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Summary:

On the text web, arbitrage has become the word of the day as whole ecosystems have sprung up to optimize and monetize the link economy. But when it comes to online video, the arbitrage model is failing badly.

On the text web, arbitrage has become the word of the day as whole ecosystems have sprung up to optimize and monetize the link economy.  But when it comes to online video, the arbitrage model is failing badly.

Whether it’s buying a keyword for a buck, and making $1.02 on each visit, or buying a shopping link for a quarter and making a product sale for a few pennies more of profit, whole online ecosystems have sprung up to optimize and monetize pay-per-click and the search engine- and display-based arbitrage models. Video, though, has yet to find a profitable niche based on arbitrage.

It’s not for lack of trying, though.  The online video landscape is littered with companies that tried to buy their way to big audiences, yet failed.

Take Veoh, for example.  I was assured by someone on the inside that the company routinely spent big bucks to drive viewers to its videos, yet couldn’t recoup the investment with advertising or product placement.  I’ve had the opportunity to look at the books of a few other failing companies in the space, and seen a similar story. Big quarterly marketing spends lead to big show views – right up until the money runs out.  Turn that spigot off, and the traffic disappears too.

The problem with using pay-per-click or display to drive viewership is that the economics are still out of whack. Take YouTube, for example.  YouTube has a form of pay-per click advertising that you can use to drive viewers to your videos.  Unfortunately, you have to spend at least a penny per click, which works out to ten dollars for every thousand views.  In practice, I’ve found that you need to spend more like five cents to get any meaningful action – and that means you’ll need to make at least a $50 CPM on any overlays or pre-rolls you might run.  That’s not likely to happen very often, given the CPM (cost per thousand impressions) pricing of most video advertising.

In fact, it looks like bottom-of-the-barrel CPC (cost-per-click) marketers have already flooded the platform anyway, driving the price of viewership campaigns through the roof.  For example, head over to YouTube and search on Olympic Skier “Julia Mancuso”. I just initiated a paid campaign there to try and drive views to our new Digg Dialogg interview with the sexy star.  I’m bidding .05 – or a $50 CPM, which is more than what I’ll bring in with any pre-rolls or overlays that I’m likely to serve.

Yet I’m consistently outbid for ad placement by Visa, a video featuring “The Hottest Girls of the Winter Games 2010”, and, inexplicably, a video helping you repair drywall as well as one hawking a gadget that’s guaranteed to cure bad breath.

We’ve tried a wide range of other arbitrage-style viewership promotions, from Facebook widgets to SEM, but none deliver profit.  And we’ve taken a pass on many, many more, priced at well over $100 per thousand views.

However, there’s a new, sneaky arbitrage model making the rounds, one that seems to deliver real results.  It involves buying up a wide range of super-cheap  300 x h250 display ads – typically for well under a dollar CPM – and then auto-playing pre-rolls and other video into that ad unit.  This actually seems to work, in many cases, because the auto-play video can be hard for users to find, and shut off, before enough of the pre-roll is served to constitute a view.

It’s annoying, but lucrative.  Video ad networks routinely deliver remnant pre-rolls for $5 CPMs, and even after ad serving costs, revshare and the inventory payout to the serving web site, you can generate enough real money to eke out a profit.

But in the end it’s duplicitous and ineffective.  Web sites serving these auto-play video ads are delivering a terrible experience to their site visitors.  Advertisers paying for these impressions are being misled as well, as most of them are unasked for, and angrily terminated by the waylaid web surfer.  And now the IAB (Interactive Advertising Bureau) is getting involved to try to curtail – or at least pull the curtain back – on this shady practice.  Back in December the industry trade group issued an updated set of guidelines requiring web sites to disclose details on auto-play video when it happens.  And this is just the “first part of a broader auto-play initiative by the IAB’s Digital Video Committee”.

Maybe it’s wishful thinking, but I believe the IAB will move to outlaw, or seriously curtail autoplay video ads when they are viewed out of context.  Because even though I’m all for figuring out a successful video arbitrage scheme, it’s simply not right when built on underhanded, sneaky and deceitful tactics.

What do you think?  Have you figured out an honest video arbitrage system that works?  Do you believe in auto-play at all times?  Post your thoughts in the comments.

Jim Louderback is CEO of Revision3. He was previously vice president of Ziff Davis Media and Editor-in-Chief of PC Magazine and PCMag.com.

Related Post From GigaOM Pro: Not Your Grandfather’s Streaming Video Business.

  1. Replace the word “arbitrage” with the word “scam”. Imagine if all the scammers focused on “arbitraging” things spent all of that effort actually making a decent product. I hope the IAB does auto-play pre-roll (they won’t).

    As far as, “Have you figured out an honest video arbitrage system that works?” — it should read, “Have you figured out an honest video SCAM system that works?” My question for you: who is it supposed to work for? The advertiser? Nope. The consumer? Nope. The scammer? Hopefully not.

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  2. Great post, loved it Jim.

    I think that auto-play should never be used when you first visit a site, and if it’s done please don’t have the volume on. Whenever a thumbnail is clicked on then auto-play should be used, but whenever I click on a title from my Google Reader I also expect no auto-play to occur. I also hate that after I post a comment on a video sometimes an auto-play happens and it shouldn’t because I’ve likely already seen most or all of the video which inspired me to comment in the first place. Comments should appear on video pages without a reload.

    Some arbitrage models for online video will likely be figured out (most being for premium content that fetch high CPM’s) but many will seem spammy, and may also come with a violation to our attention via undesired auto-plays.

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  3. Arbitrage is not scam – if I lead you to something you really, really wanted to see and just didn’t know it. Let’s say you want to buy a Canon Camera, and you search on it in Google. Let’s say a paid link comes up that says – Find Great Prices on Canon cameras. You click on it. That link cost the company .50 for the click. But one in four clicks through to a partner site and buys – and they get $2.02 for those clicks. Is that a scam? Or a service. I say a service.

    I don’t want to fool people or give them stuff they don’t want to watch. I just want to reach an audience that is interested in my content, and do it in a way where I don’t lose money. Is that wrong?

    jim

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  4. I have to agree with Jim, that context is really important. While I never like auto-play when it includes audio, I have been intrigued by some film industry insider sites that have been handling Oscar campaigns. The material within auto play has been compelling, is very relevant to the article/site, and I’ve actually clicked through – something I can can count on the fingers of one hand the number of times I’ve clicked through on an ‘ad’. How is this different from CBS inserting a 15-30 second promo of ‘The Good Wife’ into another show? What other methods are there (aside from search – and you have to know what you are searching for, or Facebook, where your friends have to have a lot of free time on their hands to go looking for this) to stumble upon content?

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