Monetizing online video in europe

February 27, 2009

Monetizing Online Video In Europe
by Nate Elliott
for Consumer Product Strategy Professionals

Making Leaders Successful Every Day

For Consumer Product Strategy Professionals

February 27, 2009
Monetizing Online Video In Europe
balancing the Needs Of advertisers and users
by Nate Elliott
with rebecca Jennings, bobby tulsiani, Mark Mulligan, and angie Polanco

ExECut I V E S u M Ma ry
With European online video ad spending set to more than quadruple in the next five years — nearing
€1 billion in 2013 — the majority of publishers have now set their sights on the in-stream video ad
opportunity. Advertisers prefer pre-roll ads to other in-video ad formats, and users are actually as
likely to accept pre-roll ads as any other format publishers can use to monetize video content. Sites can
balance the needs of advertisers and users by limiting both in-stream ad frequency and length and by
rotating through a variety of in-video ad formats.

tabl E O F CO N tE N tS N Ot E S & rE S O u rCE S
2 Europeans’ Growing Use Of Video Sparks Forrester analyzed data on European online
Advertiser Adoption Of Video Ads video viewers from its September 2008
4 Publishers Have Set Their Sights On The Consumer Survey and studied 48 European sites
In-Stream Ad Opportunity with video content in its June 2008 Online Video
5 Users Will Accept In-Stream Advertising If Webtrack. Forrester also analyzed data from
It’s Implemented Correctly the June 2008 advertiser Executive Survey and
interviewed nine vendors and publishers.
7 Advertisers Are Warming To Shorter Ads But
Often Ignore Frequency
Related Research Documents
the average European In-Stream ad Is 16 “Video advertising In Europe”
Seconds august 7, 2008
advertisers Not Focused Enough on Sites’ “European Online Video advertising”
Frequency Controls
august 29, 2007
9 Video Advertisers Are Primarily Concerned
With Hitting Their Target Audience
11 Video Ad Servers Make It Easier To Balance
Users’ And Advertisers’ Needs
rECOMMENdatIONS
13 Sites Must Improve Advertisers’
Performance While Considering Users’
Needs
13 Supplemental Material

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2 Monetizing Online Video In Europe

EUROPEANS’ GROWING USE OF VIDEO SPARkS ADVERTISER ADOPTION OF VIDEO ADS
Driven largely by increased broadband penetration and the introduction of high-quality online video
services and content, online video consumption in Europe has exploded in the past two years (see
Figure 1). The number of Europeans watching online video content nearly doubled between 2006 and
2008, with more than 90 million now watching video content online at least once each month. On
average, Europeans now spend 13% of their online time — more than an hour each week — watching
online videos.

As users’ consumption of online video has grown, so too has advertisers’ adoption of all online video
ad formats:

· Advertiser use of pre-roll ads has almost tripled in the past year. Users’ increased interest
in online video content has been a boon for in-stream advertising — pre-roll advertising in
particular. According to our 2008 European Advertiser Executive Survey, nearly three times as
many advertisers bought pre-roll ads in 2008 as in 2007, and advertiser-use of all in-stream ad
formats will only continue to grow (see Figure 2).

· However, video banners are still most popular with advertisers. Although there is little doubt
they create less impact than in-stream video ads, video banners (e.g., standard display ad units
containing video-based creative) offer advertisers broader reach at lower prices. As a result,
more advertisers buy video banners than any other type of video ad, and even in-video ad
pioneer VideoEgg has shifted its focus largely to banner-based formats in the past year.

· Spending is evenly split between in-stream ads and video banners. Fewer advertisers buy
in-stream ads than video banners, and in-stream buys tend to include far fewer impressions.
However, there are significant price differences between the two formats. UK broadcaster ITV
has reported charging £50 (approximately €52 as of January 5, 2009) CPMs for in-stream ads
on its site, while some German publishers have reported selling pre-roll ads for up to €100 net.
On the other hand, video banners often sell for little more than traditional static ad banners. As
a result, advertisers have told us their online video ad spending is split approximately half and
half between in-stream ads and video banners.

The increasing availability of video advertising opportunities — along with advertisers’ increasing
desire to use the format — will drive quick growth of video ad spending in Europe. We forecast that
by 2013, online video advertising will generate €986 million in advertising spending — 22% of all
online display ad spending in Western Europe (see Figure 3).

February 27, 2009 © 2009, Forrester research, Inc. reproduction Prohibited

Monetizing Online Video In Europe 3

Figure 1 More than 90 Million European adults Watch Online Video Each Month

92.3
Monthly Web-based
video audience
(in millions) 67.2

46.5
33.1
22.8
16.4

2003 2004 2005 2006 2007 2008
Base: Western European adults
Source: JupiterResearch Activity and Paid Content Model (7/08)
53826 Source: Forrester Research, Inc.

Figure 2 advertisers Expect to Continue rapid adoption Of Video advertising

“What online advertising tactics have you used in the past 12 months? What online
advertising tactics are you interested in using in the next 12 months?”

Used in 2007 Used in 2008* Interested in using in next year*

48%

26% 26%
19%
16%
10%
5% 5% 7%

Video banners Pre-roll ads Other
in-stream ads
Base: 81 European advertisers
*Base: 31 Western European advertisers
Source: JupiterResearch Advertiser Executive Survey (5/07)
*Source: JupiterResearch Advertiser Executive Survey (6/08)

© 2009, Forrester research, Inc. reproduction Prohibited February 27, 2009


Figure 3 European Online Video ad Spending Will Near €1 billion In 2013

Millions of euros spent on online video advertising

€986

€797

€606
€434
€323
€239

2008 2009 2010 2011 2012 2013
Base: Western Europe

Source: JupiterResearch Internet Advertising Model (12/08)

PUBlISHERS HAVE SET THEIR SIGHTS ON THE IN-STREAM AD OPPORTUNITy
The explosion of online video consumption in Europe and the high CPMs advertisers pay for in-
stream ads have sharpened publishers’ focus on this format. Over the past year, publishers have
stepped up their efforts to offer advertisers access to this fast-growing audience.

