Buzz, Balls & Hype : The Ad Man Answers #10

Thursday + Gregory Huffstutter = The Ad Man Answers

Q: I'm an infrequent reader of your blog and would like to ask: What would you estimate the CPM for Online Video (TV-shows on-demand etc) to be?

We're currently developing a peer-to-peer technology for online video distribution. One of the main reasons online TV-shows aren't booming as quickly as User Generated Online Video (UGOV as at YouTube) seems to be that the CPM currently is lower that the cost of distribution. In writing our business plan, I'm trying to determine what the CPM for online-video should be, in order analyze what cost of distributions must be to support the current CPM?

-- John Sjölander, Sweden

A: First of all… ‘infrequent reader’? That’s no way to butter up a corporate desk jockey. The Ad Man demands nothing less than slavish obedience! Gift baskets, Lakers tickets, bridges dedicated in our honor, or fan sites... that’s how we roll in the U.S. advertising biz.

Now to your question.

Online video – usually in the form of ‘pre-roll’ that automatically loads before the desired content – currently falls in a bit of a gray area.

Advertisers have watched live broadcast TV ratings steadily decline due to the proliferation of cable, video games, movies-on-demand, DVRs, and the internet. With video content proliferating on the web, advertisers see a new way to re-capture those missing eyeballs.

Online video is generally seen as more desirable than a simple banner ad – sight, sound, and motion helping combat ‘banner blindness’ – and can extend the reach of a standard television campaign.

The problem is that instead of placing ads with a traditional network like CBS or NBC, the internet offers seemingly infinite possibilities. Nowadays, you’ve got video content available on websites for newspapers, radio stations, local news channels, sports teams, lifestyle enthusiasts, and even gossip columnists.

On-line TV ‘networks’ are cropping up – like Joost, ManiaTV, and HavocTV – aggregating content in the quest for ‘broadcast-like’ audience numbers.

So from the advertiser’s point of view, the bottom line is WHY would our potential customers seek out your content. We don’t automatically believe content providers when they say: “If I build it, people will come.”

When ABC archives episodes of “Lost,” that show has a built-in following of fans that might’ve missed an airing. When American Idol offers “behind the scenes” videos, that’s an extension of a global brand that includes the TV property, concert tours, podcasts, magazine articles, etc.

The more OFF-LINE extensions that give relevance to the content and drive potential audience size, the higher the advertisers are willing to pay on a CPM basis. (Refer back to Ad Man #4 for CPM definition).

If the property you’re selling solely exists online, like an internet-only comedy troupe, it will be hard convincing advertisers that you can generate enough viewers to make it worth our effort. That’s when you see low CPMs – in the $5-$10 range – for online video content. Advertisers won’t pay higher, because we feel like we’d be reaching viewers by the dozens, instead of by the millions.

But if you’re repurposing content that has already aired on broad reach networks or are providing additional footage to popular programs, then you may be able to start creeping your asking CPMs into the $10-$15 range.

You probably won’t be able to get your CPM in the $20s – matching television – until online video is more widespread, has better measurement tools, and can be easily viewed on your living room plasma screen, instead of your laptop.

Hope this helps… and The Ad Man is pleased he’s developing a fan base in Sweden. If you can’t send Lakers tickets, some IKEA furniture or a dozen meatballs would be an acceptable alternative.

Gregory Huffstutter has been punching Ad Agency timecards for the past decade, working on accounts like McDonald's, KIA Motors, and the San Diego Padres. He recently finished his first mystery, KATZ CRADLE. The first 100 pages of his novel are linked here. For general advertising questions, leave a comment or send e-mail to katz @ gregoryhuffstutter dot com with 'Ask The Ad Man' in the subject line.