Online Video Advertising: ‘You Ain’t Seen Nothin’ Yet!’

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Google’s acquisition of YouTube was just the beginning.

The American Association of Advertising Agencies (4A) saw it coming. In December 2005, when 4A members were asked which form of “new media” would show the greatest growth in 2006, half
replied Internet video.

This year, eMarketer estimates that spending for online video advertising will reach $410 million, an 82.2% gain over last year’s $225 million figure. In two more years, US marketers will spend over $1 billion, and only two years after that (in 2010), Internet video advertising will be a nearly $3 billion business.

“Let’s keep these dollars and percentages in context, however,” says David Hallerman, eMarketer senior analyst and the author of the new Internet Video: Advertising Experiments & Exploding Content report. “Even with such strong spending increases, online video still makes up a small share of Internet ad expenditures. In 2006, with all the hue and cry about video on the Web, that ad format will contribute only 2.6% to this year’s $15.9 billion total.”

By 2009 and 2010, however, as online video advertising becomes as mainstream as Internet advertising, its share of the pie will rapidly surpass the 10% mark.

“When you consider that video ads are more costly than static display ads, for instance, or most paid search campaigns,” says Mr. Hallerman, “getting to such a point with spending will not necessarily indicate more video ads than for other formats.”

What will support spending growth rates of 89.0% next year and 45.0% or higher in each of the following years?

“First, the desire among companies both large and not so large — and their agencies — for targeted ad messages using creative they are familiar with: video,” says Mr. Hallerman. “Secondly, advertisers have long favored television as their marketing medium, and extending that preference to the Internet is a logical leap. Finally, with video ad spending coming from such a small base, high percentage gains are readily reached.”

And do not underestimate the Google Factor.

“As the main engine of Internet advertising, with its 25% share of the US total in 2006, Google’s major play in purchasing YouTube will mean new models — such as AdSense for Video, or whatever it is called — for monetizing the scads of video content migrating to the Web,” says Mr. Hallerman

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