monetizing online video in europe

Making Leaders Successful Every Day

February 27, 2009

Monetizing Online Video In Europeby Nate Elliottfor Consumer Product Strategy Professionals

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For Consumer Product Strategy Professionals

ExECutIVE SuMMaryWith European online video ad spending set to more than quadruple in the next five years — nearing €1 billion in 2013 — the majority of publishers have now set their sights on the in-stream video ad opportunity. Advertisers prefer pre-roll ads to other in-video ad formats, and users are actually as likely to accept pre-roll ads as any other format publishers can use to monetize video content. Sites can balance the needs of advertisers and users by limiting both in-stream ad frequency and length and by rotating through a variety of in-video ad formats.

tablE OF CONtENtSEuropeans’ Growing Use Of Video Sparks Advertiser Adoption Of Video Ads

Publishers Have Set Their Sights On The In-Stream Ad Opportunity

Users Will Accept In-Stream Advertising If It’s Implemented Correctly

Advertisers Are Warming To Shorter Ads But Often Ignore Frequency

the average European In-Stream ad Is 16 Seconds

advertisers Not Focused Enough on Sites’ Frequency Controls

Video Advertisers Are Primarily Concerned With Hitting Their Target Audience

Video Ad Servers Make It Easier To Balance Users’ And Advertisers’ Needs

rECOMMENdatIONS

Sites Must Improve Advertisers’ Performance While Considering Users’ Needs

Supplemental Material

NOtES & rESOurCESForrester analyzed data on European online video viewers from its September 2008 Consumer Survey and studied 48 European sites with video content in its June 2008 Online Video Webtrack. Forrester also analyzed data from the June 2008 advertiser Executive Survey and interviewed nine vendors and publishers.

Related Research Documents“Video advertising In Europe”august 7, 2008

“European Online Video advertising”august 29, 2007

February 27, 2009

Monetizing Online Video In Europebalancing the Needs Of advertisers and usersby Nate Elliottwith rebecca Jennings, bobby tulsiani, Mark Mulligan, and angie Polanco

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Monetizing Online Video In Europe For Consumer Product Strategy Professionals

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EUROPEANS’ GROWING USE OF VIDEO SPARkS ADVERTISER ADOPTION OF VIDEO ADS

Driven largely by increased broadband penetration and the introduction of high-quality online video services and content, online video consumption in Europe has exploded in the past two years (see Figure 1). The number of Europeans watching online video content nearly doubled between 2006 and 2008, with more than 90 million now watching video content online at least once each month. On average, Europeans now spend 13% of their online time — more than an hour each week — watching online videos.

As users’ consumption of online video has grown, so too has advertisers’ adoption of all online video ad formats:

· Advertiser use of pre-roll ads has almost tripled in the past year. Users’ increased interest in online video content has been a boon for in-stream advertising — pre-roll advertising in particular. According to our 2008 European Advertiser Executive Survey, nearly three times as many advertisers bought pre-roll ads in 2008 as in 2007, and advertiser-use of all in-stream ad formats will only continue to grow (see Figure 2).

· However, video banners are still most popular with advertisers. Although there is little doubt they create less impact than in-stream video ads, video banners (e.g., standard display ad units containing video-based creative) offer advertisers broader reach at lower prices. As a result, more advertisers buy video banners than any other type of video ad, and even in-video ad pioneer VideoEgg has shifted its focus largely to banner-based formats in the past year.

· Spending is evenly split between in-stream ads and video banners. Fewer advertisers buy in-stream ads than video banners, and in-stream buys tend to include far fewer impressions. However, there are significant price differences between the two formats. UK broadcaster ITV has reported charging £50 (approximately €52 as of January 5, 2009) CPMs for in-stream ads on its site, while some German publishers have reported selling pre-roll ads for up to €100 net. On the other hand, video banners often sell for little more than traditional static ad banners. As a result, advertisers have told us their online video ad spending is split approximately half and half between in-stream ads and video banners.

The increasing availability of video advertising opportunities — along with advertisers’ increasing desire to use the format — will drive quick growth of video ad spending in Europe. We forecast that by 2013, online video advertising will generate €986 million in advertising spending — 22% of all online display ad spending in Western Europe (see Figure 3).

