Online-Video Ads Show Slower Growth

As posted by: Wall Street Journal

TV networks have long hoped digital dollars would help offset declines in traditional ad spending, but now even online video is showing some signs of faltering amid the recession.

General Electric's NBC Universal, at an investor conference last week, warned of a slowdown in ad spending on high-end Internet video. The company's NBC broadcast network streams many of its shows online, both on its own Web site and through Hulu.com, the sixth-most-popular video Web property, according to market tracker comScore Inc.

"The most surprising thing to us is how fast the digital marketplace has come to a standstill in the fourth quarter," said Jeff Zucker, chief executive of NBC Universal, during the conference.

Online video is still expected to be one of the highlights of the digital-ad market. When it revised its forecasts for U.S. online ad spending earlier this month, research firm eMarketer predicted that online video-ad spending by U.S. advertisers would grow 45% to $850 million in 2009.

By contrast, Bernstein Research forecast last month that total TV advertising would fall 1.9% this year, and another 5% next year, to $65 billion for 2009.

Despite its small footprint, online video has gotten advertisers excited, as they shift dollars to the Web to keep pace with the amount of time consumers spend watching videos there. But the eMarketer forecast is down from earlier projections of 49% growth and, as the recession forces marketers to scrutinize every penny, no area is immune.

Hulu, a joint venture of NBC Universal and News Corp., which offers programming from NBC, Fox and other networks, says its overall revenue is growing month to month, and that revenue per minute of video watched grew in November from October. But while advertising on the site was sold out as recently as August, it is no longer. (News Corp. also publishes The Wall Street Journal.)

"Clearly the environment today is different than it was four months ago," says Hulu Chief Executive Jason Kilar, adding that the venture "will be ahead of plan for 2008."

The slowing growth in video advertising also highlights some of the obstacles that threaten to keep the sector from reaching the lofty heights its popularity has suggested. Some media buyers say premium online video entertainment is still too difficult to buy, the rates are too high and the audiences are too small.

The industry has yet to settle on a single ad format, so marketers have to change the technical details of their ads to fit the specifications of different sites.

"There still is a lot of inefficiency," says Adam Shlachter, senior partner and group director at WPP media-buying firm MEC Interaction.

In particular, media buyers question whether the prices TV networks charge to advertise next to their top-tier online attractions are worth it. Rates are around $40 per thousand views, which can be more expensive than buying ads on conventional TV.

These rates are left over from a time when major marketers stuck with TV-network Web sites as safe, predictable outlets on the online frontier. They were hesitant to advertise with Internet companies that relied on user-created video, which could range from cute to wildly inappropriate.

That is starting to change, as Internet companies produce higher-quality content and new models for advertising. Marketers increasingly are working with companies like Broadband Enterprises and BrightRoll that can create original entertainment, as well as compile and resell the ad space of multiple partners. This lets the marketers buy ads to appear before bigger audiences at cheaper rates.

Meanwhile, some TV networks are distributing their programs on an array of sites to expand the audience they sell to advertisers. CBS says growth in online-video ad spending across a panoply of sites -- including Time Warner's AOL, Microsoft's MSN and its own CBS.com -- is outpacing the growth of the audience.

CBS says it expects fourth-quarter ad-revenue growth from online video of its network programs to be in the high double digits, compared with a year earlier, but that it's too early to forecast the first quarter of 2009.

"The market's challenged," says Neil Ashe, president of CBS Interactive. "But we're outperforming what I expected us to do in the fourth quarter given the economic environment."

ABC, a unit of Walt Disney Co., says its fourth-quarter online-video ad revenue is up from a year earlier, but it is tempering its expectations for 2009 given the weak economy.

Unilever, a top-spending marketer, says it is continuing to shift more ad dollars to digital, and that online video is an important part of its strategy. The consumer-product giant spreads its ad dollars across both the traditional TV networks and Internet companies.

"There is a lot of quality content that is not coming from the networks at this point," says Rob Master, Unilever's director of media for North America.

NHL Makes Online Push

Professional hockey, long overshadowed on television by the likes of the National Football League, is making an aggressive push online, introducing a service that allows subscribers to watch nearly every game live on its Web site.

The National Hockey League sees the new service, called GameCenter Live, as a way to serve its young, tech-savvy fans, many of whom don't live in the hometown of their favorite hockey team, and can't catch its games on television.

