Online Video Advertising: Small but Growing

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September 04, 2008 |

Svetlana Gladkova

It is always good to see companies willing to share results of their internal market researches with the public to help other industry players (including even their own competitors) understand the market and industry trends better. Now we see LiveRail doing exactly this: the company has distributed a report on online video advertising industry that I think many of our readers will find useful. We last spoke about LiveRail when they released Junction, a platform to maximize ad revenue for video content publishers. I would like to mention some of the highlights of the report released by LiveRail.

The most interesting thing LiveRail’s research team reports is that online advertising market is still very small: of all the money spent on online advertising only 2.36% are spent to buy online video ads. But the projected growth rate of 55% over the next year is supposed to continue in the future and bring the US market to $962 million.

The potential for growth is not only with advertisers spending more money, it is also with publishers monetizing more video streams because currently only 20.95% of video streams are monetized – even with quite attractive (for anyone familiar with display ads) average eCPM rate of $19.33.

Those streams that are monetized mostly use in-stream advertising (pre/mid/post roll): this type of video ads account for 88% of the entire volume. And while other ad formats (including video overlay, for example) represent only 12% of the market, they seem to be more attractive for advertisers: an average CPM rate for overlay ad is $18.4 compared to $15.8 for average CPM rate of in-stream ads. But here the word “seem” is the key because no matter how high CPM rate is, users are supposed to actually watch the video ads to make this type of ads attractive for advertisers but internet users tend to hate overlay ads much more than in-stream ones: while they close 81% of all ads starting to play in overlays, they will likely watch short in-stream ads (completion rate varies from 79% to 84% depending on the length).

Among the factors that prevent the market from growing faster are numerous (and very different) technologies and ad-unit standards used by advertisers and publishers. For example, video advertising industry does not enjoy any analogue of “ad tags” in display advertising industry that could simplify ad serving for publishers. Besides, the number of ad formats currently in use make it difficult for advertisers to make their purchasing decisions since they simply can’t understand what exactly they buy and how they should evaluate success for different ad types.

But hopefully innovative approaches to managing video ads and new ad servers and technologies introduced will be able to address these problems and we will see market share of video ads growing. The forecast is already impressive enough:

Market share of online video ads as compared to the total volume of online ads: