Online video is a very competitive, embyonic and potentially lucrative industry. The sector has attracted some of the smartest and most ambitious people out there. Somehow, I find myself competing in this space by virtue of being one of the largest producers of original video content for the web and wireless markets at WatchMojo.com.
A look at the spectrum of competitors in the space suggests that online video will either be the best thing since sliced bread, or it will be one of those things that never really met its hype factor.
First off, it should be noted that online video’s promise is somewhat normal to understand: the Web is a perfect fit for video content. Once the infrastructure is in place and broadband is in a given number of homes, the line blurring one’s television and computer will become hard to identify. Add to all of this the wireless mobility of handheld devices and you realize why a lot of people are gunning to become leaders in the space.
I can certainly tell you that it’s not easy to pull up your chair to this table, let alone walk away the winner when the music stops. The problem is, we’re fighting over everything from which table to use, the color of the chairs and the music that will be playing in this game of musical chairs… and, we’re not quite sure when the music will stop, so it’s fuzzy at best.
Pardon me for the big analogy there, but the bottom line is that online video is far more embryonic than anything else, there is a lack of standards and the revenue model is not even adopted by all, let alone proven to be a fait accompli.
The industry, which can be broken into the following categories (this is version 3 of my breakdown, by the way, and is a work in progress):
1 - content management system (CMS) platform technology companies (Brightcove, Vidavee)
2 - advertising creation and management companies (Klipmart, Unicast)
3 - aggregation and distribution (content and ads: Roo, NBBC, iFilm)
4 - video file hosting and sharing (YouTube, Revver, Guba)
5 - video content editing (Adobe’s Macromedia/Flash, Jumpcut)
6 - content producers (our own WatchMojo.com)
7 - content delivery network, or CDNs (Limelight, Akamai)
is taking shape as we speak. The major problem is that every sub-category is undergoing some kind of civil war.
For example, the experts on the matter would suggest that for:
#7, either the CDN model of Akamai/Limelight will win or the carrier model of Level 3 will win.
#3, can be broken up into “content and ads” and “ads alone.” This is nothing new, and is actually an extension of the online advertising networks like Doubleclick (before it sold its media business to MaxOnline), MaxOnline, 24/7 Realmedia, Blue Lithium, Tribal Fusion, Advertising.com etc. A tangent: Advertising.com’s sale to AOL made it onto our Top 10 Acquisitions of All Time; I broke down a potential value for privately held Blue Lithium here.
If indeed history repeats itself, then we can expect for there to be some repeat of the networks we saw in display banner advertising take shape with online video. Well, one such company is Brightroll, whose founder Tod Sacerdoti I spoke to last week. Brightroll, it should be noted, was baptized Postroller when it was launched but then christened Brightroll because, well, it was about a lot more than post-roll advertising. Here is the company’s official website.
A Quick Recap of Rich Media
Some definitions: historically, Rich Media was a term that we in the industry gave to all ads that were more dynamic than the traditional, in-page display ad banner, and included video.
Rich media broke up into three formats:
- superstitial is the name of ads that “float” on top of a page
- interstitial is the name of ads that appear in between two pages.
- prestitial is the name of ads that appear before a site loads up, these pay most.
These formats could deploy still images that looked like a banner display ad would, but was considered rich in the sense that it not situated where we came to expect them to be: alongside content on a page. As the market began to pick up steam in 2003, publishers went gaga over these. Advertisers liked these because they were more effective than traditional banners, though users hated them because of their intrusiveness.
The Landscape
As broadband penetration increased and companies in the category #2 sought to diffentiate one against another, some networks introduced video ads in the rich media. If I recall properly, companies like United Virtualities Shoshkele, Eyeblaster and Eyewonder went the route of non-video floating ads, while Unicast and Klipmart went with video ads. That market has consolidated quite a bit: Doubleclick (after it went private) bought Klipmart in August 2006. Klipmart was repped by The Jordan, Edmiston Group, a New York-based investment bank specializing in the media and information industries. Unicast itself was bought two years previously by Viewpoint for a paltry “2004-era” sum of $7.3 million. In fact, if you see today how giddy investors and media companies are over all things digital in general and online video in particular, you would think that the Unicast brass was suffering from seller’s remorse.
Consolidation
There will be consolidation in the online video network space as well. Just last week, my former employer News Corp. bought 5% into Roo, with the option to buy 5% more. I own shares in Roo. But while companies like Roo have seen competition from other aggregators and distributors of content and advertising like NBBC (here is my interview with NBBC GM Brian Buchwald), Brightroll is closer to Doubleclick (before it sold its media business to MaxOnline), MaxOnline, 24/7 Realmedia, Blue Lithium, Tribal Fusion, Advertising.com etc. in that they only compete in the video space. Technically, Brightroll’s competitors include Broadband Enterprises, Tremor Media and others. I’d like to point out for the sake of disclosure that both Broadband Enterprises and Tremor Media have approached us regarding our video inventory.
