Online Video Ad Model Mimics TV Sales Approach

NEW YORK A year ago, when TV programmers were just beginning to put significant amounts of longer-form video online, pricing formulas were as varied as the deals and pretty much came down to the price a buyer was willing to pay. But now, with a better sense of the size and composition of online audiences, buyers and sellers say that, more and more, deals are based on eyeballs delivered, complete with guarantees, just like in the offline TV sector.Case in point: msnbc.com, which next month will switch to an impressions-based pricing model for video, forgoing its current flat-fee approach. The move is timed to the introduction of a new video player that the site will unveil in December.The decision by msnbc.com to switch to an impressions-based model follows a similar move by abcnews.com earlier in the year. Other sites, like Heavy.com and Video Egg, have also embraced that model."A lot of it is being driven by the networks coming into the space," said Jeff Ratner, managing partner and digital director at MindShare Interaction, adding that the impressions-based formula will be one of several models likely to be used extensively with online video. "I think you are going to have pay-for-performance models as well. Right now it's essentially based on viewership." In the online space, the impressions formula provides an even better read on the audience, Ratner said, "because once that commercial or video is initiated on the computer, it's an actual impression, not an estimated one," as is the case with broadcast TV.Msnbc.com will sell impressions on a pre-roll basis, said Kyoo Kim, vp of sales. "If you want one million video ad impressions a month, we will guarantee you one million pre-roll video ad impressions for that time period."The pricing changes come amid projections for significant growth in online video ad spending over the next five years. Emarketer reported in July that ad spending for online video advertising would be $775 million for 2007, rising to $4.3 billion in 2011. Forrester Research figures, released last month, exceeded that, projecting growth to reach $7.1 billion by 2012.The spending projections coincide with recent surveys that indicate online video usage is escalating rapidly. A study issued last week by the Cabletelevision Advertising Bureau reported that 70 percent of men 18-24 watched Web video in the last seven days, and 37 percent of all respondents reported watching a TV program on the Web in the last month.Abc.com, an early provider of full episodes of prime-time shows online for free, moved to an impressions-based ad model early this year. When the network introduced programs to the site in 2006, ads were priced on a flat fee and based on so-called "share of voice." Thus, a single sponsor would pay the full freight, but if two advertisers sponsored a show, the cost was split evenly between the two."[That period] was a time to understand who and what we were going to deliver," said Cynthia Poncé, svp, general sales manager, digital and new media for ABC. "We thought we would sell impressions at some point. It's a television model, and we're in a [similar] media model."With its shift to impressions-based pricing, msnbc.com is also moving to a time-based model, which reduces the number of ads the audience is exposed to. Under the outgoing system, a viewer is exposed to a new ad every time he or she clicks on a different video. With the new set-up, a timer starts once the user clicks a video and a new ad won't be served to that computer for at least three minutes, no matter how many videos are clicked."It's a better user experience because they now have a lot more flexibility to jump around and see different content and consider consuming more before being served more pre-roll," said Mark Marvel, video sales director for msnbc.com.Matt Sanchez, CEO of Video Egg, an online video production company that launched in 2005, agreed with Ratner that the TV model will serve as the foundation for the majority of Internet video ad-pricing models, at least for now. "It seems like that is what media buyers are looking for today. We started out on a [cost-per-thousand-viewers] basis. For us, we were trying to make it sort of simple for advertisers to understand—that seemed to make the most sense," he said. But the era of online video is just beginning, and models will evolve over time, he added.Ratner and others said that, increasingly, TV dollars would shift to the online video sector, which would prompt more sites to pursue those dollars. Eric Hadley, CMO at Heavy.com, an online video site targeting men 18-34, is betting on original programming. The site offers standard video ad products, including pre- and post-roll and an interstitial that resembles a curtain splitting in front of the screen. Two ads, left and right of the screen, take up much of the space. "This strategy breaks down the clutter and gives the advertiser a share of voice in the focus," said Hadley. Heavy's ad pricing varies, though it is impression based.Video Egg's Sanchez said standardization of form, measurement and reporting would be required before the industry can focus on brand engagement. "But one of the interesting things those [msnbc.com and abc.com] shifts represent is the promise of measurability on the Internet," said Sanchez.Tracey Scheppach, svp, video innovations director at Starcom USA, said she commends programmers who are adapting their business models to a consumer-friendly experience that still gives advertisers what they are paying for. "We don't want to kill the golden goose. If advertising is perceived as annoying, I think it will backfire on us," she said.The flip side, said Ratner, is that, increasingly, viewers would watch shows like NBC's Heroes online instead of on TV. "Advertisers want to reach both audiences," he said.

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Online Video Ad Model Mimics TV Sales Approach

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