It's TV Stupid & Ads Pay For It - Gene DeWitt - MediaBizBlogger

In reporting on a panel at the OMMA Global Expo in LA, Erik Sass wrote in the Online Media Daily that "advertisers still haven't hit on the magic formula for video advertising".

However, I think they have and that the emergence of an industry standard is unreasonably being resisted by a group of naive digital pioneers who fear alienating consumers. A panelist noted that "unskippable pre-rolls were completed 85% of the time". And most attendees seemed to agree that advertising support is essential to the further growth of the digital video industry.

Well, there you are. 85% is enough for me. The people who are worried about alienating potential digital video viewers with advertising while acknowledging that advertising is necessary to pay for the content remind me of the web 'entrepreneurs' of the 1990's who didn't bother to develop a business plan for their enterprises.

Hulu, the new video joint venture of NBC Universal and Fox, has the right idea with two minutes of ads in a thirty minute show plus six second pre-rolls. This is actually a light ad load and only possible, given the high cost of their content, because there are so many other revenue sources available to these TV shows, from broadcast to cable to syndication to DVD to international, etc.

Producing original programming of this quality exclusively for the net is likely to be financially impossible.

A plausible business model for digital video advertising therefore requires

• Higher quality content than is available on the user-generated sites such as YouTube and MySpace;
• More ad content than is currently being envision by most players in this space;
• Multiple revenue streams to effectively deliver costs for content, distribution and promotion plus a significant profit to justify investment in this high risk business.

Is this possible? Well, certainly the networks and production companies can repurpose current content to generate the small additional revenue available from digital video. However, original programming for DVA seems way in the future if ever.

The dot.com bust was driven by people who didn't take the time to 'run the numbers'. The television business has been around for decades. It's not hard to figure out what these elements cost and to conclude that the biggest near term potential for digital video advertising is via ventures such as Hulu that come with quality content already amortized over large multiple revenue streams.