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Summary:

Online video advertising is fast becoming big business, with ad spend expected to grow from $1.4 billion in 2010 to $5.2 billion in 2014. Despite that growth, the online video ad market will still lag the growth of online video viewership unless publishers increase ad loads.

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The good news for online video publishers is that advertising is expected to grow from a $1.4 billion business in 2010 to $5.2 billion in 2014, according to new data from research firm comScore. The bad news is that the growth in advertising sales will continue to lag behind viewership, with the divide between videos viewed and ad dollars per view widening rather than narrowing over the next several years.

At the OMMA Video conference Monday, comScore Senior Product Management Analyst Dan Piech gave a presentation on the State of Online Video, outlining the company’s forecast for online video through 2014. Anyone watching the online video market will be familiar with the hockey-stick like curve that represents viewership growth over the last several years — and the delta between the number of videos viewed and the ad revenue actually taken in.

Despite the fact that online video viewership ballooned from 63 billion videos viewed in 2006 to 441 billion videos viewed in 2010, actual video ad revenues increased from $324 million to $1.4 billion during that time. In other words, while video viewership increased more than 600 percent over those five years, ad spend increased 344 percent. That means that the value of videos actually declined over that time, from 0.7 cents per video in 2006 to less than 0.4 cents in 2010. That drop in value is slightly alarming, especially since it coincides with an increase in long-form, high-value premium content.

One reason that online video ad revenues continue to lag is that there just aren’t that many ads shown per video. According to comScore, just 1.6 percent of all viewing time for videos online is spent watching ads — compared to a whopping 20-30 percent of time spent watching TV.

Even for long-form video content — like the type shown on Hulu and other broadcast TV sites — online video ads take up just 8.5 percent of all viewing time, compared to TV.

Of course, having fewer ads is one reason that some people choose to watch online as opposed to watching on TV: In a survey of viewers that watch videos on TV and online, comScore found that 42 percent did so because there are “less ads.” More than two-thirds of respondents (69 percent) said they watched shows online typically when they missed them on TV, and 56 percent said they did so to watch older episodes. That said, only 13 percent said they watched shows online because they preferred the online experience, and just 9 percent said they did so because they don’t subscribe to cable or don’t own a TV.

But will adding more ads cause viewers to watch less TV? It seems unlikely, based on recent research. Studies from Turner Broadcasting and The CW found that viewers who are hit with heavier ad loads online aren’t abandoning videos the way that some might have thought they would. That means that publishers — especially long-form publishers — could attempt to narrow the gap for online video ad revenues just by increasing ad loads.

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  1. The reason for the massive gap is because producers are creating video at increased rates, but advertisers are still weary of UGC and semi-professional content. I would have to assume the increases in online video in the last 4 years is comprised mainly of UGC and semi-pro.

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