grown cannot be challenged. However, if we have a new abundance of online video content with which video ads can be associated and served, that may remove the inventory shortages, and place further downward pressure on the CPMs. The larger problem for online video advertising revenue is that the number of eyeballs which will watch may be growing more slowly than the prices are falling, meaning a decline in overall revenue. This suggests that media buyers need to match their ad content to their clients’ target markets cutting edge preferred content, which will generally be highly specialized niches. Caveat emptor: know your space better.

  2. I would like to continue the tail end of the conversation from Rich: Highly specialized niches in content and customer segment seeking such content.
    The interesting part is that in current day’s video delivery platform, the CPM model is conceptually based on SPRAY-AND-PRAY methodology. Eyeballs may be all over, but the real value eventually comes down to the breadth and depth of engagement of the viewer with the content and it’s collateral properties. Now, the immediate question will be – What is collateral or augmented content along with the video.. well the AD may be one. NOT necessarily. I think if you want to deliver content hypertargeting the consumer, then you may have to go beyond just a roll and its pre, post, and interstitials. CPM $$ will go up when there is true engagement – the consumer will participate in the conversation and interact with the content. And currently the platform lacks such features.

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