Web Video’s Commoditization Trap

By Digiday • June 8, 2011 •

As online video gets bigger, it seems to be stuck at a crossroads. Will it become more like TV or an extension of display ads?

This is a critical question that could determine whether it becomes a way out of the race to the bottom for Web publishers, or yet another commoditized ad space to be sliced and diced and sold off at auction to the bidder with the most data on the eyeballs in front of the video.

The choice would seem obvious. After all, in the TV world, client faith in the medium is so strong that even declining ratings don’t seem to hurt the $70 billion business. Meanwhile, in the display world, an over-abundance of banner inventory has led to ad space being traded on exchanges for pennies and buyers cherry-picking audiences and entirely ignoring content environment.

Not so fast. According to many in the industry video is starting to embrace some very display-like tendencies, including data-driven buying and even selling on exchanges. What are these people thinking?

It was clear yesterday based on various panel discussions at the Elevate Conference in New York that the ad market for online video has bifurcated and is only further tiering between inventory tied to premium TV content — that is much in demand — and everything else, which is less in demand and commands much lower rates.

“The top of the tail is pretty well monetized,” said Peter Naylor evp of digital media for NBC Universal. “Broadcast.com, cable.com sites are selling out.”

That’s partially due to access — network digital sellers are in on broadcast upfront negotiations, for example. And it’s probably also due to comfort for ad buyers, the thinking being: “I like Glee, why wouldn’t I buy Glee on every platform?”

That’s a big argument for Web video to embrace TV-like selling, including its metrics, something many have advocated. According to Jonathan Miller, Chief Digital Officer — Chairman and CEO, Digital Media Group, News Corporation, that’s the major reason we haven’t seen TV dollars shift to Web video — and won’t for a few years.

“Until you can reconcile the two worlds, you don’t know what you’ve done [in either],” said Miller, who concurred that the current market was splitting between the “very high and very low.”

Once the metrics barriers are alleviated, “that’s when the floodgates open … when you can buy fluidly”

Still, many in the industry resist adopting something like the GRP, believing it devalues the medium and ignores the abundance of data available in Web video.

Instead, they seem to be reacting to this bifurcation of video inventory quality by pushing Web video toward more automated, display-like buying. Among the recent entries into the burgeoning video exchange space are BrightRoll and Google.

Whether that’s good for the industry was debated during a panel session later in the day at Elevate. When asked the question about whether the use of video exchanges would lead to higher or lower CPMs, most panelists said that pricing would decline.

Amir Ashkenazi, CEO of Adap.tv, which manages a year-old video exchange, shot down that suggestion. According to his company’s data, CPMs for his clients had swelled by 78 percent over the past year, as the number of publishers using the exchange ballooned from around 750 to 5,000.

“Video is very different,” Ashkenazi told Digiday. “It’s for brand building. Supply is contained, while display has an endless supply. This is about streamlining the process of buying and selling.”

“I actually think exchanges will cause CPMs to go up,” added Donnie Williams, chief digital officer at Horizon.

But others see exchanges diminishing online video’s premium reputation and actually discouraging the development of quality — maybe even hit — series.

“Exchanges are not necessarily a good thing for content creators and [producers],” said Ran Harnevo, svp of video at AOL, who predicted that exchange/data buying would lead to a flood of direct-response advertising in Web video.

“Exchanges dilute quality content. A big chunk of [AOL’s sites] would never go to exchanges, though exchanges are very tempting for publishers … and if I’m a content creator [in that environment], why am I going to create something for $5,000 when I can do it for $200 [and receive similar pricing]?”

If true, that mentality won’t encourage the best talent out there to seek creating the first big Web breakout series — something else the industry desperately needs to command TV attention and TV dollars.

“There’s never been a bona fide sustainable hit to come out of the digital world,” said Miller. “That would have a big economic impact.”

Jason Krebs, chief media officer at Tremor Video, believes that online video can become more TV-like without sacrificing the technological and targeting sophistication that digital media offers — something he believes the TV business is in fact embracing.

“Web video ads offer sight, sound and motion for consumers with world-class creative, while giving an interested consumer an opportunity to engage immediately, all within a video-viewing environment,” he said. “If anything, TV advertising is becoming more like the Web: addressable advertising to interested consumers, with some interactivity for the consumer. Exchanges will only be a part of the ecosystem for low-value content funded by direct-response advertisers.”

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Web Video’s Commoditization Trap

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