SpectatorBytes

Today, the WSJ reported on an initiative by MediaVest’s Vivaki to work with some of the leading online networks to test and develop new standards for online advertising formats. This effort highlights the still nascent nature of the industry but also that online video is coming of age. Even in this economic downturn, advertisers continue to express interest in online advertising as a new marketing vehicle.

As previously highlighted, online video consumption exploded in 2008. This has prompted advertisers to realize that online video is likely to become a viable competitive format to television advertising over the next couple of years. As a result, marketers are likely to push aggressively to accelerate this development. This will help marketers to drive price efficiencies from Television networks in their negotiations.

That is what will happen in the next few years. Where we are today in online advertising is the following:

- Brand advertisers have begun to spend non-experimental budgets in online video. However, spend amounts are still fluctuating as the value of online video is still being assessed by advertisers (in the context of traditional media options)

- Ad networks have been created to provide advertisers with scalable solution to purchase online video. Advertisers are now able to put “meaningful” amounts of spend at work. Disclaimer: Velocity is an investor in Broadband Enterprises which is one of the leading online video ad networks.

- Technology platforms are being developed to enable advertisers to manage, monitor and track their video campaigns.

- Advertisers are leveraging TV ad spots for their online video campaigns (in a shortened format). As a result, pre-rolls continue to be the format of choice for advertisers. It will likely continue to be over the next couple of years.

- Advertisers continue to be focus their spend on premium brands, premium content and premium publishers.  This trend is likely to gain more momentum thanks to the economic downturn.  This means that portals, repurposed TV content and websites with well-known brands will continue to capture the majority of the ad spend.

- Online video producers have begun to achieve scale for some of their programming. Online publishers are gaining attention for their branded programming. 2009 is likely a year in which advertisers will more actively experiment with branded online video shows.

- The ecosystem of advertising tools for publishers have just begun to emerge. We are seeing a few companies ofering publishers ad serving solutions, ad insertion and yield optimization. Compared to the display performance market, these tools are just beginning to take shape.

- Pricing remains an issue to scale the business as advertisers have begun to compare TV and online video CPMs.

- YouTube has become the defacto video platform for online video publishers. Most other platforms generate a minimal level of video views relative to YouTube. MySpaceTV seems to be the only exception. YouTube is likely to eventually extract meaningful value from their role in the value chain. Most other aggregators may struggle to capture significant value from distributing people’s content.

All in all, the online video advertising space is undergoing a very exciting development stage. The signs of ad growth potential appear to be clearer than ever. Appreciate to hear your thoughts.