Video Ads' Not-So-Simple Law of Supply And Demand

Posted by Hilary Kay on Feb 27, 2017 9:05:00 AM

Topics: Video Monetization

video-ads-marketplace

With the media industry's current obsession with digital video ads, there seems to be something missing in the conversation: the videos. Article after article discusses the massive growth, spend, and performance of video ads; and there have been numerous hefty transactions within the space including AT&T's acquisition of Time Warner, Condé Nast's launch of Condé Nast Entertainment, and Adobe's acquisition of Tubemogul. But amongst all of the buzz and excitement, very little attention has been paid to the key ingredient in making it work, video inventory. In this balancing act, media publishers are responsible for the supply [video inventory], while brands & advertisers represent the demand [video ads]. At this point, the demand side of the scale is weighing heavier. Sure we have video superstars like BBC, Vice, and CNN, but the majority of mid-level and even major publications lack the quantity of video content needed to support the fast growing video ad industry.

Issues

Why is this an issue? It’s like sending a kid into a candy shop with a wad of cash, only to find that there are just a few M&M’s and a lollipop left for purchase. Brands & advertisers are ready to buy, but there’s just not enough to go around for everyone. If there is no increase in video inventory from publishers, CPM rates of video ads will remain high and the market will become even more competitive. Publishers who do not build up their video inventory will miss out on millions, if not billions, in potential ad revenue. Brands’ video ad growth will plateau and publishers will feel even more pressure to provide ample video inventory.

On top of this pressure, publishers have been ignored in the development of tools and services for the video ad marketplace. Most all of the companies dedicated to facilitating the purchase of video ads focus on the brand, or demand, side, while publishers are left to fend for themselves. Jonathon Shaevitz of Adomik, a company that helps publishers optimize programmatic advertising, explained it as “…showing up to a knife fight with a Nerf bat.” Publishers are not as equipped as brands and ad agencies, putting them at a disadvantage in securing maximum monetization.

Publishers face another challenge with closer scrutinization of metrics such as viewability, which tracks the video ad impressions that can actually be seen by users. Clarification of viewability measurements is very much needed. Agencies have different standards across the board, putting the burden on publishers to meet each different agency’s requirements. Video ads tack on an extra level of complication to these measurements, since videos are often served by a third party on an embedded player. Publishers have been enduring a cut in ad revenue because of these ambiguities. CPM rates should be rising as viewability is monitored, but the lag in standardization means publishers are not receiving maximum compensation.

Despite these issues, there is still abundant potential for publishers within the video ad marketplace. Digital video ad revenue is expected to reach $5 billion by 2018, up from $2.8 billion in 2013, and that revenue is going to end up in someone’s pocket. By recognizing the obstacles they face and the potential gains to be made, publishers will capitalize on the massive revenue opportunity within the video ad marketplace. So how can these issues be resolved? 

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Solutions

More attention must be paid to publishers’ needs. A marketplace is only successful if the supply can meet the demand, so media publishers must have more support in order for both sides to see optimal monetization. This support should come from multiple angles. The first step is much simpler in theory than in practice: increase the supply of videos. Creating compelling video content at scale is difficult to say the least, as most publishers lack the time, money, and human resources needed. Publishers have several options to increase their output of video content. Budgets can be reallocated to provide more financial support for video departments, so additional employees can be hired and more production can be funded. Another option is to pay and license content from an external source such as NDN, Newscred, or Storyful, who all provide excellent video content. Publishers can also seek out new technologies that enable their own video production, such as Wibbitz (yes that was a shameless plug), to ensure they maintain their voice and maintain a larger cut of ad revenue.

The lack of support for media publishers when transacting within the video ad marketplace can be addressed in a couple of fashions. More companies like Adomik, whose focus is to support media publishers, can enter the field. As these companies are few and far between, substantial opportunity exists for new players to to fill this niche and target publishers specifically. Existing video ad networks, such as TubeMogul, can also segment a larger part of their services to support publishers. If publishers are better supported, they will feel more secure in supplying video inventory to programmatic advertising markets. This in turn will benefit brands by meeting their demands for ad placement.

Complications with viewability metrics can most easily be addressed by establishing a standard across all ad agencies’ requirements. This will allow publishers to develop internal systems to test video viewability and maximize inventory. Organizations like the IAB have made major strides in this area, but there is still is a ways to go. Improving publishers’ ability to verify viewability will further build the supply of inventory they contribute to the video ad marketplace; and demands for ad placement will be met with more valuable content.

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A Call to Attention

As you may have noticed, many of these solutions are theoretical and most require support from entities separate of publishers. My goal here is to highlight issues that inhibit the video ad marketplace from achieving optimal success, and to suggest steps that can be taken to resolve them. Publishers and their partners must call attention to the imbalance between the supply and demand sides of the video ad industry. There must be more media coverage surrounding the inconsistencies in support. Publishers should research existing technologies for support and communicate their needs to inspire the development of new ones. If efforts are made, the video ad industry will grow at an even steeper rate than it already is. Supply will meet demand in a perfect balance of profitability.

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