The 3 pillars of online video

Online video is a meaty topic for media professionals to get their arms around. For some – primarily those transitioning from the print world – video is a scary venture into the unknown. For others, online video represents a golden opportunity to attract a larger and more engaged audience while boosting advertising revenue and margins.

Creating compelling video can be a challenge for media companies. Monetizing this content is even more difficult. As you try to figure out the right approach for your site, there are three key elements you need to understand and monitor continuously: audience growth, programming, and ad models. Because the one constant in online video is change.

AUDIENCE

No matter how you measure it, the total audience of online video viewers is booming. Close to 178 million U.S. Internet users watched a total of 33.2 billion online videos in December, according to comScore’s Video Metrix service. This means that 86.5 percent of the total U.S. Internet audience viewed at least one online video.

Unfortunately for newspaper and magazine sites, most of that traffic is going to YouTube and other social or portal sites, such as Hulu, Microsoft and Yahoo. Google sites delivered 13.2 billion videos in December – about 40 percent of all videos viewed – with YouTube accounting for 99 percent of those views, according to comScore.

Nielsen offers similar audience numbers, estimating that the number of unique viewers of online video increased 5.2 percent last year, from 137.4 million unique viewers in January 2009 to 142.7 million in January 2010.

This growth may not directly translate to more revenue for media sites, but it provides an important indicator that Internet users are getting comfortable watching various forms of video online. And the traffic is starting to trickle down to traditional media sites. Philly.com, the website for Philadelphia’s two largest daily newspapers, had more than 1 million video views last month, according to Ryan Davis, president of philly.com.

PROGRAMMING

Philly.com is one example of a media site that is aggressively building up its video inventory with original programming. It posts more than a dozen original episodes a week on philly.com for its video programs, which include Mob Scene, Gossip and Business Today. Last year, the site launched SnapGlow.tv, a separate video and community channel aimed at local women. About half of the site’s visitors are women, Davis says.

"We want to be smart about what we’re creating,” says Davis. “Is there a desired audience and a potential to reach that audience? It sounds so simple, but newspapers weren’t made this way. They used to give you what they thought you needed to have. We create video content because we think people want it.”

Others are following a similar approach. Gawker.TV, the video channel that Gawker Media launched last fall, currently leans heavily on curated videos from around the Web. But the goal is to develop more original programming, according to Editor in Chief Richard Blakeley. 

“Every month we're creating more and more original content,” Blakeley said via email. “One of the key ways to make a splash and gain a lot of new readers is to make your own videos. Contrary to popular belief, the Internet rewards smarts, originality and creativeness over laziness.”

Traffic on Gawker.TV has more than doubled each month since the site debuted last November, Blakeley said.

There are challenges, of course, to creating and hosting your own video programming. Technology costs can rise quickly as hardware and software are added to store and stream high-bandwidth video. Staffing and production costs can be prohibitive, too.

Philly.com has managed to produce quality content while keeping costs low. Five of its Web shows are hosted by existing staffers from philly.com’s sibling print publications, The Philadelphia Inquirer and the Daily News. Others are hosted by freelancers. A videographer, an assistant and interns round out a streamlined video production staff.

“It’s not like we’ve built a gorgeous studio, but we have some very capable people,” says Davis.

Not everyone believes hosting original content is a winning strategy. In a recent post on TechCrunch, Ashkan Karbasfrooshan, CEO of digital media company Mojo Supreme, says monetizing videos online requires a “distribution-over-destination” strategy.

“The first video content companies went out of business because they sought to build ‘owned-and-operated’ properties,” he wrote. “This strategy might work with text content but is nearly impossible with videos.”

But media companies that go the aggregation route won’t be able to match the scale of YouTube and other video portal sites. Which means the smarter long-term play may be to create compelling video that attracts both viewers and advertisers. Davis, for one, believes this approach is critical component for a media site looking to remain competitive on the Web.

“Just because we are a newspaper company doesn’t mean we should be limited to the printed word online,” he says. “Our competition isn’t a printed product – it’s another website that’s probably offering video.” 

