This post was written by Jeremy Liew, a partner at Lightspeed Venture Partners in Palo Alto, whose NewTeeVee-related investments include Flixster and RockYou. He previously worked at AOL and InterActiveCorp. This post originally appeared on the Lightspeed Venture Partners blog.
Online video is hot and everyone is scrambling to figure out how to best monetize it. Google just launched their “adsense for video” product, Advertising.com has Instream, and there are a host of startups attacking the problem as well. I think these online ad network plays are very interesting, as are all the infrastructure plays betting on the underlying rise of online video.
I wonder though if online video is the best way for websites to monetize their traffic.
Online video certainly commands a premium to banner advertising on a CPM basis. Videoegg powers the video at many of the top 20 social networks, and its rate card for run of network advertising starts at a $12 CPM, an order of magnitude higher than the CPM’s for banner ads on those social networks. The big portals (AOL, Yahoo, MSN) and the TV network’s online properties are “selling out” their video advertising at $20 CPMs and higher. While there is always remnant inventory available at steep discounts to these rates, there is no question that online video ads are selling at 5-10x banner CPMs.
Now, while on TV the ratio of advertising to programming is very high – about 8 minutes of advertising to 22 minutes of programming (ie 16 “30 second” spots per half hour), the web is nowhere near this ratio today. The norm is only one video ad per short clip, with clips typically in the 3-10 minute range.
The trouble is that for a website visitor, the scarce resource is not “impressions”, but TIME.
Lets say a typical video-watching visitor watches a clip for 5 minutes. They get exposed to one ad in that time.
Suppose that instead of watching a video, that user spent the same five minutes looking at regular web pages instead. Comscore says that the average time spent per page for the entire internet is about 0.7 minutes (April 2007 data). So in 5 minutes they would have seen 7 pages. Since the average webpage has multiple ad units (say 2), they might have been exposed to 14 ad impressions in those five minutes. So even if a video ad unit had a 5-10x pricing premium, the site might still have generated more revenue from regular web pages in the same amount of time because they would have served 14x more impressions.
This effect is more pronounced if users watch videos for longer (e.g. long form programming) or if they churn through web pages quicker (e.g. picture galleries). Now, of course, the visitor might not stay a full 5 minutes if they were not watching video, so this may not be an apples to apples comparison. But it bears thinking about. Sites focused solely on online video may be missing a revenue opportunity.
In the early days of TV, many shows were of the “talking head” variety – essentially televised radio shows. It took a little while for TV programmers to break out of their old habits (in radio) and to create programming that took advantage of the new medium.
I suspect that we’re in that stage with online video today. Many “online video sites” or “web video channels” are primarily focused on the video (perhaps with some ratings and commentary features associated). Over time I suspect that we’ll see a richer integration of video, text and picture content that is optimized and designed for the web. News sites are leading the way on this integration, regardless of whether they started from a print and pictures perspective(e.g. the Washington Post) or from a video perspective(e.g. CNN). Video may be the “sizzle” that brings visitors to a site, but the “steak” of pictures and text churns pageviews, and ad impressions, to keep the revenue ticker running.