Boom! As mobile video ads explode, Hollywood cashes in

• Web ads on long-form entertainment surged 86 percent in 4th quarter%2C year over year
• Growth is part of explosion in overall digital video
• Total online video views tracked by FreeWheel rose by about a third in 2013 to 75B

SAN FRANCISCO — The technology boom has given birth to the digital entertainment boom, and Hollywood and its distributors are cashing in with video ad sales.

In fact, Hollywood-style entertainment and advertising has already consumed half of the video Web, and its growth is accelerating.

Web ads on long-form entertainment – including live sports and music events, movies and recorded network TV shows – surged 86 percent in the fourth quarter from a year earlier, according to a new report from FreeWheel TV, whose video ad-serving technology is used by top U.S. cable, network and broadcast companies.

That was up from 56 percent year-over-year in the third quarter of last year, according to the quarterly report due out this week from FreeWheel, a seven-year-old private firm which is headquartered in Silicon Valley and has offices in New York and China.

The growth was part of a phenomenal explosion in digital video in 2013, as total online video views tracked by the company rose by roughly a third to 75 billion.

"Advertising will follow the viewer growth," says Doug Knopper, co-founder and co-CEO of FreeWheel.

The growing digital ad economy is being driven by a proliferation of mobile devices, improved measurement of ad effectiveness and increased digital production and distribution, Knopper says.

"The Internet is mimicking TV," Knopper told me in a phone interview Tuesday, after we first spoke at the Goldman Sachs Technology and Internet Conference in San Francisco two weeks ago.

The surge in ad-buying and ad placement has led to a significant milestone for the entertainment industry, and for online viewers, cementing a multi-year trend.

In the third quarter of last year, for the first time, half of the Web video content tracked by FreeWheel consisted of digital ads, driven mainly by surging views of long-form content on mobile devices.

In other words, old-school TV commercials already comprise half of U.S. Web video traffic, which itself now consists of a large and growing share of reality shows, scripted dramas, sports and music events.

"We call them a 'TV special,'" Knopper says of the 15- and 30-second ads that pop up amid long-form entertainment.

Ad views and total video views are now growing in lock-step, with the former rising 30 percent and the latter rising 31 percent in the fourth quarter, respectively.

Ad views for shorter-form content also grew in the double digits.

If the trend were a feature film, it could be called 'Hollywood gobbles up the video Web.'

And, like any good feature franchise, the trend has already produced a sequel, as it continued in the fourth quarter.

Each piece of long-form Web video content now has nine ads attached to it, Knopper says.

While that may seem like a lot to Web video purists, it's less than the average of 20 ads per unit for traditional TV.

But Web video advertising "is creeping up on TV," especially as ad prices per unit of digital content are now either on par with commercial TV or, in many cases, even higher, says Knopper.

Just as important for Hollywood producers and distributors, the number of ads viewed during live events streamed over the Web soared 148 percent in the fourth quarter.

The nearly-two-and-a-half-fold surge in live-streamed ads is a boon to cable companies and other distributors worried about consumers shunning their networks in favor of the Web, a trend known as cord-cutting.

That's because a growing number of these video streams are so-called "authenticated views," which require viewers to log into their cable or other ISP provider accounts.

All of these ad growth figures would be even more impressive were it not for the relatively-weak year-over-year growth of 19 percent for ads viewed on desktop PCs, which still make up the majority of Internet video views, the report shows.

Video ad views on smartphones and tablets, meanwhile, soared 178 percent and 136 percent last year, respectively.

"The tablet has become a mini-TV set," Knopper says.

As all these trends continue, consumers will soon see little difference between watching Web TV and viewing traditional TV.