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Figure 1 More than 90 Million European adults Watch Online Video Each Month

Figure 2 advertisers Expect to Continue rapid adoption Of Video advertising

Source: Forrester Research, Inc.53826

16.422.8

33.1

46.5

67.2

92.3

200820072006200520042003

Monthly Web-basedvideo audience

(in millions)

Base: Western European adults

Source: JupiterResearch Activity and Paid Content Model (7/08)


Base: 81 European advertisers *Base: 31 Western European advertisers

Source: JupiterResearch Advertiser Executive Survey (5/07)*Source: JupiterResearch Advertiser Executive Survey (6/08)

Interested in using in next year*Used in 2008*Used in 2007

“What online advertising tactics have you used in the past 12 months? What onlineadvertising tactics are you interested in using in the next 12 months?”

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Figure 3 European Online Video ad Spending Will Near €1 billion In 2013

PUBlISHERS HAVE SET THEIR SIGHTS ON THE IN-STREAM AD OPPORTUNITy

The explosion of online video consumption in Europe and the high CPMs advertisers pay for in-stream ads have sharpened publishers’ focus on this format. Over the past year, publishers have stepped up their efforts to offer advertisers access to this fast-growing audience.

· The majority of European online video sites now accept in-stream ads. While in-stream advertising had a later and slower start in Europe than in the US, the European market is picking up speed. Slightly more than one-quarter of European sites tracked in our 2007 European Online Video WebTrack featured any form of in-stream video advertising (e.g., pre-roll, mid-roll, or post-roll ads).1 By the time of our 2008 Online Video WebTrack, the number of sites accepting in-stream ads had more than doubled to 55%.

· Print publishers and TV channels are most likely to accept in-stream ads. Traditional media properties have been more eager to adopt in-stream ads than pure-play online publishers. Eleven of 17 print publishers in our 2008 European Online Video WebTrack accept in-stream ads in their online video content, as do 10 of 16 TV channels and operators. By comparison, just six of 16 online-only publishers accept in-stream ads — in part because advertisers find the user-generated video offered by many online-only publishers relatively unattractive. For instance, in France we spotted in-stream ads on the sites of newspapers L’Express and Les Echos as well on the sites of TV networks TF1 and France 24 — but not on online-only properties Dailymotion or Yahoo!.


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Base: Western Europe

Source: JupiterResearch Internet Advertising Model (12/08)



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· European online video viewers saw three times as many in-stream ads in 2008 as in 2007. Not only are more European sites accepting in-stream ads than in the past, but on average they’re each accepting a larger volume of advertising. As a result, the total number of in-stream ads each European user is exposed to has jumped dramatically in the past year. In 2007, users saw just one in-stream ad for every 8.7 video clips they watched online. By 2008, they saw one in-stream ad for every 3.4 video clips they watched online (see Figure 4). When you consider users’ increasing time spent with online video, the average European user saw approximately three times more in-stream video ads in 2008 than in 2007. UK sites have been most aggressive: Not only are they more likely to accept in-stream ads than any other sites in Europe, but they have by far the highest ad-to-content ratio.

European users may even begin to see in-stream video ads in the unlikeliest places. Although YouTube has long proclaimed its distaste for in-stream advertising, it has started allowing US content partners such as CBS Interactive and NBA Media Ventures to run in-stream ads in their YouTube-hosted content. As YouTube adds content partners in Europe, it’s likely to pursue a similar model.

Figure 4 Europeans See One In-Stream ad For Every 3.4 Video Clips they Watch

USERS WIll ACCEPT IN-STREAM ADVERTISING IF IT’S IMPlEMENTED CORRECTly

While most users don’t enjoy advertising in any medium, they understand that it supports the content they consume online — and with just 16% of Europeans willing to pay for any type of online content, most consider advertising an acceptable tradeoff. In fact, Europeans report that they are twice as likely to accept advertising in online videos as they are to pay for online video content. And contrary to widespread belief, in-stream ads are actually less likely than other ad formats to alienate most users:


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AverageRest ofEurope

FranceGermanyUK

Number of video clips shown for every one in-stream ad

Base: 583 online videos (Western Europe)

Source: JupiterResearch Online Video WebTrack (6/08)



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· Users actually prefer pre-roll ads to other in-video ad formats. In survey after survey, users have told us they’re at least as likely to prefer in-stream ads — pre-roll ads in particular — as the other ad formats publishers can use to support their video content. Online users in the US have told us they’re approximately as willing to accept in-stream ads as they are to accept banners alongside video content. 2 And in our most recent European online consumer survey, more online video viewers say they prefer pre-roll ads than prefer all other types of in-video advertising combined — including mid-rolls, post-rolls, overlay ads, and on-screen logos (see Figure 5).