The NHL's GameCenter Live will allow users to watch up to four games at once or one game from several different camera angles.

Furthermore, the league says its TV revenues are so much smaller than those of giants like the NFL that it has the freedom to experiment with online video without the risk of angering its television partners. The NHL's national broadcasts in the U.S. are carried on the relatively little-known cable channel Versus; fewer than a dozen hockey games a season are televised on NBC Universal's NBC network.

"We're not encumbered by big national rights," says John Collins, the NHL's chief operating officer. Aggressive moves in digital, he says, are "essential to our success. We have a lot of active avid fans that are looking for very specific information."

Still, the NHL won't be flooding the zone with free games. The league plans to charge online subscribers a relatively steep $169 a season year for the streaming-video service.

League executives say they can justify that price because of the large number of out-of-town fans who follow its teams and are desperate for the chance to watch their favorites play.

Even so, Major League Baseball, whose fans are also known for fierce team loyalty, has been streaming most of its games online for several years -- and now charges about $120, for more games.

Last season, the National Basketball Association showed games on nba.com as part of its $179 NBA League Pass subscription for digital cable and satellite-TV customers.

The NFL has been more conservative in its approach to the Web, partly because of the huge size of its TV contracts. This season, for the first time, it is streaming its Sunday Night Football game on its site and that of broadcast partner NBC free of charge.

Sports leagues are taking advantage of better video technology and see live streaming as a way to bring in more advertising revenue as users spend more time on sports Web sites. What isn't clear is whether advertisers will spend less on television as online video grows, cannibalizing the overall sports market. Online video is still a small market, with less than $1 billion in revenue, according to Jupiter Research analyst Bobby Tulsiani.

GameCenter Live will stream as many as 40 games a week starting in October. Subscribers can watch as many as four games at once, or watch a single game from several different camera angles. The league will offer free preview nights Oct. 10-12.

The Web makeover is one way the NHL is trying to rebrand itself after a debilitating lockout that forced it to cancel its 2004-2005 season. Along with the subscription service, the league has signed a deal with Yahoo Inc. to launch a new game that allows users to create their own fantasy hockey teams and see video of the players.

The NHL also has spruced up its free online-video features. It now offers real-time video highlights and more online programming before and after games, as well as a feature that lets users chat with other fans during games. Digital agency AKQA, which has worked with Nike and Walt Disney Co.'s ESPN, helped revamp the Web site.

The NHL is hoping for an overall increase in digital traffic. Its Web site received a monthly average of 2.4 million unique visitors for the year ended in July 2008, according to independent Web-measurement firm comScore. That puts it behind not just the MLB, NFL and NBA, but even behind sports-entertainment properties like World Wrestling Entertainment Inc.

By: Stephanie Kang
Wall Street Journal; September 23, 2008

CBS to Lay Bare Its Plans

Web-Video 'Skins' To Be Main Ad Tool In a 'Burly' Venture

CBS is about to start showing some skin.

About a year after they were introduced, a handful of video-ad formats -- called bugs, tickers and skin -- are jockeying to become the favorites among marketers.

CBS plans to carry "The Burly Sports Show" on its Web site and will use a format known as a skin to sell ads next to the show.

The skin format, in which the ad appears in a graphic surrounding the window where the video plays, has been slower to gain momentum because it isn't widely available on top video sites. But it is about to get a lift.

On Wednesday, CBS will announce that it has reached a deal to carry an irreverent show called "The Burly Sports Show" on CBSSports.com. The show, which draws two million visitors each month, covers wacky events such as a failed marriage proposal during halftime of a Houston Rockets basketball game and a baseball mascot's fall during a running race. A part of the distribution deal is CBS's plan to use the skin format as the primary tool to sell ads next to the show.

For all the hoopla over online video, the video-ad business still is finding its feet. Just last month, the Interactive Advertising Bureau, a trade group that represents more than 375 publishers, released standards for various types of online-video ads. The new formats, which deal with the technical specifications of the commercials, cover preroll, midroll and postroll ads (ads that appear before, during and after a video), and the formats for skin, bugs and tickers. (Bugs are logos that appear in text or graphics on or next to the video, while tickers are horizontal bars that usually run on the bottom of the video.)

