Above the Crowd

Perfect Online Video Advertising Model: Choose Your Advertiser

February 27, 2009:

Many companies and visionaries have pontificated about the future of video ads and different techniques for monetizing online videos.  A big part of this is driven by the fact that while YouTube is a huge user success, its a less proven monetization success.  On a recent trip to NYC, an idea came up which I can’t get out of my head, and the more I think about it, the more I believe that it is the Holy Grail for the future of online advertising.  But before I disclose the big “ah-ha,” a few caveats:

1) No one will ever monetize commodity content well.  If the same video is on YouTube, Veoh, and Metacafe, you won’t have the “right” to ask the consumer to wait for an advertisement.  Only by”controlling” unique/premium content can you ask the user to participate with advertisement.

2) Some networks, like ABC, are already doing a great job with online video advertisement.  I have heard numbers as high as 80% of the revenue per viewer hour compared with regular network television.  That said, I think the model below will dramatically enhance this number.

3) Having multiple sales forces selling the same premium video advertisement is counter productive. It drives down pricing.

4) “Distribution” is a confused word online.  Everything can be one-click away.  As such, there is no real reason to have someone “distribute” your video in the old classic sense – especially if it is important for you to control the advertising.

Enough with the caveats — here is the idea.  For online premium and unique VOD content, content owners should let the user pick one of a group (say 4-9) of sponsors for the show they are about to watch.  With online video this would be easy.  As you launch the show, it gives you an array of thumbnail choices for sponsorship.  The great thing here is that all parties win.  The consumer is happier with the advertising because its relevant to something on their mind, and they are more likely to pay attention when it “interrupts” the programming.  The advertisers gets a user that has qualified themselves as being interested in the product or category which is huge.  Known intent is massive.  And lastly, the content owner will likely end up with ad rates higher than they have ever seen previously.

In many ways, this is similar to how a user “self-declares” their interest when typing a Google search.  And this is way, way, way better than behavioral targeting.  When you think about it, behavioral targeting is a euphemism for “guessing”.   Just because I am a male between 18-24 and watching “Lost” doesn’t mean I want an XBOX.  You are more likely to guess that i might want it, but you would be 10X better off if I chose XBOX as my sponsor at the start of the show.  Then you would KNOW I have interest — no more guessing.

Making predictions is always a dangerous game, but I am fairly certain that this will be the video ad model of the future.  It makes way too much sense not to work.

3/4/09 Follow Up Note: 

I received some great direct feedback on this note from many leaders in the field including the CEOs of Hulu and Brightcove.  The main message was “we already thought of that and we are already doing it!”  I guess there are no new ideas only good ones thought of again.  But the good news is that they all agreed this is a powerful model.  On fair criticism is that it requires a great deal of liquidity in terms of numbers of advertisers to make this happen.  I suspect that is right, and as a result this may not play out for some time.  But when it does, it will be powerful.

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