Engagement: Closing the chasm between TV and Online video “Common wisdom” in the industry is that TV is losing ground

to online video. Findings in the State of the Video Industry Survey conducted by Adap.tv and Digiday counter this perception. In fact, most brands and agencies told us that online video advertising is a complement to television advertising, or something else entirely – not a replacement for the mass medium. Both do share one common denominator, however: both are being measured on engagement. Nearly 600 agency and brand advertisers, publishers and online video technology providers weighed in on how online video may be filling a gap for TV advertisers. Here are a few key points that rose to the top: • Television – especially cable – ad budgets are relatively safe for now. The majority of ad buyers – 56 percent of brand respondents – said they view online video as a compliment to, rather than a replacement for, their television advertising. Engagement is top of mind for advertisers. o Brand engagement is the leading online video campaign objective. o Sharing video via social networks is considered one of the most important ROI metrics for buyers. o Interactive pre-rolls remain a top ad format for delivering ROI. o iPads are a key growth area. Online video ad buyers dive well beyond “reach” to achieve results. Targeting is a top criterion for video advertising buyers when deciding which sites to patronize. Better targeting is also cited as the top potential influence for advertisers to invest more of their budgets in online video. Because advertisers are more inclined to work directly with publishers than are agencies, this is an important capability for publishers to emphasize, where they can offer it. Demographic data reigns. Advertisers are both conversant and comfortable with the use of third-party data to target their interactive video campaigns. Some 75 percent of responding advertisers achieve their targeting objectives using third party data. Inversely, only 36 percent of publishers do.

Rates for interactive video are increasing – 92 percent of video content publishers say their net video CPM’s were higher than last year’s by an average of 19 percent. Fill rates are on the rise. Only 32 percent of publishers say that more than 30 percent of their available video ad inventory is unsold in a given month. Innovation in video advertising appears to be moving as rapidly to mobile media as it is to online.

Executive Summary For initiated online video ad buyers, ad budgets are poised to take a substantial leap in 2012. For brand advertisers that have bought online video ads this year, the projected budget increase is 47 percent. Agencies who’ve bought online video advertising project a 25 percent increase.

Perhaps as interesting as the increase among the “converted” are the intentions of the uninitiated. Eighty-four percent of advertisers and agencies polled who hadn’t yet purchased online video ads said they plan to include digital video in a campaign in Q4 2011 or 2012. What has emerged is the picture of a committed cohort of online video buyers who are prepared to migrate substantial spending from online display advertising to digital video in the coming year. Asked from which budgets they were “most

likely” to shift spending to online video, 43 percent of agency respondents said “Display” – substantially more than the 25 percent who tagged this category for cannibalization last year.

Meanwhile, 39 percent – a four percent increase from last year – said “Broadcast TV” budgets would be tapped to fund the online video increases. More than 14 percent of respondents said their spending would be incremental and not draw funds from any other category. For brands, online video advertising will take the biggest bite from Print budgets, followed by Broadcast TV and then Display. Just 6 percent will represent incremental spending. But, despite the fact that 29 percent of brand advertisers think their Broadcast TV budgets will be asked to give at the online video altar, the vast majority don’t see it as a replacement for TV. More than half of our brand advertising respondents – 56 percent – said online video is in fact a direct compliment to TV, and a third see it as an entirely different medium.

Jason Shulman, VP of Sales for Adap.tv commented, “Let’s all stop talking about online video replacing TV. This data are significant and support what our industry has felt for a long time: video is the ideal marriage between TV and online. With TV you have sight, sound and motion. It tells a story. It evokes emotion. Meanwhile, online is measurable, interactive and social. Digital video combines the best of TV and the best of online. This could be a strong indicator of why we’re witnessing such a dramatic shift in budget funds to make way for this medium.” What the data demonstrates thus far is that ad spending continues to rise and shows no sign of slowing down. At the same time, increased budgets at the expense of TV have become less prominent. Increased video ad budgets are not

coming predominantly at the expense of TV budgets, as was previously thought; in fact, advertisers are embracing online video as an ideal complement to their TV buys. Which begs the question, “What’s helping to close the gap between TV and online video?” When we took a deep dive into the data, the common denominator was clear and consistent - engagement. It is top of mind in several key areas including metrics, formats, objectives, targeting and emerging devices. The following is a look at some of the key indicators. Engagement was the stand-out differentiator when it came to the primary objectives for buying online video advertising. Brand engagement was the clear winner here, with 68 percent of respondents putting it at the top of their list, a four-fold increase over last year’s responses.