I am not sold on video pre-rolls just yet, but not for the reaons you would think.
After all, unlike:
- Google’s YouTube who does not own the rights to the content on the site and as such cannot really monetize the content with pre-rolls and post-rolls;
- a text-based publisher who suddenly introduces video and needs to go in easy because their audience are readers and as such maybe not necessarily be in a “watching mindset”;
We own the rights to the content at WatchMojo.com by virtue of producing the content ourselves (yeah, that’s right, we’ve produced 4,000 clips in one year!) and our audience has from Day 1 understood that it’s Web TV and video is the name of the game.
This raises an interesting question:
Are All Audiences Created Equally?
Conceptually, I have never believed that two audiences are worth the same.
One example is that 1 million online buyers are worth a lot more than 1 million readers of a free magazine. Why? The readers of the free magazine are on a free e-zine because they do not want to pay $5 to buy a magazine, so don’t for one second think that they surf online with credit card in hand. Their credit card is hidden away in their wallet. As such, the value of 1 million e-commerce surfers is worth a lot more than the 1 million readers on a free content website.
By the same rationale, I think 1 million broadband users are potentially worth 10 million text-based content readers. Please, for the love of all things holy, understand that I am biased but that if I did not believe this, I would not be in the business of producing content for video.
Similarly, I think wireless users are worth even more, and that has something to do with the fact that wireless users usually have submitted their credit card number to the wireless carrier and have a higher propensity to accept a charge here or there, whereas the average web surfer seems to be stingier with the old piece of plastic. but let’s try to stay on target and not digress at all. Wireless advertising is even more embyonic, but it has a lot of potential to be worth quite a bit. The thing is that wireless’ true potential has more to do with the fact that subscribers are accustomed to getting charged for services each month and could add a feature, product or service where as if and when they see advertising they are turned off.
Paid search is where the absolute dollars are, but paid search has everything to do with performace, whereas video has everything to do with brand messaging.
Reality vs. Theory
Another reason why broadband users are worth a lot is that video ads are more expensive than rates for display/banners. I have worked at a mid-tier publisher who was itself a part of a top tier media company to admit that the same way that two audiences are not alike, two rate cards will never be alike either, but the fact is, a Web TV audience is worth more than a magazine one, so even if the volume is lower, than the higher rates should overcome for the lesser volume, right?
Well, not so. It’s true that TV is a much bigger ad market than magazines, but this has more to do with the audiences and large reach of TV vis-a-vis magazines…
Also for the sake of disclosure, I should admit that like Tremor and Broadband, Brightroll too has approached us for our inventory. I am not sold on pre or post rolls, because I think that it does take away from the overall user experience. For one, look at iFilm vs. YouTube’s growth. Of course, iFilm was less illegitimate than YouTube, YouTube has no right to run 80% of the content it features so serving ads are a no-no, but iFilm did run ads against all of its content and the audience migrated from iFilm to YouTube. My goal, frankly, is to avoid pre-rolls until the opportunity cost is enormous and it would be unethical to turn down such an amount. Ideally, I’d rather just work with advertisers who want to market products and services in a video environment without necessarily using pre-rolls.
How Rich is Video Advertising?
Video advertising has hitherto been lumped into the Rich Media category, but increasingly, video advertising is being separated into its own line item.
Online advertising is moving very quickly, from 2004 to 2006, the projected estimate for the online video advertising market grew from a slated $657 million in 2009 to $3 billion in 2010:An estimate of the online video ad market for 2009 - set in 2004: $657 million
An estimate of the online video ad market for 2009 - set in 2005: $1.5 billion
An estimate of the online video ad market for 2010 - set in 2006: $2.3 billion
An estimate of the online video ad market for 2010 - set in late 2006: $3 billion
In fact, within video advertising, there is both in-page video advertising and in-stream video advertising. The former represents ads that are in the banner areas alongside the text-content. The latter are ads that are played before the video content, these usually last 15, 30 or 60 seconds. This model is very much in its infancy and it is unclear if such pre-roll (or post-roll) advertising formats will prevail.
Pop Up/Under History Serves as Lesson?
The truth is that publishers take comfort into thinking audiences have accepted pre or post roll but I am not so sure that is wise. After all, many users put up with popups but that meant they would not return to the sites running then. Others downloaded popup blockers, so even though a publisher might have ran them, it was akin to the proverbial tree falling in the forest. At my old job, I was running sales and was actually fighting my boss to remove them, figuring that these generated 5-10% of our ad sales and hurt us more than anything else. Then again, he was the one signing people’s paychecks so I had to understand his position. The point is, even when publishers got rid of popups for popunders, the truth was that both were becoming a thing of the past. Less and less advertisers want them, and less and less publishers will accept to serve them. Will they disappear? No. It should be noted that many of the rich media mentioned above, be it Unicast, Eyeblaster or Eyewonder were all pop ups in nature.