· However, users will leave if publishers overwhelm them with ads. Just because users understand the need for advertising doesn’t mean sites have carte blanche — and users’ tolerance for in-stream ads seems to be lower than their tolerance for TV ads. In-stream advertising made up less than 3% of European online video time in 2008, less than most viewers see on TV. However, European online video viewers are concerned with both ad frequency and ad length, and 17% say they’ve stopped watching video on some sites because of the volume of advertising (see Figure 6). A relatively high number of European sites risk incurring users’ wrath: Most publishers that accept in-stream ads exceed our recommended ad-to-content ratio one ad for every 2.5 short video clips.

· Properly implemented, pre-roll ads should cost sites less than 5% of their video views. Publishers and ad networks that accept pre-roll ads say that ad abandonment rates are generally less than 20% — only about 10% higher than video abandonment rates even when no pre-roll ad is run. With incremental abandonment rates of approximately 10% per video, professional video sites that follow our ad frequency guidelines should find that implementing pre-roll ads costs them less than 5% of their total video traffic.3 User-generated video sites typically report much higher abandonment rates on pre-roll ads, likely because users are less willing to sit through advertising when they’re unsure of the quality and value of the video they’ll be watching.

Figure 5 users Consistently Prefer Pre-roll to Other Video ad Formats


18%

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5% Monthly online video viewersDaily online video viewersOverlay ads or

on-screen logos

Mid-roll orpost-roll ads

Pre-roll ads

Base: 4,284 online users (France, Germany, Italy, Spain, Sweden, and the UK)Source: JupiterResearch Consumer Survey (9/08)

“If you must see an ad when you’re watching videos online, which type of ad would you prefer to see?”



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Figure 6 Seventeen Percent Of Online Video users Have abandoned Sites due to advertising

ADVERTISERS ARE WARMING TO SHORTER ADS BUT OFTEN IGNORE FREqUENCy

Over the past few years many advertisers have worked to make their in-stream ads more palatable to users, who are concerned with both the frequency and length of in-stream ads (see Figure 7). However, advertisers’ efforts have focused almost exclusively on ad length, ignoring users’ concerns over advertising frequency.

Figure 7 users are More Concerned With In-Stream ad Frequency than length


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Online videoviewers

Base: 4,284 online users (France, Germany, Italy, Spain, Sweden, and the UK)

Source: JupiterResearch/Ipsos Consumer Survey (9/08)

“I’ve stopped watching online videos on some sites because there’s too much advertising.”


36%

20%

28%

19%Monthly onlinevideo viewers

Daily onlinevideo viewers

When I watch videos online,the ads I see are too long

When I watch videos online,I see too many ads

Base: 4,284 online users (France, Germany, Italy, Spain, Sweden, and the UK)

Source: JupiterResearch/Ipsos Consumer Survey (9/08)

“Thinking about the way you use the Internet, which of the following statements apply to you?”



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The Average European In-Stream Ad Is 16 Seconds

When mainstream sites such as Microsoft’s MSN and ESPN Internet Ventures first started accepting in-stream ads in 2004, nearly all of the ads were 30 seconds long. Today most advertisers understand the need to use shorter creative:

· Advertisers are producing shorter in-stream ads. Early on, most in-stream ads were simply repurposed TV ads, and relatively few advertisers had access to creative shorter than 30 seconds. Today advertisers are more likely to create new video ads for use online than they are to repurpose TV ads, giving them the flexibility to create any ad length they want. According to our 2008 Advertiser Executive Survey, more European advertisers and agencies now run online video ads that last 15 seconds or less than run ads that last longer than 15 seconds (see Figure 8).

· The average length of an in-stream ad in Europe is falling. Our 2008 Online Video WebTrack shows that the average in-stream ad in Europe is 16 seconds long, down 1 second from 2007. In-stream ads are longest in France (17.8 seconds on average), while the smaller European countries (e.g., all those except France, Germany, and the UK) have the shortest in-stream ads — an average of 13.5 seconds. European online video viewers are now three times more likely to see in-stream ads that last 10 seconds or less than to see ads that last a full 30 seconds.

Accepting shorter in-stream ads may hurt sites’ ad revenues in the short term, as some advertisers are willing to pay higher prices for longer ads. However, these shorter ads will increase users’ acceptance of in-stream advertising, providing a long-term benefit to publishers.

Figure 8 advertisers Have begun to use Shorter In-Stream ads


13%

20%

19%

17%We have run ads under15 seconds

We have run 15 second ads

We have run ads of between15 and 30 seconds

We have run ads over30 seconds long

Base: 70 Western European advertisers and agencies

Source: JupiterResearch Advertiser Executive Survey (6/08)

“Thinking about the online video ads you are running in 2008,which of the following statements are true?”



