Video Ad Firms Hit Fast-Forward

Media Post reports:

WITH WEB VIDEO NOW DRAWING TV-like audiences, a herd of companies are jostling to meet the growing demand for ads accompanying online videos. Venture-backed startups are vying with online ad networks, ad networks are pairing with video-savvy boutiques, and Internet giants such as AOL and Google are gearing up their own video ad-serving efforts. No wonder that 15- and 30-second spots that run before videos are typically commanding CPMs of $15 to $30--among the highest on the Web.

But the scarce inventory driving up CPMs is also slowing faster expansion of video advertising. Marketers remain reluctant to place their brands alongside user-created videos of questionable content and quality. None of that has stopped emerging video ad companies from reaping big venture capital dollars. "Broadband penetration and speeds are sufficiently high to enable high-quality video and ads--that's not something you could say as recently as two years ago," said Warren Lee, a partner at Canaan Partners, which recently led an $8.4 million investment in video ad-serving firm Tremor Network. (...). Young companies such as Tremor, Brightcove and PostRoller are touting their video technology expertise to compete with existing Internet ad serving networks. "Delivering video across a network of publisher sites is significantly more difficult than delivering a text or banner ad," said Lee. He noted that video ads, for instance, must be able to run on a variety of formats including Flash, Windows Media Player, Real Media and QuickTime. "There's a lot more that can go wrong," he said.

Video startups are also focusing on particular markets to nurture nascent video ad networks online. For its part, Tremor is bypassing the biggest Web sites to target less trafficked ones in the auto, finance and entertainment categories. "That's where a lot of the volume and opportunity is," said Jason Glickman, chief executive of Tremor. He said the company has a network of about 150 sites on which it serves in-stream ads, including WhitePages.com and RedOrbit.com. Similarly, PostRoller so far has cultivated mainly video-centric sites such as Blip.tv, Streetfire.net and WeakGame.com for serving video ads. Started earlier this year, PostRoller is already serving more than 2 million video and static ads daily to a network of 25 sites, according to founder Tod Sacerdoti. He estimates that less than one-third are video ads, because many sites prefer less intrusive banner ads. The dubious content of some sites also keeps branded advertisers from buying video ads. Hewlett-Packard and Netflix are two prominent video advertisers with PostRoller, said Sacerdoti, who previously started Plaxo. Both Tremor and PostRoller are gearing up their sales force to build up their networks. Tremor is especially aggressive, planning to triple its sales staff to 15 by year's end.

Large, established ad networks aren't just standing by. Advertising.com earlier this year acquired independent video ad company Lightningcast and in June Google began offering click-to-play video ads on sites in its content network. A month ago, ValueClick--the second-largest ad network--moved to upgrade its video capability through a partnership with video ad specialist EyeWonder. As video advertising grows, the demand for third-party verification by ad-serving services will only increase, according to analyst Denise Garcia of WR Hambrecht & Co., who covers ValueClick and other Internet ad firms. That means big ad networks will continue to team up with or acquire video ad shops if they don't have the expertise in-house.

But both emerging and established ad networks are currently constrained by a dearth of professional video content of the kind that brand advertisers want. About 95 percent of the inventory of video pre-roll ads were sold out through April, according to an AccuStream iMedia Research study. "Inventory still exceeds supply for professional video and it's going to stay that way for a while," said Hambrecht's Garcia.

Advertising.com's In-Stream Video Network, which has inventory of 200 million pre-roll video streams each month, is about 80 percent sold, according to Elicia Brand-Leudemann, the network's director of marketing. She explained that it can operate more efficiently than other networks, in part, because it's constantly adding new inventory. She said that until advertisers have more control of what content their ads will be associated with, they will be wary of user-generated content. At the same time, video-sharing sites such as YouTube have to be mindful of alienating their users if they start to impose greater control over content to create a more friendly environment for advertisers. Members could end up migrating to any of the dozens of competing video sites. For its part, Advertising.com is trying to strike a balance. It has agreements with sites such as YouTube and MySpace to place video ads, but only on landing pages within the sites that have no user-created video. "The quality and content of the sites is very important," said Brand-Leudemann.