I spoke to Brightroll’s founder Tod Sacerdoti this past week and then asked his permission to write some interesting points about the industry. I appreciate his willingness to do that because at face value, it is not all positive for video. Of course, the flip side is that there is a lot of upside that remains.
First off, what is Brightroll:
BrightRoll is the leading advertiser network focused on connecting advertisers with high volume video traffic. BrightRoll serves video and non-video advertisements within online media players, before, after and within the delivery of video content. The company’s proprietary ad serving technology leverages video context and other targeting data, which allows BrightRoll to fill 100% of available ad inventory and deliver industry leading CPMs. BrightRoll is a privately held company backed by blue-chip investors and holds its headquarters in downtown San Francisco, CA.
The company currently has six employees and just added a VP of Sales, but it did secure office spaces that could accomodate up to 35 people. Brightroll changed its name from Postroller because, as you can imagine, it wanted in on the pre-roll space… which makes up the bulk of what buyers want.
No one wants to sit through a 30 second ad to watch a 1 or 2 minute piece of content, but that is mainly what it is selling now. Sacerdoti mentioned that the company’s aim is the $15 CPM (cost for one thousand ads) for a 15 second ad, which sounds great in theory and we hope he can pull it off. I am not sold on the 15 second pre-roll, let alone the 30 second one! Post rolls are hawked quite a bit by those who opt for those, but come on, who watches that? They don’t sing the national anthem after the game, why do you think that is folks?
When I spoke to Tod, he mentioned that he was focusing his energy on three big players in the space: Metacafe, Videoegg (whose CEO Matt Sanchez I interviewed last month) and Brightcove (whom I have always made fun of for being too ambitious for its own good). Man, I have nothing bad to say about Jeremy Allaire, but give me $80M in financing and I will take out a battalion before the average worker in America gets to work… the point is, Mr. Allaire embodies the promise of online video as his company is toying with many models, segments, services and revenue models in order to make the concept of online video become a reality.
While many people would think that demand for video advertising is so robust, Sacerdoti burst that bubble by admitting that less than 5% of sites are sold out. In fact, he quotes 25-30% as the number of sites that are sold out, mentioning that unless you are ESPN, MTV, CNN (a media company with a TV selling platform) you will probably not be able to sell out because marketers essentially still focus on TV advertising - a $75 billion advertising sector.
Of course, Sacerdoti might be coy: if he stated that sites were sold out, he’d be calling out more competitors for himself, but by saying that sites do not sell out, then he, Tremor and Broadband Enterprises and their genre can carve up the market. Of course, these companies largely offer advertisers a solution to reach more users who are not on the big portals… other indirect competitors like NBBC, Roo connect content with advertisers as a one-stop type of solution. there is no guarantee that that market strategy will prevail.
Of course, Sacerdoti is no unseasoned Web entrepreneur. As a former Internet Marketing investment banker at Robertson Stephens, Sacerdoti recognizes a promising market when he sees one. As a former executive with Plaxo, he knows all about scaling.
In fact, he’s managed to line up a who’s who list of angel investors and one institutional investor, True Ventures. The angels? Jon Callaghan (TRUE Ventures), Jeff Clavier (Founder, SoftTechVC), Fabrice Grinda (Co-CEO, OLX & Founder, Zingy), Auren Hoffman (CEO, Rapleaf), Oliver Jung (Partner, Adinvest), Ariel Poler (Founder, TextMarks and Founder, Topica), Aydin Senkut (President, Felicis Ventures), Michael Tanne (CEO, Wink & Founder, AdForce), Colin Wiel (Chapter President, Keiretsu Forum), Jeremy Wenokur (Former Director, Google Corporate Development).
That’s a pretty eclectic Rolodex of investors. I had to ask why he decided to load up his bench with so many angels. Sacerdoti is right to say that in the Valley, a VC might take away too much power from entrepreneurs too early, and eventually rid themselves of the CEO if they choose to. Something tells me Sacerdoti might have learned from history, after all, Plaxo’s board got rid of Sean Parker, the common denominator between Napster, Plaxo and Facebook. Here is something I wrote on Plaxo: How much revenue can Plaxo generate and who would buy Plaxo?
Let’s just hope that Sacerdoti is a real student of history and remembers the ups and downs of online ad networks and popups/unders as he tries to scale his latest venture, Brightroll. We wish him and the entire industry good luck! They’ll need it…
Subscribe:
February 5th, 2007 at 6:33 pm
Very comprehensive and interesting look at the landscape. As an industry person, I would only say that there are companies, like mine (The FeedRoom) that provide complete solutions, such that you don’t need to put all the pieces together on your own.