Why in-stream ad frequency is rising -- and why it'll rise further

Earlier this month, Corey Kronengold at Online Video Watch was complaining about the in-stream ad load at MLB.tv. But unfortunately for Corey – and for the other two-thirds of US Internet users who now watch online video – the ad load seems likely to get heavier rather than lighter.

In the fourth quarter of 2009, my team and I spent at least 30 minutes watching video on each of 84 leading sites in the US and Europe to better understand how marketers and sites are deploying online video ads – an exercise I’ve conducted each of the past three years. What did we find? Advertising, and a lot of it. In fact, 85% of US web sites and 64% of European sites now accept in-stream ads. And we saw more advertising per online video hour than ever before. 

85% of US web sites accept in-stream video ads

But the growth in overall video ad volume is coming not just from more sites accepting in-stream ads, but from the increased number of ads per video they’re running. Until recently, I’d rarely seen sites run more than one pre-roll in front of a single video clip, or run more than one ad in each ad break. But both practices have quickly become commonplace. If Corey didn’t like one ad in front of every clip on MLB.tv, I wonder whether he’d have enjoyed our experience on FoxNews.com, which actually showed us more in-stream ads than video clips. Likewise, ComedyCentral.com now puts two pre-roll ads in front of each full episode of ‘The Daily Show’ and ‘The Colbert Report.’ In the UK, ITV.com regularly attaches both a pre-roll and a post-roll to each short video clip – and often features a third marketer as the sponsor of the video player itself. ITV’s full-length online content is bolder yet, typically sporting two pre-rolls and up to four in-stream ads per ad break. And ProSieben.de in Germany ups the ante furthest of all, running as many as six (yes, six!) ads per break during ‘Germany’s Next Top Model.’

All of these examples have two important things in common:

  1. All the sites are primarily in the TV business. And that’s no coincidence. One ad for every two video clips might seem great if you’re a newspaper or an online-only site dabbling in online video – after all, your production costs are probably pretty low. But if you’re a TV network spending a lot of money to buy your content, and your audience is starting to shift its viewing of that content from TV to the Internet, you need to make sure your business model still works. TV business models are typically built around selling 12 to 16 ads per half-hour program – so putting one ad in front of every other short clip, or one ad into each ad break of a full program, simply isn’t enough. (Either way, that frequency works out to 4 or 5 ads per half hour – about one-third the volume networks can do on TV.) It’s little surprise, then, that our research found TV networks ran the highest frequency of in-stream ads, and were also most likely to sell banners to additional marketers on their online video pages.
  2. All these examples sprang up post-recession. Sure, all online ad CPMs got hurt by the recession – but in-stream ad CPMs, which were higher than average to begin with, fell further. Thankfully, most marketers still aren’t asking for $1 CPMs – but many marketers and publishers are telling us that prices for pre-roll ads have fallen between 25% and 50% in the past 18 months. And that means that while some TV networks used to generate higher prices on in-stream inventory than on TV inventory, that’s usually no longer the case. The solution, again, is to increase the ad load to make up the difference.

So what does this mean to consumers, and to the industry? It means the online video ad load will only continue to rise – especially on premium content. I’ll be shocked, for instance, if Hulu doesn’t start running multiple ads per ad break once their sell-through goes up. (Or even sooner, using PSAs and network promos.)

Increasing ad loads further is definitely a gamble. After all, we know users aren’t exactly in love with in-stream ads. But we’ve also seen, over time, that users understand the quid pro quo of advertising in exchange for free content -- and that they're especially understanding when that content is something they really want to watch. Case in point: ProSieben reports that their user abandonment rates don’t increase much when they put more ads into each ad break – even when they show six ads in a single ad break. And that is the best news that publishers could hope to hear.

Comments

Slight clarification on my POV

Nate -

As always, thanks for the shout out. And thanks for the real insight and analysis on top of my gut-reaction complaining about a user experience.

But to be clear, while I found the ad load to be out of balance with the amount of content I was consuming, I found the ad length to content length ration equally as disturbing. Ive long been a defender of the pre-roll for mid to long form content, but there wasn't a :15 second ad to be found anywhere in the mix of :30 second video clips I was watching.

Additionally - and this probably has more to due with broadcast rights than anything - in between innings of a live game, MLB.TV doesn't serve any advertising at all. Not digital, not broadcast, not local spot, nada. For the amount of ad load on the non-game related content, they seem to be leaving a truckload of revenue on the table.

I'm looking forward to seeing an increase in the value of each ad unit rather than continuing to increase the overall ad load.