Are Skins, Bugs or Tickers The Holy Grail of Web Advertising?

From the WSJ

By KEVIN J. DELANEY and EMILY STEEL
August 13, 2007; Page B1

Video Web sites have spent the past year searching for the Holy Grail
of online advertising: ads that don't annoy consumers and still fetch
high prices from advertisers. Now some believe they're beginning to
figure out what works and are starting to cash in.

Sites ranging from Google Inc. to Break.com1 have been experimenting
intensively with replacements for the preroll, the video ads that
users are forced to watch before viewing a clip. Advertisers liked
prerolls because they could use commercials already produced for TV in
the spots, and Web publishers loved the high prices they commanded.
But users grew annoyed by the intrusion, and Google's YouTube and
other video-sharing newcomers rose to popularity partly by ditching
the format.

A BETTER SOLUTION?

That left a big question mark hanging over the online-video industry,
which saw huge growth in consumer usage but couldn't point with
certainty to ad formats that would pump up long-term revenue. Now,
with early results from their experiments with other formats, some
video sites say they're more confident they have an answer, and some
advertisers say they're seeing good results.

The sites and advertisers are now citing success with such things as
graphics that slide over the bottom of the video-viewing screen that
allow them to market to users without interrupting the clip. A user
can usually click on the graphic -- sometimes known as overlays, bugs
or tickers -- to pause the video and see more information from the
advertiser. Other marketers are seeing results with ad graphics that
surround the video player screen, often known as player skins,
especially when used in concert with video ads dropped into clips like
TV commercials. And the preroll itself has been reinvented, now
limited to as little as five seconds and sometimes including timers
that count down the length of the commercial in order to grab
consumers' attention without turning them off.

"Two-thousand-eight is going to be the year when we'll see video
advertising grow because a lot of the experimentation will have
happened this year," says Gokul Rajaram, a Google director of product
management. "People are going to start acting on the data." Research
firm eMarketer Inc. projects that U.S. spending on Internet video
advertising will rise to $4.3 billion in 2011 from $410 million last
year. And Google Video announced Friday that it would stop charging
fees for any of its videos, planning to rely solely on ad revenue.

No one claims to have totally cracked the video-advertising code, and
many sites and advertisers remain in the throes of experimentation,
with mixed or disappointing results to date. Some say the industry
hasn't yet figured out how to make video ads as interactive and
effective as they can be. Most big advertisers are still uncomfortable
having their ads appear alongside the unfiltered videos created by
amateurs on user-generated sites like YouTube. And there's a consensus
that video sites need to reach common standards for formats and how to
measure ads' effectiveness before marketers can adopt them without the
endless hassles of customization.

A skin, one of a few new Web advertising formats, wraps a movie ad
around a video.

Still, the early results are encouraging. Ogilvy Interactive, the
digital arm of WPP Group's Ogilvy & Mather, has found that ads
connected with online videos perform about three times as well as
online sponsorship ads and banner ads when it comes to a consumer's
brand recall. The branded skins on video players are one format that
has worked well for Ogilvy clients including Foster's Lager and
International Business Machines Corp.

"It's not intrusive, and it allows you to sponsor and create an
association with good content," says Maria Mandel, executive director
of digital innovations at Ogilvy Interactive.

The best results have come when the agency has used skins in
combination with placing 30-second spots within the clips. Ogilvy is
readying an ad effort for IBM that includes a specially designed video
player that has IBM skins and plays technology or business content
along with IBM ads. The agency is working on placing the player on
magazine and newspaper publishing sites. Brand recall and consumers'
intention to buy a product, another key measurement, are high with
such ads, says Ms. Mandel. For those reasons, Ms. Mandel says many of
her clients are shifting money out of traditional media into
online-video ads.

Video site Heavy.com4 says skins are the ad format consumers have most
consistently responded to, clicking on them for more information
between 1% and 2% of the time they're displayed. (Industry-wide, the
rate is generally just a fraction of a percent with many other kinds
of ads.) Heavy's video site, which NetRatings Inc. says had 720,000
users in June, this month is starting an online-video ad network
called Husky where it will sell ad skins to appear alongside videos on
other publishers' sites, such as Newgrounds.com5, which offers content
such as games and cartoons.

"We have a very good format," says Simon Assaad, Heavy Inc.'s co-chief
executive. He says a single skin usually generates less ad revenue per
viewer than a preroll ad, but a site can show multiple skins during
each video of several minutes. As a result, the total ad revenue per
video clip -- in the rough range of $30 per 1,000 times it's viewed --
can be equivalent.

Meanwhile, Break.com has offered TV-commercial-like ads within videos,
but another format it introduced a few months ago, which it calls a
"bug," has been generating more excitement among advertisers.
Break.com had 3.8 million U.S. visitors in June, according to
NetRatings.

Time Warner Inc.'s New Line Home Entertainment used bugs last month to
promote the DVD release of "The Number 23" on Break.com. Using the ad
format, a graphic on the film slid onto the bottom of a video as it
played; the graphic offered viewers who clicked on it more
information. About 2.5% of everyone who saw the ad clicked through to
learn more about the DVD release. "That's certainly much higher than
standard advertising click-through rates on the Web," says Ian
Schafer, chief executive of interactive ad agency Deep Focus Inc.,
which worked on the campaign for New Line.

Deep Focus is working with other clients and Web sites on similar ads,
and Break.com says it's close to selling out its bug inventory. "This
has been the most effective ad unit attracting advertisers and users,"
says Keith Richman, the CEO of NextPoint Inc., the parent of Break
Media. "Users who frequently complain when they don't like things
haven't complained at all."

VideoEgg Inc., a San Francisco-based company that runs an online-video
network and develops interactive-video ad technology, started
experimenting with ads that went beyond the preroll format last fall.
These include video spots that roll at the end of clips, tickers that
resemble the headlines that stream underneath TV news programs,
picture-in-picture ads and animated bugs. Right now, the
picture-in-picture ads are performing the best, with click-through
rates averaging 4% to 5%, says Troy Young, VideoEgg chief marketing
officer.

Discovery Communications, which advertises with VideoEgg, says its
online-video advertising results exceeded the company's expectations
compared with other forms of online ad placements. Discovery recently
ran a campaign with VideoEgg for its TLC network's "LA Ink" show,
including ticker and video-in-video ads. A spokeswoman said the ads
"performed incredibly well, garnering a click-through rate four times
higher than the standard."

Internet heavyweight Google has been experimenting with various
video-ad formats on YouTube and partner sites for months, including
overlays and TV-commercial-like ads of different lengths and
placement. Mr. Rajaram says the best format will vary by site and
content. But he says the overlay ads, which insert text or graphics
like a ticker tape at the bottom of the video, are one format that is
a candidate for the industry to create standards around.

Mr. Rajaram says Google is experimenting with using
contextual-targeting -- making the subject of the ad match the content
it appears alongside -- for video-related ads, though he declined to
specify how that worked at Google. But some start-ups have developed
technology that analyzes the audio track of clips for key words that
help select ads that might be more relevant to the user, such as by
showing a car ad when someone in the clip is speaking the name of a
specific auto maker.

Allstate is one of the advertisers who tested different ad formats and
placement on the Google Video site over the past year. One test
involved running 15-second commercials in the middle of music videos,
but no users clicked on the ads or dialed the 1-800 telephone number
they listed. The insurance giant says music videos weren't the right
place for such ad content and vows to keep experimenting.

"We didn't see overwhelming success," says Lisa Cochrane, Allstate's
vice president of integrated marketing, who says the company is
looking to test shorter length ads of seven or eight seconds.