The choice between original programming and licensed or aggregated content should be driven by the business objectives for your site, says Jason Glickman, CEO of online video ad network Tremor Media.

“If the publisher has a loyal audience, and the content is valuable for that audience, and they can increase traffic based on that content, then yes, original video makes sense,” says Glickman. “But if you’re an information site where articles are the focus and videos are presented as related content, you may want to license that content from other parties.” 

AD MODELS AND PRICING

As the online video audience grows, the advertising dollars are beginning to follow. eMarketer predicts that spending on online video advertising in the U.S. will reach $5.2 billion in 2014, a fivefold increase over last year’s estimated $1 billion. 

Publishers have several ways to monetize video. They can attract eyeballs and sell impressions as they do with the rest of their site. They can add traditional pre-roll or other in-stream ads to their videos, either through direct sales or through ad networks. They can sell sponsorships. This week, Adap.tv launched what it says is the first online video ad exchange in attempt to further scale the market.

Media sites continue to tinker to find the right mix. Philly.com offers a mix pre-roll and display ads, as well as show sponsorships that incorporate both elements. The team also is experimenting with product placement for some of its programs that lend themselves to that type of brand integration. “We’re open to trying new things,” says Davis, including producing video ads for local businesses.

Gawker does not currently run pre-roll ads on videos, and its player is not embeddable on other sites – meaning its videos are monetized the same way as the rest of Gawker’s content: through impressions.
“We run off the same ad model as the rest of Gawker Media – uniques, page views and traditional ad banners,” said Blakeley. Asked if the site was meeting its ad revenue goals, he replied, “I certainly hope so!”

Gawker is exploring other models as well for its videos. “I'd really like to see us have a sponsor for some of our original content like our weekly video roundup,” said Blakeley. “But we're so young the opportunity to do something like that hasn't come about yet.”

Ad networks such as Tremor Media are also developing more options for in-stream advertising. Tremor, which comScore ranked in December as the top video ad network with a potential reach of 103.7 million viewers (accounting for 58.3 percent of the total viewing audience), recently announced six new in-stream ad formats:

• Pre-Roll Plus Overlay: Provides a clickable overlay that appears over the publisher’s content immediately following a standard pre-roll.
• vChoice Select: Enables a viewer to choose which video ad they’d like to see before it’s delivered.
• vChoice Rotator: Lets advertisers rotate multiple brand videos in a single creative unit. Options can be rotated each time an impression is served to the same user.
• Data Feed: Dynamically populates brand or location-specific data within the ad unit to drive relevance and response.
• Sequencer: Ensures that the user is served a different creative for every sequential impression delivered.
• In-Stream Live: Enables a user to watch a live video feed within the ad unit.

“These are engagement-based formats that are gaining great traction from both advertisers and users,” says Glickman. “Advertisers have been requesting interactive ads, and we believe these formats will work very well within a publisher’s site.”

Innovative ad formats could be the spark needed to drive ad revenues, because online consumers still tend to balk at traditional pre-roll ads. A recent study from video analytics company TubeMogul said that nearly 25 percent of consumers subjected to a pre-roll clicked away before the 10- to 30-second ad was finished. 

CPM rates

Pricing of online video advertising remains a topic of great uncertainty and great debate. The general consensus is that online video merits a premium price, though specific numbers are hard to come by. It appears that prices are dropping as more video reaches the market.

Glickman estimates that video CPMs for targeted content run in the upper teens to the low-$20s. Run-of-network pricing, by comparison, is in the lower double digits. In general, he sees video CPMs beginning to flatten. “We’ve seen a plateau occur, mostly because the supply has caught up to the demand,” he says.

At philly.com, CPMs for remnant video inventory typically run five to seven times higher than pricing for remnant display inventory, according to Davis, who has his eye on more lucrative partnerships with advertisers.

“The conversation you want to be having is not about CPMs, it’s about sponsorships,” says Davis. “Video has a premium because of the interaction and engagement you have with your audience.”