Online ad spending will expand 28.6% this year, according to eMarketer CEO Geoff Ramsey. Next year, digital ad spending will increase 32%--amounting to nearly $28.8 billion.
Web videos are watched by 72% of Web users--or 135 million people--every month.
Ad spending around them is set to hit $775 million this year, and $1.3 billion by next year.
One of the great things about the Web is the ability to link to a Web page, or a part of a Web page, from anywhere. Asterpix, a San Jose, Calif.-based startup, wants to bring that same ease of use to the world of video. The company’s technology -– which it calls hypervideo — gives authors the ability to link directly to objects displayed inside video clips.
These so called hotspots track the “objects” linked throughout the entire video clip. So for instance, when explaining the Coverflow features of the iPhone, one can link directly to the relevant point in the video right from the blog post. Hotspots are designated with blinking circles; click on them in the video to access the author’s notes, tags and target links.
The service doesn’t require you to download separate software on the desktop. Simply sign up and embed the videos as you would from any video source such as YouTube, MetaCafe, or Blip. Asterpix adds a separate invisible layer on top of the video that contains all the metadata (aka relevant linking information). Then just go ahead and drop it in your blog or on your MySpace page.
Asterpix is less than a year old and is backed by New Enterprise Associates; so far it’s raised $4 million in one round of financing. CEO Nat Kausik, who in his past life created a handful of successful networking-related startups, told us that in order to gain traction, the company will initially adopt a widget strategy. He feels that MySpace and other social networks are going to be fertile ground for his service. He was also candid enough to say that the business model of this company is evolving.
Asterpix’s technology could have big implications for online video-related advertising as it would allow advertisers to embed hotspots around products of high commercial value. For instance, Le Bron James videos could link his shoes to Nike (NKE) stores, or Tiger Woods clips could help push golf clubs or even apparel.
“Every object is now clickable and searchable,” says Kausik. Google AdWords, for instance can drive traffic right to the relevant spot in a video clip, giving people a sense of what they are buying. “We hope this will help unlock the monetization of video.”
Among the existing players in this space, Eline Technologies of Vancouver, B.C., is doing brisk business with its VideoClix software. We also recently covered Delivery Agent. Others, such as Tandberg and Microsoft (MSFT), are working on their own hypervideo technologies — all in hope of unlocking the ad potential of online video.
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So, Google's YouTube will finally sell video ads. How much revenue will they generate?
Let's run the numbers.
- YouTube is testing overlay ads that run along the bottom of videos. If viewers click on these ads, the videos they are watching will pause, and the ad will launch.
- YouTube will only run ads on videos from signed content partners (for now).
- In tests, approximately 75% of viewers presented with an ad chose to watch the whole ad.
- Google plans to begin by charging a $20 CPM.
Combining this information with Comscore's finding that YouTube streamed 1.7 billion videos in May, we can construct a basic range of revenue estimates.
ASSUMPTIONS
For our initial scenarios, we make the following assumptions:
- Google streams 2 billion videos a month (up modestly from the May numbers)
- A sub-set of this group are from content partners and will eventually have ads (we'll run a range of 10%-50%)
- A sub-set of this group will have ads that are actually watched (we'll run a range of 33%-75%.
- In tests, 75% of videos were watched, but this was likely heavily influenced by the curiosity factor. In the early banner ad days, banner click-through percentages were high, too).
- The ads will be highly targeted, full-motion video, and should therefore command a high CPM (we'll run a range of $10-$50).
RESULTS
We ran five scenarios, from Conservative to Aggressive (please see this page for details). In the Conservative scenario, YouTube generates about $8 million in revenue, less than 1/10th of one percent of Google's overall revenue ($16 billion). In the Aggressive scenario, the company generates about $450 million of revenue--enough to make a meaningful contribution, but barely.
FIVE YEARS FROM NOW
We also ran scenarios using a far higher number of monthly streams (range: 10 billion to 50 billion), a greater percentage of ad penetration within videos (range: 50% to 70%), and a similar percentage of ads watched as in the above scenarios (range: 33% to 60%). Here, the revenue is far more meaningful. In the Conservative scenario, YouTube generates $200 million of revenue: nice, but nothing to write home about. In the Aggressive scenario, however, the company generates $13 billion of revenue--closing in on Google's current revenue today.