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Advertisers Not Focused Enough On Sites’ Frequency Controls

Despite the fact that European online video viewers are more concerned with in-stream ad frequency than in-stream ad length, just 7% of advertisers consider sites’ ability to limit ad frequency when deciding where to run in-stream ads. Advertisers can — and should — ask sites to control frequency in two ways:

· Limit the frequency of each advertiser’s message. Just as advertisers manage the reach and frequency of their TV campaigns and set frequency caps on their online banner campaigns, they should control the number of times each user sees their in-stream ads. This keeps users from burning out and forming a negative impression of the advertiser and also ensures that the ad buy reaches the largest possible number of users.

· Cap the total amount of in-stream advertising each user sees. In addition to controlling how often users are exposed to each individual advertiser’s message, smart publishers also limit users’ overall exposure to in-stream advertising. Too many publishers overwhelm video viewers with advertising: In our 2008 Online Video WebTrack, six of the 27 European sites with in-stream ads ran at least one ad for every piece of content, and less than half heeded our recommended ad-to-content guidelines.

Limiting frequency will not only appease users but also improve performance for advertisers — offering an important and easy-to-sell point of differentiation for publishers.

VIDEO ADVERTISERS ARE PRIMARIly CONCERNED WITH HITTING THEIR TARGET AUDIENCE

Advertisers consider a wide range of factors when choosing where to buy video ads, including the quality of a site’s content, the size and image quality of a site’s video streams, and whether the site offers companion ads. However, online video advertisers’ strongest focus is on hitting their target audience (see Figure 9):

· Advertisers want targetable advertising inventory. Advertisers continue to increase their use of behavioral, geographic, and demographic targeting for banner ads.4 But most sites — even many of the largest video sites in Europe — don’t generate enough in-stream ad inventory to support this type of user-based targeting. Instead, sites like MSN and networks like Tremor Media offer advertisers the ability to target their ads based on the category of video content they’d like to appear in. Sites that can offer user-based video ad targeting will hold a key advantage in capturing video ad spending.

· Until user-based targeting is ready, advertisers will judge sites on audience composition. Given the difficulty of applying user-based targeting to in-stream advertising, advertisers’ overwhelming priority when planning campaigns is finding sites with audiences that already match their



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campaign target. Almost three-quarters of European advertisers say the ability to reach their target audience is important when choosing a site on which to run video advertising — nearly twice as many as cite any other consideration.

· Targeting overshadows other considerations like companion banners and picture quality. We recommend that sites offer companion banners alongside their in-stream ads to improve direct response, as Microsoft’s MSN France and www.spiegel.de do, and that they run pre-roll ads in large, high-quality video windows to drive greater brand impact like Telegraph Media Group and www.vg.no. However, with advertisers telling us that they largely ignore these best practices in their pursuit of targetable inventory, it’s clear that sites should consider these features a secondary priority when building their in-stream ad offerings.

· Many advertisers are still scared by the specter of questionable content. In an online video environment dominated by the sometimes questionable quality of user-generated content, many advertisers remain concerned about finding access to high-quality video ad inventory. Not only does professionally produced content offer name-brand sites an opportunity to attract more advertising revenue, but the perception of low-quality content is clearly still a “deal breaker” for many advertisers. Although YouTube leverages its huge base of users to offer some of the most advanced video ad targeting available and only places ads within professional video content, the site suffers from lingering questions over content quality. As a result, it still attracts relatively little advertiser spending.

Figure 9 targeting Is More Important than Image Quality Or Companion ads


73%

37%

34%

11%

10%

7%The site's ability to limit the frequency

of advertising its users see

The ability to run a companion banneralong my in-stream ad

The image quality or screen size atwhich my ads will appear

The site's ability to target my ads (e.g.,by content, context, demographics)

The brand name or reputation of the site

The ability to reach my target audience

Source: JupiterResearch Advertiser Executive Survey (6/08)

“When deciding where to place in-stream video ads, which of thefollowing factors are most important to you?”

