Online video is one of the fastest growing advertising channels in the U.S., and several recent studies indicate that online video will continue to rise dramatically relative to other ad channels over the next few years. As an advertising tool, online video is expected to dramatically outpace growth in search, display ads and rich media.
The Pew Internet & American Life Project's major report on online video last year confirmed that the growing adoption of broadband has resulted in a dramatic increase in viewing online video. Fifty-seven percent of online adults have used the internet to watch or download video, and 19% say they watch some form of video every day. This number grows even more when respondents are qualified by connection speed. Three-quarters of broadband users (74%) who enjoy high-speed connections at both home and work watch or download video online.
While YouTube leads the way in online video adoption by a wide margin, many advertisers have been hesitant to use it as an advertising vehicle. National advertisers and agency heads have said that the user-generated content is too edgy or unprofessional to be considered a serious advertising medium, but that may be changing. Google CEO Eric Schmidt has admitted that YouTube has fallen short in ad revenues, but he has pledged to make monetizing the site one of Google's top priorities. YouTube has recently started airing long form independent films, which should raise its professionalism perception to prospective advertisers and agencies. Media analyst Mark Glazer predicts that “with the brains behind Google trying to solve the advertising problem at YouTube, there's a good chance they will find a breakthrough format or idea.”
We are beginning to see dramatic growth in viewership of premium content sites like Hulu, ESPN, Nickelodeon, CNN and ABC. Hulu now claims to have run 88 million videos. This is only a fraction compared to YouTube’s 4.2 billion, but many analysts suggest that Hulu will be the more successful business since Hulu can sell advertising in 100% of its inventory. According to one estimate, Hulu could generate $90 million in revenue in its first year, roughly the same U.S. revenue as YouTube.
Almost all industry analysts agree that professional-quality online-video content is particularly promising because it's what ad agencies, media agencies and media companies already know. Clients and agencies will feel more comfortable developing new content or re-purposing existing television content for the web.
It is particularly interesting to note that local retailers and other small and medium-sized businesses are beginning to use video to promote their services. Restaurants, legal practices and specialty retail shops are leading the charge, but local tourism attractions and financial services won’t be far behind. Their use is sparking the formation of yet another fast growth industry that specializes in online video production. Two startups to watch closely are http://www.pixelfish.com/ and http://www.turnhere.com/ . These sites offer high-impact, broadcast-quality video that is easy and affordable for even the smallest advertiser, and this is a natural area for local, independents and free-lancers to develop a new revenue stream.
Online video advertising is fast approaching a point to become a natural adjunct to any broadcast advertiser's media plan, as well as a lower entry cost medium for those who can’t afford traditional television. If you’re not using online video, it would definitely be in your best interest to evaluate its potential for your business.
