Where's the Money in Online Video?

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Fourth, the amount of inventory will only continue to rise, with more and better video being released and syndicated further out across the Web.

"We recently brought down the average CPM again, to between $15 and $35, because of the development of video widgets," said Brett Garfinkel, senior vice-president of the original online content site maniaTV. "We can now reach more eyeballs for the same cost and afford to cut costs to advertisers and remain competitive."

Hesitance About User-Generated Content

A big question for further growth is when advertisers will start to be comfortable with user-generated content. At this point brands are still extremely cautious about being associated with new content producers, perhaps unreasonably so, given that many of the big viral hits come out of nowhere. However, advertisers are becoming comfortable with a new kind of inventory—made-for-the-Web content with high production values—and also with so-called professional content that is made for a lower budget so as to fit in better online.

But should advertisers accept user-generated content, it would open the floodgates for online inventory, which would surely come at a lower price. This is especially relevant for YouTube, which dominates the U.S. audience but only sells ads when it has a revenue-sharing relationship with the video's creator, partly as a safeguard against profiting from unauthorized uploads. That means YouTube only makes money on an estimated 4% of its total videos. The site has recently been trying to milk that segment for more money by offering content owners the option to monetize copies of their shows and movies caught in YouTube's copyright filter, and automatically playing post-roll video ads after partner videos end.

On the whole, video ads are still looking like a good market. But just like everybody else, online content providers would be well-advised to keep an eye on their balance sheets.

Provided by GigaOm—