But the formats are just the beginning of trying to build a foundation for these emerging types of video ads. Ad executives still are trying to figure how much to pay for an ad bug or an ad skin -- different publishers use different formulas to come up with their ad rates -- and how to gauge their effectiveness.

"How do you really measure how successful it is? That's the gap that has to be closed with video," said Sean Muzzy, senior partner and media director at Neo@Ogilvy, a digital-ad agency owned by WPP Group's Ogilvy and Mather.

When it all shakes out, it is unlikely a single video-ad format will be the winner. Rather, several are likely to predominate. In addition to trying to see how the formats stack up against each other, marketers also are experimenting with using formats in conjunction with each other. Advertisers are expected to spend $989 million on online-video advertising this year, more than double the $471 million in 2007, according to Forrester Research, of Cambridge, Mass. But that growth is off a small base.

"The Burly Sports Show" is produced by a company called Heavy, which is one of the major companies in the skin-ad business. Heavy, which is trying to strike agreements with other online publishers, said skins are one of the most-effective forms of online-video ads. It claims that click-through rates on the ads displayed in the video skin average 1.68%, compared with the fraction of a percentage point marketers see on most banner ads.

The technology also can include a video-search function, which could carry videos from multiple publishers, and a section to display related videos. Heavy said these features encourage viewers to watch more videos, which would mean a bigger audience a publisher can sell to advertisers.

But marketers said each format has its pros and cons. Marketers like skin ads because they can easily swap out ads to target certain groups of consumers; the skin ad appears behind the video and isn't related to what goes on inside the video. But advertisers also said that because the skin ad appears in the background of a video, viewers can easily ignore them.

Marketers also like preroll, midroll and postroll ads because they can take the TV ads they already have created and chop them up to fit the Web. But marketers said these ads often aren't appropriate for short videos, noting users become annoyed when there is a 30-second ad for a minute-long content clip.

Heavy isn't the only company in the skin-ad game -- InSkin Media, among others, also is courting publishers. And Heavy faces other potential challenges. Founded in 1999 as a producer of online shows aimed at 18- to 34-year-old men, Heavy plans to announce Wednesday that it is splitting off out its video ad-technology business into a company called Husky Media.

It will soon find out whether there is a robust enough market for its skin-ad technology to support a stand-alone company. CBS, for one, said it didn't decide to work with Heavy because of the skin ads; instead, it was attracted to the sports show. CBS said the deal is a way to boost the entertainment on its site.

"[Heavy's video-ad tool] didn't drive why we did the deal. We did the deal for the content," said Jason Kint, senior vice president and general manager of CBSSports.com and CBSNews.com.

By: Emily Steel
Wall Street Journal; June 4, 2008

Tudou Raises $57 Million in Web Boom

Tudou.com, one of China's leading online video Web sites, raised $57 million in fresh funds, suggesting that investors remain keen on the sector despite recently issued rules that have sparked concern about how it will be regulated in the future.

The new fundraising, which closely held Tudou announced Monday, reflects investors' continued strong interest in China amid a global economic slowdown. In the first quarter of the year, 116 Chinese firms received $940.7 million in venture-capit funds, more than double the $419 million that companies in China raised in the same three months of 2007, according to a report last week by Zer02IPO Group, Beijing-based research company.

Overall, foreign direct invesl ment in China in the first quartE surged 61% from a year earlier t $27.41 billion, according to government statistics.

Online video is a growing industry in China, which by some estimates has the world's largest population of Internet users, with more than 220 million. But the technology has also challenged the government's control over distribution of video images.

In December, Chinese regulators suprised industry executives by announcing new rules requiring all viedo-streaming Web sites to be owned or controlled by government entities. The state agencies that issued the rules later clarified that these wouldn't apply to existing, privately owned video sites whose content is in compliance with regulations.

Given uncertainty so far about how the new rules will be applied, it isn't guaranteed that China's three video-sharing leaders - Tudou, Youku.com and 56.com - in the futures can continue to operate as they currently do.

Liu Bin, an analyst for BDA China Ltd., a Beiking-based technology research first, said the new investment in tudou, which proceeded despite that uncertainty, indicated that investors are still eager to bet on the online-video sector.

Tudou, the oldest of China's three major online video companies, received a warning last month from the State Administration of Radio, Film, and Television for carrying content the agency said violated government censorship rules. Neither the state body nor Tudou has disclosed the specific reason for the warning. Pornography, violence and politically sensitive topics are among the content categories that China's government requires Web companies to censor.