Base: 70 Western European advertisers and agencies



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VIDEO AD SERVERS MAkE IT EASIER TO BAlANCE USERS’ AND ADVERTISERS’ NEEDS

While both advertisers and users prefer pre-roll ads to other formats — and sites can expect that pre-roll ads will always dominate in-stream advertising — publishers should put other in-video ads units into the mix as well. However, to date we’ve not seen any site in Europe effectively mixing together different in-video ad units:

· Sites that accept video ads typically stick to just one type of in-stream advertising. Twenty-three of the 27 European sites that we found running in-stream advertising accepted just one format: 20 of them accepted only pre-roll ads, two (France 24 and Yahoo! Music UK & Ireland) accepted only mid-roll ads, and one (www.sapo.pt) accepted only post-roll ads.

· Publishers should focus on pre-rolls but rotate through other formats as well. Because advertisers are more than twice as likely to run pre-roll ads as other in-video ad formats — and because most advertisers believe pre-rolls are the most effective in-video ad format — sites must focus on offering pre-roll ad inventory. But rotating through different formats is vital to serving the 19% of European advertisers who say they plan to run other in-video ad formats in the next year (see Figure 10). This strategy would also give publishers more flexibility in their sales packaging, allowing them to offer in-video ads at a range of different price points.

· Format rotation can prevent users from feeling overwhelmed. While ad frequency plays the largest role in annoying users, rotating through various in-video formats can also help reduce users’ feelings of being overwhelmed and prevent “banner blindness.” Sites that mix pre-roll ads with less-invasive or less-impactful formats (e.g., mid-roll, post-roll, video overlays, and video sponsorships) feel to users as though they’re running less advertising than they actually are. Sites that rotate formats can therefore either provide users a better site experience with the same level of advertising or potentially accept slightly more in-video advertising without further overwhelming visitors.

· Video-specific ad servers are best-positioned to help publishers rotate formats. Mainstream ad-serving platforms like Google’s DoubleClick DART and Microsoft’s Atlas DMT now handle video ad formats. However, specialist video ad servers (e.g., Tremor Media, AOL’s Lightningcast) are best-equipped to handle the unique challenges of managing, serving, and tracking video advertising, and most are able to offer the type of ad rotation we describe here.



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Figure 10 ad Servers let Publishers rotate among different ad Formats


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r E C O M M E N d a t I O N S

SITES MUST IMPROVE ADVERTISERS’ PERFORMANCE WHIlE CONSIDERING USERS’ NEEDS

In-stream video advertising clearly offers the best opportunity for publishers to monetize their online video content. Consumer product strategy professionals should embrace the following tactics to give advertisers what they want while also remaining sympathetic to the needs of their users:

· Partner with video-specific ad networks and ad servers. While forming a healthy, profitable ad network partnership is always vital for small and medium-sized sites, it takes on increased importance when publishers look to monetize their video content. Most sites outside the top tier of online video simply can’t offer advertisers what they want: the security of a brand name and the ability to segment and target users. respected networks — especially those that specialize in video advertising — can help publishers satisfy both of these demands and therefore get better prices for video ads. Publishers large enough to offer their own in-stream ad targeting will find that video-specific ad servers help them get the most from their video ad inventory.

· Create ad-friendly environments to monetize user-generated video. although most user-generated video sites have added professional content, several told us they still get more than 90% of their traffic from user-generated content (uGC). With many advertisers still nervous about advertising in user-generated video — and with uGC video sites selling very little advertising at very low prices as a result — such sites must create more “clean, well-lit places” for advertisers. dailymotion’s “MotionMakers” initiative is a step in the right direction: the site has identified its most promising and successful amateur contributors and contracted them to produce content on a regular basis, thereby creating an advertiser-friendly bridge between the sites’ professional and amateur content. uGC video sites could also identify the clips that generate the most viral interest each day, sign single-video contracts with their creators, and promote them in a “video of the day” or “top videos” section featuring a sponsor or in-stream advertising.

SUPPlEMENTAl MATERIAl

Companies Interviewed For This Document

BBC Worldwide

clipfish.de

Dailymotion

DoubleClick

MSN

myvideo.de

Tremor Media

VideoEgg

YouTube



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ENDNOTES1 For a more detailed view of how sites’ video ad acceptance has grown over the past two years, see the

August 7, 2008, “Video Advertising In Europe” report, and see the August 29, 2007, “European Online Video Advertising” report.

2 To learn more about what types of advertising users prefer in and around online video content, see the April 2, 2007, “Monetizing Consumer-Created Video” report.

3 For further analysis on traffic loss related to the introduction of in-stream video ads, see the August 7, 2008, “Video Advertising In Europe” report.

4 Advertiser use of behavioral targeting in the US grew from 16% in 2007 to 24% in 2008 — and the growth was even more dramatic in Europe. For more detail, see the November 24, 2008, “Behavioral Targeting” report.







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