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Online video advertising has become 'a tale of two markets'

John Shinal
Special for USA TODAY
The online video ad business is bifurcating into two markets — one for high-end, long-form content, the other for shorter Web videos.
  • Lower-end ad buys are made via programmatic software
  • Ad growth rates for videos of less than 20 minutes in length are lower than for longer-form videos
  • In both segments%2C shift to mobile is having an impact on prices

SAN FRANCISCO — When it comes to Web video advertising, Silicon Valley technology and Hollywood-style deal-making mix like oil and water.

The online video ad business is bifurcating into two markets — one for high-end, long-form content, the other for shorter Web videos paired with less-lucrative ads.

That's according to the CEOs of several mobile ad start-ups, who were in San Francisco recently for a tech investing conference hosted by Goldman Sachs.

A report covered in this column last week backs their view.

Ads attached to movies, TV shows and live events are still sold primarily by salespeople to human buyers, and rates for these 15- and 30-second video ads are rising as demand soars.

On the other hand, ad growth rates for videos of less than 20 minutes in length are significantly lower.

A growing number of these lower-end ad buys are made via software through so-called "programmatic buying," helping to push down ad unit prices.

"It's a tale of two markets," says Doug Knopper, co-CEO of FreeWheel TV, a digital ad technology firm that produced the report on 2013 Web video trends.

Still, there's plenty of money to be made by both tech and entertainment firms, as Internet ad sales totaled more than $40 billion last year.

In both segments of the business, the shift of Web video viewing from desktop PCs to smartphones and tablets is having a huge impact on prices.

In fact, per-unit rates for ads served onto tablet computers, which had been equal to or less than rates for desktop ads as recently as a year ago, are now more expensive by far.

"Tablet rates are twice desktop rates," says Rajeev Goel, CEO of PubMatic, which operates one of the largest mobile ad technology platforms. "Smartphone rates are some discount to that."

The following numbers help to tell the tale of a market that's segmenting in two important ways.

The number of video ads displayed on computer tablets almost tripled in the fourth quarter compared to a year earlier, a growth rate that was 10 times faster than that for desktop ads, according to the FreeWheel TV report.

Smartphone ad sales, meanwhile, rose eight times faster than PC ads.

And the shift to mobile has a lot of runway left, says Brian O'Kelley, CEO of AppNexus, which also operates a digital ad platform.

"Thirty percent of content consumption is now mobile," says O'Kelley, the former chief technology officer of Right Media, acquired by Yahoo in 2007.

That's impressive, given that the first iPad was introduced less than four years ago.

Yet it also means that tablets and smartphones have only just begun to displace desktops — which still host about two-thirds of Web video traffic — as the primary way consumers get their online news and entertainment.

In the market for shorter-length video and mobile content, meanwhile, automated ad-buying is just gathering steam.

"There's pressure on all channels to go programmatic, even though it's still a small piece" of the overall digital ad marketplace, says Bill Wise, CEO and director of Mediaocean, a start-up that facilitates ad buying both online and on TV and radio.

"If you're an ad buyer, you can't have 200 publishers calling you every day," Wise said during the panel discussion at the Goldman Sachs Internet and Technology Conference.

Advertisers simply are not as attracted to shorter Web video clips, whether they're produced by professionals or by amateurs who post them on YouTube or other Web sites.

The opposite is true for long-form ads, which grew four times faster in volume last year than those attached to content of less than 20 minutes in length, the FreeWheel TV report showed.

John Shinal has covered tech and financial markets for 15 years at Bloomberg, BusinessWeek, the San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.

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