Tudou didn't name its investors, but said they include family and venture funds from overseas, including Singapore and the U.S. Including Monday's amount, Tudou has completed four rounds of funding - raising a total of $85 million - since it was founded three years ago.

By: Loretta Chao
Wall Street Journal; April 2008

China Cracks Down On Online Video

Chinese authorities have shuttered 25 online video websites and publicly warned 32 others about their content, including one of China's most popular sites, Tudou.com

The notice, issued Thursday by the State Administration of Radio, Film and Television, said an investigation of Chinese online audio-visual service providers conducted between December 20 and February 20 found five companies that were streaming video without content licenses, and that dozens of others had hosted illegal content.

Separately, references to the violent protests going on around China in the wake of the recent violence in Tibet have been noticeably absent from Chinese websites, including China's three leading online video sites.

Although it has been covered by China's national state-run broadcaster China Central Television and state-run Xinhua News Agency, discussions about the unrest in Tibet on China's popular internet forums have been removed as quickly as within minutes of being posted by internet companies.

This latest development in the government's effort to regulate online video reasserts Beijing's desire to control the internet. It also confirmed recent speculation about an imminent clampdown on the online video industry - which has collectively raised tens of millions of dollars of venture capital and drawn hundreds of millions of viewers.

In the past few months, regulators issued new requirements that all video-streaming websites be owned or controlled by the government, except for existing privately owned video sites that could prove their content was in compliance with government regulations.

The closely held start-ups, meanwhile, have been scrambling to prove themselves. "We received a warning, and we're always working to upgrade our filtering system, to catch things that need to be caught," said Dan Brody, Tudou's vice president of business development, who wouldn't disclose the specific reason for the warning. The clampdown "creates a more stable regulatory environment for the industry including advertisers, copyright holders, investors, everyone."

Tudou's chief competitors, Youku.com and 56.com, were not mentioned in Thursday's notice, though their fates are also uncertain until official licenses for private online video sites are given.

Increasing numbers of China's population of internet users - which by some estimates is now the world's largest - are watching online video. According to government researcher China internet Network Information Center, 76.9 per cent of internet users in China watched online video in 2007. But with low rates of advertising spending on online video, compared with other forms of online advertising, and the high cost of operating such a website, many local online video companies have yet to break even.

China's government controls internet content by periodically blocking and unblocking foreign websites, including Google's YouTube and Wikimedia Foundation's Wikipedia, though these blocks are largely unnoticed by China's internet users, which may have exceeded 225 million this month.

Local internet companies, including web portals, search engines and online video websites, employ entire teams to filter content for pornography and other banned subject matter, including the Falun Gong spiritual group, so they may keep the internet content licenses required to operate in China. Companies say that usually, the vast majority of illegal content caught by site monitors is pornographic.

Chinese companies have said their content filtering systems aren't very different than those used by companies outside China. YouTube, for example, removes videos that aren't in compliance with their user agreement, which prohibits videos of drug abuse and gratuitous violence, among other things.

But in China, the consequences of letting the wrong content slip through filters could cost internet companies the legal right to run their businesses, especially now that there is tighter regulation. According to Beijing-based technology research firm BDA China, eight online video sites alone have raised $US190 million in venture capital since 2005.

Still, Victor Koo, chief executive of Youku, says the clampdown by regulators has given positive direction to the already-consolidating industry. "In a way, it (the latest notice from regulators) has created more transparency in terms of the development of the business," Mr Koo said. The State Administration of Radio, Film and Television "is trying to show a very clear direction about what is right and what is wrong. They are paving the road for web sites to get approval."

Meanwhile, a week after the violence erupted in Lhasa, the Chinese government stepped up its manhunt for protesters, as thousands of troops converged on foot, trucks and helicopters to Tibetan areas of western China, according to the Associated Press. The violence is the biggest challenge to Chinese rule of Tibet in more than two decades.

The violence in Lhasa has sparked unrest in neighbouring provinces and warnings from Beijing for tourists and foreign journalists to stay away.

by Loretta Chao; Sue Feng and Kersten Zhang contributed to this report.
Wall Street Journal; March 24, 2008

The Wall Street Journal