BOTTOM LINE
In short, YouTube's revenue won't likely be material to Google for at least a year or two and possibly more. The impact on the bottom line, moreover, will probably be even less pronounced: Serving a video ad, even for Google, is far more expensive than serving a text link. At a $20 CPM, the gross margin on such ads will likely be well below Google's current margins.
You’re trying to download the latest Madonna album, only to find the pop queen calling you…a thief? Welcome to the odd and oftentimes annoying war against piracy. The entertainment industry has been hiring companies to pollute P2P networks with phony files for years, and now some of these very same companies are going into marketing. Instead of sabotaging file transfers, they offer their own media for download, and instead of corrupted files, suddenly it’s all about branding.
Santa Monica, Calif.-based Mediadefender has been at the center of this shift. The subsidiary of ARTISTdirect is known and hated in the file-sharing world for its anti-piracy work, but has recently gotten a lot of press for an upcoming campaign involving ad-supported MP3 downloads. Mediadefender has been experimenting with P2P marketing for a number of years now, and they’ve learned a few lessons along the way. VP Jonathan Lee agreed to share some of them with me.
Mediadefender has thousands servers in co-location facilities around the globe; the decision to put them to use for marketing has been brewing for some time, Lee tells me. With such an abundance of resources, he notes, “What else can you do with it?”
Distributing actual content was an obvious idea, but for the longest time the entertainment industry wasn’t ready to utilize P2P. Companies felt they would undermine their position in legal conflicts if they distributed their own files through these networks. But all of this changed when the Supreme Court ruled against Grokster in the summer of 2005. “After the ruling those gloves came off,” says Lee.
And with that, the learning curve began. “We’re throwing things at the wall and see what sticks,” he explains. Early attempts to do advertising on P2P networks involved what Lee describes as a “bait and switch”. Files were mislabeled in order to get people to watch ads or load Web pages. “Obviously there are tremendous problems with that,” he acknowledges. Most brands just don’t like to frustrate their customers –- except, of course, porn companies, which still use this technique heavily to spam P2P networks.
Another strategy involved sending people to iTunes and similar download stores to make them buy legitimate copies of the content they were looking for with Limewire and other clients. “That really hasn’t worked so well,” admits Lee. Same goes for the idea of mixing ads with search results in order to get people to buy concert tickets and ring tones. He believes that people are just too suspicious to click on anything that remotely looks like an ad in a P2P network, which is why they tend to ignore them.
So what does work? “Things you can’t buy online,” says Lee. It turns out that P2P is actually really good for branding. Mediadefender had a lot of success with a campaign for a soft drink maker that offered people videos they actually wanted to watch. Music works well, and so does goofy stuff. Funny commercials –- the stuff that people re-post on YouTube and then forward to their friends — are a big hit on P2P networks as well.
Does this mean people should just abandon their annoying anti-piracy tactics and instead post some goofy clips on P2P networks? “You are already dealing with your anti-piracy issues if you are doing promotion,” admits Lee. He doesn’t think that the anti-piracy part of his work will go away anytime soon, though.
In fact, Mediadefender is still making most of its money by polluting P2P networks with spoof files, which is why the company will remain be one of the most hated enterprises in the file-sharing world for the foreseeable future. Jonathan Lee doesn’t seem to mind, and he doesn’t think it impacts their marketing business at all. Successful P2P marketing campaigns always looks very viral, he tells me, and the focus really isn’t on his company. “If it is good content, then it’s gonna carry itself.“
EMI Music has now licensed its catalog DRM-free to Snocap, a move that quickly shuttles the label onto the pages of MySpace. Snocap carries a critical partnership with MySpace that enables artists to position downloads on their profile pages, and offers a revenue between all parties. The latest deal follows an earlier arrangement involving Warner Music Group, though EMI is the first major to lend DRM-free content to the alliance.
The Snocap deal follows an earlier DRM-free deal involving the iTunes Store. Like that arrangement, Snocap MyStores will sell EMI tracks at an elevated price point of $1.30. The tracks will also be encoded as higher-quality files, according to information supplied by the companies. That is part of a larger EMI philosophy that consumers are willing to pay more for higher-quality MP3s, though it remains unclear if the proposition is resonating. After positioning its DRM-free catalog on iTunes in late May, EMI has not offered substantive data on the collaboration.