We asked advertisers and agencies, “What are the most important metrics for measuring your online video campaigns?” and their answers were entirely in synch. “Completion rate” remains “king” in determining the efficacy of an online video campaign. But brand lift is a close second, with 70 percent of agencies saying they use brand studies to determine this. And “Sharing via Social” came out of nowhere to land in the third most important metric of success, ahead of both click per view and click through.

In hindsight, it seems likely that those publishers first or most-able to harness the capacity for consumer-driven video sharing – and to measure its effects – will be among those best poised to profit from pent-up digital video advertising demand. But, back to what advertisers value, we found it significant, given all the media buzz surrounding an “online GRP” measurement, that the three metrics – GRP, TRP and CCP – we added to “speak the language” of TV buyers, trailed the list of metrics ad buyers use to measure online video ad results. None of these responses was rated “most important” by advertiser respondents. Rather, brand buyers want what they’ve always wanted: actual proof people watched. Interactivity generally is viewed as delivering the highest ROI among video ad units by brand advertisers and agencies. Advertisers put “rich media overlays” at the top of their performance list, while, for agencies, it’s “content integration.” Pre-roll remains a staple for online video for both buyers and sellers. Eighty percent of video publisher respondents said more than half their digital video revenue derives from pre-roll. Unfortunately, less than half of ad-supported video publishers (49 percent) offer the most popular interactive ad units among advertisers and agencies: rich media overlay and interactive pre-roll. Expanding inventory options therefore would represent an easy “win” for online publishers.

Certainly targeting leads to engagement, and the ability to target online video ads is a major differentiator for both brand advertisers and agencies that use the medium, and for the publishers they select to host their video ad campaigns. In order of practice, both advertisers and agencies target by demographic, content category, behavior, geography and with re-targeting, with agencies employing these targeting methods by double digit percentages more often than advertisers alone. Among our survey respondents, three-quarters of advertisers (75 percent) who fielded online video campaigns this year achieved their targeting objectives using third party data. You might therefore expect that successful video publishers made similar use of such data, but this seems a missed opportunity. Our survey revealed that only 36 percent of publishers who support their efforts with digital video advertising use third-party data to target video campaigns. Because advertisers are more inclined to work directly with publishers than are agencies, this is an important capability for publishers to emphasize, where they can offer it.

Indeed, our survey revealed that “Targeting Capabilities” is the number one criterion advertisers and agencies have when deciding which sites to work with. Agencies then parse by “Measurability” and “Audience Composition.” Advertisers favor audience reach, then composition. Price drops to a mid-tier consideration, perhaps because if the video ad finds the right audience target, it’s worth what you pay for it.

Last year we inquired about emerging devices to determine whether it was in fact, a truly “emerging” sector for online video. The fields were limited, so this year we broadened the question and asked both advertisers and publishers about specific brands of devices. Out of all of the emerging devices we inquired about, video ad spending on the iPad showed the most significant increase, up 18% from last year. Adding to the indicators of engagement, the growth in iPad adoption could very well be attributed to the idea that it’s the most popular device because it delivers the ideal mix of TV and video exceptionally well. Publishers also saw the bigest increase in adoption for the iPad giving them a prime position to win at monetizing emerging devices. Not fairing as well this year for advertisers was connected TV which remained flat year over year.

In short, online video ad buyers already view targeting, reach and desirable audience composition to be differentiators for online video advertising. Making the medium engaging and measurable is what will cause more ad buyers to open their wallets in 2012. On the opposite side of the industry spectrum, we took a look at the publishers in an effort to understand how the closing of the chasm between TV and online video buying was playing out for them. Essentially, are they selling more video and earning higher returns? Publishers are experiencing success. Some 60 percent of video publishers who sell advertising report a 50 percent or better sell through rating through June of this year. This is up 14 percent from last year, when only 46 percent of publishers had this type of success in the same time period.

