Online Video Ads: Just Wait

A study by eMarketer predicts the floodgates will open after 2011, when the lines between TV and Web video will be blurred

by Catherine Holahan

Poke around on Yahoo! (YHOO) a bit, and you'd think online video advertising is already flourishing. A trailer for the latest Harry Potter film is prominently located on Yahoo's home page. On the portal's food site, there's a Hellmann's mayonnaise ad that features a video of a man steaming salmon on his car engine. And a search for "funny videos" reveals an entire Yahoo channel devoted to online commercials.

But a new report by eMarketer, released July 16, suggests Web surfers ain't seen nothing yet. Video ad sales are expected to grow from an estimated $775 million this year to $3.1 billion in 2010 and then to $4.3 billion in 2011. That's up from a November projection in which eMarketer estimated 2010's video ad sales at less than $3 billion (see BusinessWeek.com, 11/7/06, "Up Next: Online Video Ad Boom?").

Though the numbers sound large, the expected activity over the next four years suggests that advertisers will be merely experimenting with the medium. Even at $4.3 billion, spending on video ads would account for just $1 of every $10 of Internet advertising.

Much More to Come

It's after 2011 that the floodgates will really open, says eMarketer senior analyst David Hallerman. By then, the distinction between television and Web video will be so blurred that advertisers will begin directing more of their marketing budgets to the online version. "All you have to do is take a few percentages off of a TV advertiser's typical budget and that is going to be a large amount of money," says Hallerman. Television advertising is expected to top $46.3 billion in 2011, according to PricewaterhouseCoopers.

The lines are already blurring. Sony plans to transform its online video site Grouper into a farm team, of sorts, for professional media talent. The decision marks a move away from the riskier user-generated content that advertisers have been reluctant to embrace, and toward making online video more television-quality, and presumably more advertiser-friendly.

By 2011, online commercials will likely appear in multiple forms beyond today's pre-roll ads, which users must sit through before watching a video clip. For example, some interactive banners will play an ad whenever a user clicks it or rolls the cursor over it. And graphics along the bottom or side of a video clip will encourage users to watch a commercial.

Hallerman also expects that more online video ads will offer rewards in exchange for the user's time. Potential payoffs may include free content, games, coupons, or ways for users to personalize commercials. Ads that don't offer such compensation will have to be sufficiently entertaining so that users aren't turned off. A study by Burst Media found that 77% of users find video ads intrusive.

New Formats in the Offing

Companies are already experimenting with the new video ad formats. Yahoo, for example, is working with animated window-shade ads that a user can pull down over a video. It is also testing graphical ads that appear during a video in the same way that TV networks now show ads at the bottom of the screen—say, to promote a new sitcom—while another program is being aired. "Ads will change to be less obtrusive to the user," says Mike Folgner, general manager of Yahoo! Video and former CEO of Jumpcut, which Yahoo acquired in September (see BusinessWeek.com, 10/2/06, "Yahoo's Strategy: Growth by Acquisition"). Folgner also sees advertisers integrating more user-generated video in ad campaigns. Already, PepsiCo's (PEP) Doritos and other brands have held contests with Yahoo encouraging users to create videos about their products.