Video fingerprinting could remove a lot of the guesswork for moviemakers.
Right now, tinseltown is all agog over Johnny Depp's latest, Pirates of the Caribbean: At World's End. But a different piracy saga may have a more lasting impact on the industry. By the end of May, the Motion Picture Association of America (MPAA) will report to its member studios the results of tests of a dozen computerized video-fingerprinting systems. This technology is designed to identify pirated movies wherever they exist on the Internet, automating a job that is now done by staffers who look for infringing clips with their own eyes.
Fingerprinting systems could be a crucial link in the battle to control video content on the Net. Most studios and TV networks have come to terms with the idea that they need to make shows available on the Net. However, tensions over whether they get paid for clips recently led Viacom to slap Google Inc.'s video site YouTube with a $1 billion copyright-infringement lawsuit. The MPAA is expected to report that the technology, after years of testing, is now ready for prime time. Says MPAA Vice-President Dean Garfield: "This technology works."
But that doesn't guarantee video Web sites will agree to deploy it. Many of the Web giants, including MySpace.com (owned by media giant News Corp. ), Microsoft, and Yahoo!, have said they plan to do so. But others--particularly YouTube--are moving more slowly, say sources in the industry. One reason is it's still not clear who will pay for video search. The systems must be deployed both by the studios, which create a database of film "fingerprints" or markers, and by the video sites, which run user-uploaded videos through software to find matches.
TIPS FOR CLIPS
The hunt for viable video-fingerprinting technology is akin to an episode of CSI: Crime Scene Investigation. In recent years, many video sites have done deals with Audible Magic Corp. in hopes of using its music-search technology to spot pirated films and TV shows by analyzing sound tracks. But what if they've been dubbed into Chinese or Italian? Also, hackers have plenty of ways to disguise pirated video. To throw off studio screeners, they may change the name of a clip or start with a few seconds of a home movie. Many older fingerprinting technologies can be duped by tilting the image slightly so that the bits are harder to recognize.
But screening companies are making progress. Two-year-old Vobile Inc. in Santa Clara, Calif., did well in the MPAA tests, with technology that extracts what it calls "video DNA" from a movie. Executives won't say what that DNA is but say it lets them spot even a few seconds of a fingerprinted film. In a demonstration, CEO Yangbin Wang shows how the software identified a fuzzy scene of Walt Disney Co.'s The Jungle Book shot at an angle with a camcorder.
Instead of just using the fingerprinting technology to prevent access to pirated material, the film studios say they want to strike deals that would squeeze dollars out of clips. They suggest someone who tries to download a pirated episode of a hot show like Lost could be asked to pay $2.99. Or a site might let viewers watch the car-chase scene in Bullitt free of charge, so long as they put up with a Chrysler ad. Ad revenues would be shared by the site and the copyright- holding studio.
Google has said it is working on its own video-fingerprinting technology but hasn't announced a timetable for deployment. In the meantime, YouTube has limited technology to keep offending clips from popping back up once they've been identified. And its 10-minute limit on clips prevents the loading of whole shows. "We're always working on whatever we can think of to help copyright holders protect their rights," says Glenn Brown, a Google lawyer.
But studio executives and suppliers of fingerprinting systems complain that the search giant is singularly resistant to negotiations. Google has a partnership with Audible Magic, but industry insiders say that company's technology for fingerprinting music is not yet up to the task of identifying video.
Or, as some industry officials suggest, the hurdle may not be technological at all. Google may not have decided yet how much of the online box office it wants to share with Hollywood.
Kiptronic, a San Francisco-based startup that coordinates dynamic ad insertion for audio and video podcasts, will announce today or tomorrow that it has raised $4 million in venture capital funding. The Series A round was led by Blueprint Ventures and Prism VentureWorks, and included existing angel investors.
While we’ve been especially bullish on the potential for advertising in streamed video, Kiptronic plays in the world of downloads. We can see ads for downloads becoming especially useful as larger media companies put their stuff online (please don’t make us pay for podcasts!), but that’s not to say such companies will turn to a low-profile startup.
So far, Kiptronic has pieced together an sizable network of podcasts, reporting 3,000 to 4,000 podcasts on the platform accounting for 47 million total show downloads in the fourth quarter of 2006. .../...