Regardless of platform, it’s broadcast-quality video that continues to command premium prices. Asked to select the average gross CPM for various kinds of online video, more than half of advertisers (55 percent) said broadcast video commands a rate of $21-$30, while 46 percent of advertisers were equally likely to pay $11-$15 or $16-$20 for “mid-tier,” professionally produced online content. Half of respondents put the value of user-generated content at between zero and $5 average gross CPM.

However for all publishers, net video CPMs are up. Asked how their current net video CPMs compared with 2010, 92 percent of publishers said they increased by an average of 19 percent. Decreases, where noted, averaged just 4 percent. Among ad-supported video publishers, the percent of their total online ad revenue that derives from video, the majority (61 percent), said less than half, but for 12 percent it’s greater than 91 percent.

The largest group of respondents – 35 percent – said less than one-third of their inventory is wasted in a given month. But only a quarter of respondents are operating at more-or-less “full capacity.”

Key Takeaways • The interactive industry needs to stop talking in terms of “when the TV dollars will move to the Web” and explore more inventive ways to make interactivity a component of every television ad campaign. Advertisers and agencies don’t consider interactive media as a replacement for either TV or cable. Interactivity will drive innovation and spending in online video in the coming year, but it may come not just from interactive pre-roll, but via social sharing, and the tracking of such interaction by consumers. Premium video content providers looking to hang onto or expand their revenue gains in this medium need to explore sharing extensions of their own video and that of their advertisers for maximum reach and engagement. Mobile video is top of mind for experienced online video advertisers, and isn’t perceived as that much of a technological leap beyond online video by prospective video ad buyers. Publishers looking to expand their hold on the medium should be looking at both the IOS and Android for expansion. Put another way, video content providers and buyers who don’t tap the medium’s capacity for social sharing and audience targeting, will miss the next wave of digital video ad adoption.

What does the future hold for online video advertising in 2012? 2012 predictions among all respondents included some of the following: • It will grow tremendously as the costs continue to replace expensive TV advertising production • More opportunities and increase[d] budget • More social networking • A significant increase in online video ad spend- it is the new cable TV • Increases in spending • Better targeting and more integration within buys • More cross-platform buying • Consistency of formats, ease of measuring, and continuing to close CPM gap to TV • A shift to mobile video • Ad network consolidation • Advertiser selection of content, instead of publisher page contextual targeting

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Better measurement via Nielsen and other research orgs which will help bring more ad dollars from TV Brand-relevant metrics Engagement doesn't get close enough to the brand marketer's overall goal of driving awareness, purchase intent, etc. Buying through RTB environments or automated trading Connected TV interaction DSPs and SSPs becoming increasingly important flexibility to deliver in banner video greater emphasis on engagement (over click and completion) Hoping for better standardization of standards and technologies Increased budgets and more available inventory

Methodology Adap.tv and Digiday partnered for the second year in a row to take a deep dive into the perceptions and practices shaping the Internet’s digital video advertising market. Nearly 600 agency and brand advertisers, publishers and online video technology providers weighed in for this survey, which was conducted in September 2011. Digiday’s surveys poll emerging media practitioners that have demonstrated an interest or expertise in the emerging medium that is the topic of exploration. For the current survey, agency execs led participation at 47 percent of respondents with brand advertisers combining to bring the buy-side input to just over 60 percent. The 111 participating video content publishers represented 23 percent of respondents, with advertising network, DSP and SSP technology and service providers weighing in at 17 percent. Each cohort was offered slightly different questions about the shape and perceived direction of the video advertising market in which they participate, tailored to their market vantage point – except where we sought to explicitly compare their expectations for and investment in this particular medium. Adap.tv and DIGIDAY will continue to survey digital advertising and publishing practitioners in this fast-moving marketplace twice annually. If you’d like to be included in our next outreach, please email Melinda Gipson at Melinda@digiday.com.

For more information about this report, please contact marketing@adap.tv. Adap.tv 1 Waters Park Drive, Suite 250 San Mateo, CA 94403 www.adap.tv

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