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Networks take $120m from Internet Video ads?

vid adsSome estimates suggest the market for global online video advertising will reach $1.3b this year.   The 4 major U.S. television networks (ABC, CBS, FOX and NBC) have been coy about their share of that booty.   It’s no wonder.  With writers striking, one of the core negotiating points is digital revenue.  The writers want a piece and the networks don’t want to lock in a rate for a market too premature to estimate accurately.

Thursday, the Financial Times put a number on the present stakes.  Citing a senior vice president at Starcom, a media buying agency that spends with all 4, FT estimated a combined annual take of greater than $120m.

That’s not bad, but it’s peanuts compared to the market opportunity.  For one thing, professional grade Internet video, and the ad models that hope to support it, are still in their infancy.  Though all of the networks stream content, the quality of the streams and depth of the offerings are still low.  Hulu, a major component of NBC and Fox strategy hasn’t even launched for the general public yet. 

Over the next few years, quality will  improve (As a beta tester, I can say Hulu’s tools are impressive but the image quality of the stream still pales compared to a normal TV broadcast).   The “Long Tail”concept will also likely insure a wide range of titles.  So long as users accept viewing TV content through a computer or some form of Internet tethered device (a gaming console? a set top box?), the ad market will grow exponentially.  Part of that is scale, part of it is premium pricing.

Ads attached to streaming video are “stickier.” That is, studies are showing viewers pay more attention and have a higher recall rate to streamed video ads relative to TV.   The nature of Internet distribution also means a more targeted advertisement is possible.   Instead of relying on a one-size fits all or geographic targeting where an ad is served to a large block of viewers in a set region (TV), Internet ads can be targeted narrowly based on viewing habits, or even interactive content.   

Networks providing sticky, targeted ads stand to make more money, dollar for dollar, viewer for viewer, than they likely would for many television spots.   In plain English, they can charge a higher rate for relevance and “stickiness.”

Does this mean anything for the writer’s strike? The $120m disclosure, that is? Probably not.  Digital dollars are only part of the negotiation.   Further, defining a market that’s still a baby, and then coming to a forward looking revenue sharing agreement that is fair and accurate, is no easy task.  Arguably it might even be impossible.  Nobody can really predict where the digital marketplace is going.  How big will revenue be two years from now? How will digital content sharing influence traditional broadcasting?  The crystal ball doesn’t provide those answers.   The writers and producers will have much more luck coming to terms over what’s here and now, things like DVD rights. 


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