Keystream Inserts Ads Into Empty Spaces

Keystream, a Mountain View, Calif.-based startup whose technology automatically inserts ad placements unobtrusively into empty spaces within video streams, came out of stealth mode, announced its software-as-a-service product and made public its funding situation today.

Without sounding too much like an infomercial — has this ever happened to you? You’re watching a video when an overlay pops up, obscuring your view and covering up the action. The Keystream SmartAd software runs video though its algorithms to automatically locate empty positions within the video, where it dynamically inserts an ad.

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The ad is a small, IAB-standard size bug that when clicked on, pauses the video to launch the destination web site. You’d think that having logo pop up somewhere other than the bottom of the screen while you’re watching a drama would be distracting if not downright annoying, and that seems to be the reaction of some Brits to ITV’s implementation of Keystream’s technology.

But Keystream CEO Schuyler Cullen says that click-through rates for his company’s ads are in the 5-6 percent range. By comparison, according to LiveRail’s third-quarter 2008 State of the Industry (PDF) online video advertising research report, the average overlay click-through rate is a tiny 1.1 percent.

Based on an internal study of more than 6,000 videos covering UGC, sports, dramas and all different types of video, Keystream says it can typically find an empty spot to stick a 10-second ad in a video every 100 seconds. The technology even works for live-streamed events.

Cullen is quick to point out that Keystream is not another ad network. It is not looking to sell your ad inventory; rather it wants to partner with video publishers or ad networks to deliver ad units. Keystream currently makes its money by charging for each ad impression it delivers; it is also considering tiering the service to increase fees for added actions taken, such as rolling over the ad or clicking through it.

Other companies that provide customizable overlay ad placement include Overlay.tv, PLYMedia, TicTacTi and even YouTube offers tools that allow you to manually insert messages over your videos.

Keystream was founded in 2004 by Cullen and Edward Ratner, both Stanford PhD physicists who met while working at now-defunct video compression company Pulsent. The two credit their background in physics for helping them develop their approach to analyzing video . The company, which has 10 employees, received $1.3 million in venture funding led by Voyager Capital at the beginning of 2008 and is in the process of looking for a second round.

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