Web Video: Long Way to Go

August 29, 2007–Though viewership has increased, with 135 million Americans watch online video at least once a month, up 19% from last year, according to market research firm eMarketer, not many are making big profits from all those innovations.

While the U.S. online video advertising market is expected to surge 89% this year to $775 million, that will account for just 3.6% of overall Internet ad expenditures. By 2011, the market is expected to expand more than fivefold to $4.3 billion–which would still only add up to slightly less than 10% of total online ad spending.

Web video has a long way to go before it rivals search marketing, much less the huge numbers racked up by television advertising. But it hasn't deterred content creators from racing to the much-hyped gold rush. For those grabbing a shovel, here are four things you should know:

Online Video Is Not TV
Most early attempts at online video advertising involved simply attaching a 30-second TV ad to the front of a video clip. But the industry quickly recognized that recycling an ad format originally meant for half-hour or hour-long TV programming didn't work well for online clips that were often barely longer than the ad itself.

While 30-second pre-rolls can still work for online streams of full-length TV programming, more marketers are shifting to ad formats specifically geared toward an online audience, such as 15-second (and even shorter) pre-roll spots and “overlay” ads (see “Will Video Ads Evolve”) that appear at the bottom of a screen and don't interrupt the viewing experience. Overlays can be clicked for more information, making them more interactive than traditional video ads.

As more marketers explore the use of Web-centric video ads, the industry needs to address the lack of standardization among these new formats, JupiterResearch analyst Joseph Laszlo observed in a report last month. “The emergence of standard formats is vital for advertisers to cost-effectively scale up buys and run campaigns across multiple video destinations,' he said.

Professionally Produced Content Still Rules

Sure, cute kitten videos and clips of eye-popping, Jackass-style pratfalls generate lots of clicks. But professionally produced programming remains the biggest potential draw for advertising dollars.

Advertisers don't like surprises and there's no telling what could end up on a mass-audience video-sharing site–copyrighted content, clips of questionable taste, you name it.

That explains the limited scope of YouTube's long-awaited announcement last week that it will attach ads to video clips. The Google (nasdaq: GOOG – news – people ) subsidiary said it will only place ads “on content by select partners,” i.e., video professionals, not your little sister or your nutty neighbor down the street.

It isn't just advertisers who like to know what they're getting. To a great extent, the same thing applies to viewers as well.

Attach a pre-roll ad to the entries on a newly launched video blog and you're going to lose eyeballs immediately. But attach the same ad to a preview of an upcoming episode of a prime-time network drama and viewers will be more willing to put up with the advertising message, says Rex Wong, chief executive of online video distribution network Dave.TV.

“With branded entertainment, I know the value of what I'm getting,' Wong says. “If you know you're going to get Lost, I don't think you're going to mind watching a pre-roll.”

You Get What You Pay For
Does advertiser skittishness mean user-generated video can't generate advertising dollars Of course not. But to get the ad-friendly clips that they crave, video sites are realizing that they have to be willing to give something back in return.

Video-sharing sites like Revver, Break and Metacafe have come up with various ways to pay for engaging video submissions that appeal to viewers and that marketers can feel comfortable with. Revver attaches ads to videos it has vetted and then shares the revenue with the video maker. Break pays $400 for videos that are posted on the site's homepage and pays $2,000 for original short films. And Metacafe pays $5 for every thousand views that a video gets if it generates at least 20,000 views and is rated well by viewers.

Video contests have become another popular means of generating ad revenue from user-generated video. In the most widely publicized example, Yahoo! Video and Pepsico's Doritos brand tortilla chips held a contest last fall for the best amateur-made Doritos commercial. The winner received a cash prize and had his ad aired during the Super Bowl.

Sony Pictures Entertainment is adopting a variation of the contest concept for its newly relaunched Crackle video site (see “Sony Revamps Online Video Site”). Crackle will essentially be a permanent contest site, awarding the best submissions in animation, short films and standup comedy on a monthly or quarterly basis with cash prizes and the chance to meet with Sony Pictures executives to pitch their concepts.

Old Networks Don't Matter
Once they realized last year that YouTube users were uploading a lot of their content to the video portal, CBS (nyse: CBS – news – people ), News Corp.'s (nyse: NWS – news – people ) Fox, General Electric's (nyse: GE – news – people ) NBC, Disney's (nyse: DIS – news – people ) ABC and Viacom's (nyse: VIA – news – people ) MTV and Comedy Central rushed to post more video on their own Web sites. By the end of 2006, they were reportedly discussing the possibility of launching a new joint portal site to rival YouTube.

But with their Web sites struggling to pull in the critical mass of traffic needed to generate big ad dollars, three of the networks have ditched their efforts to build destination sites and have instead lined up distribution partners to get their programming where consumers are hanging out online.

News Corp. and NBC Universal have formed a soon-to-be-launched online video network that will distribute their content via MySpace,Yahoo! (nasdaq: YHOO – news – people ), Time Warner's (nyse: TWX – news – people ) AOL, Microsoft (nasdaq: MSFT – news – people ) MSN and other high-traffic sites. CBS has adopted a related but somewhat different approach, partnering with large players like AOL, MSN and Comcast (nasdaq: CMCSA – news – people ), but also smaller sites like Joost, Sling Media, Brightcove and Veoh.