Forrester: $7.1B in Online Video Ads by 2012

Forrester has the most bullish estimate yet for online video advertising spending in the U.S.: $7.1 billion by 2012. That’s after a 72 percent compound annual growth rate for the next five years, building on total spending of $471 million this year.

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That tops eMarketer’s July estimate that online video advertising would be worth $4.3 billion in 2011 — by Forrester’s growth curve (see chart above), revenues would already have already passed the $5 billion mark by then. Another contrast: eMarketer’s estimate depended on monster growth early on — an 89 percent growth rate to $775 million in 2007 — followed by 40 percent growth through the next five years.

Forrester analyst Shar VanBoskirk praised the emergence of “customer-centric” ad formats like the overlays used by VideoEgg, YouTube and others, which, rather than forcing an ad in their video streams, allow viewers to decide if and when to pause a video to watch an ad. She wrote,

Vanguard marketers and brand mainstreamers, including Nike, Disney, and Nestle, are already advertising
with VideoEgg — and with good reason. YouTube tests show that video overlays generate five
to 10 times more clicks than banner ads.

Forrester breaks down its forecast by where the revenue’s coming from — retail and wholesale trade will be the largest category, says the firm — but what about where the revenue goes? At the Daily Reel conference we attended in Hollywood last week, YouTube’s head of monetization, Shashi Seth, estimated that $5 million to $10 million in revenue shares were paid out this year to users for creating video content. He said he expected that number to grow significantly:

That is where I think Internet video is headed — catering to the long tail, not only from a consumption perspective, but from an advertising and marketing perspective.

Others are less enthusiastic about users and/or non-professionals getting a piece of the action. Screen Digest, which hasn’t been particularly enthusiastic about video revenues in general, thinks user-generated video will be worth $956 million in 2011. iSuppli is putting its money on professionally produced video, predicting revenues will hit $5.9 billion in 2011.

Thanks to Contentinople for the link to the Forrester report, which we had missed when it came out last month. The chart and quotes above are taken from a courtesy copy of the report sent to us by Forrester.

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