· The majority of European online video sites now accept in-stream ads. While in-stream
advertising had a later and slower start in Europe than in the US, the European market is
picking up speed. Slightly more than one-quarter of European sites tracked in our 2007
European Online Video WebTrack featured any form of in-stream video advertising (e.g., pre-
roll, mid-roll, or post-roll ads).1 By the time of our 2008 Online Video WebTrack, the number of
sites accepting in-stream ads had more than doubled to 55%.

· Print publishers and TV channels are most likely to accept in-stream ads. Traditional media
properties have been more eager to adopt in-stream ads than pure-play online publishers.
Eleven of 17 print publishers in our 2008 European Online Video WebTrack accept in-stream
ads in their online video content, as do 10 of 16 TV channels and operators. By comparison,
just six of 16 online-only publishers accept in-stream ads — in part because advertisers find
the user-generated video offered by many online-only publishers relatively unattractive. For
instance, in France we spotted in-stream ads on the sites of newspapers L’Express and Les Echos
as well on the sites of TV networks TF1 and France 24 — but not on online-only properties
Dailymotion or Yahoo!.



· European online video viewers saw three times as many in-stream ads in 2008 as in 2007.
Not only are more European sites accepting in-stream ads than in the past, but on average
they’re each accepting a larger volume of advertising. As a result, the total number of in-stream
ads each European user is exposed to has jumped dramatically in the past year. In 2007, users
saw just one in-stream ad for every 8.7 video clips they watched online. By 2008, they saw one
in-stream ad for every 3.4 video clips they watched online (see Figure 4). When you consider
users’ increasing time spent with online video, the average European user saw approximately
three times more in-stream video ads in 2008 than in 2007. UK sites have been most aggressive:
Not only are they more likely to accept in-stream ads than any other sites in Europe, but they
have by far the highest ad-to-content ratio.

European users may even begin to see in-stream video ads in the unlikeliest places. Although YouTube
has long proclaimed its distaste for in-stream advertising, it has started allowing US content partners
such as CBS Interactive and NBA Media Ventures to run in-stream ads in their YouTube-hosted
content. As YouTube adds content partners in Europe, it’s likely to pursue a similar model.

Figure 4 Europeans See One In-Stream ad For Every 3.4 Video Clips they Watch

Number of video clips shown for every one in-stream ad

5.3

3.9
3.5 3.4

2.3

UK Germany France Rest of Average
Europe
Base: 583 online videos (Western Europe)

Source: JupiterResearch Online Video WebTrack (6/08)

USERS WIll ACCEPT IN-STREAM ADVERTISING IF IT’S IMPlEMENTED CORRECTly
While most users don’t enjoy advertising in any medium, they understand that it supports the content
they consume online — and with just 16% of Europeans willing to pay for any type of online content,
most consider advertising an acceptable tradeoff. In fact, Europeans report that they are twice as likely
to accept advertising in online videos as they are to pay for online video content. And contrary to
widespread belief, in-stream ads are actually less likely than other ad formats to alienate most users:



· Users actually prefer pre-roll ads to other in-video ad formats. In survey after survey, users have
told us they’re at least as likely to prefer in-stream ads — pre-roll ads in particular — as the other
ad formats publishers can use to support their video content. Online users in the US have told us
they’re approximately as willing to accept in-stream ads as they are to accept banners alongside
video content. 2 And in our most recent European online consumer survey, more online video
viewers say they prefer pre-roll ads than prefer all other types of in-video advertising combined —
including mid-rolls, post-rolls, overlay ads, and on-screen logos (see Figure 5).

· However, users will leave if publishers overwhelm them with ads. Just because users
understand the need for advertising doesn’t mean sites have carte blanche — and users’ tolerance
for in-stream ads seems to be lower than their tolerance for TV ads. In-stream advertising
made up less than 3% of European online video time in 2008, less than most viewers see on TV.
However, European online video viewers are concerned with both ad frequency and ad length,
and 17% say they’ve stopped watching video on some sites because of the volume of advertising
(see Figure 6). A relatively high number of European sites risk incurring users’ wrath: Most
publishers that accept in-stream ads exceed our recommended ad-to-content ratio one ad for
every 2.5 short video clips.

· Properly implemented, pre-roll ads should cost sites less than 5% of their video views.
Publishers and ad networks that accept pre-roll ads say that ad abandonment rates are generally
less than 20% — only about 10% higher than video abandonment rates even when no pre-roll ad
is run. With incremental abandonment rates of approximately 10% per video, professional video
sites that follow our ad frequency guidelines should find that implementing pre-roll ads costs them
less than 5% of their total video traffic.3 User-generated video sites typically report much higher
abandonment rates on pre-roll ads, likely because users are less willing to sit through advertising
when they’re unsure of the quality and value of the video they’ll be watching.

Figure 5 users Consistently Prefer Pre-roll to Other Video ad Formats

“If you must see an ad when you’re watching videos online, which type of ad would you prefer to see?”

18%
Pre-roll ads 19%

Mid-roll or 11%
post-roll ads 12%

Overlay ads or 7% Daily online video viewers
on-screen logos 5% Monthly online video viewers

Base: 4,284 online users (France, Germany, Italy, Spain, Sweden, and the UK)
Source: JupiterResearch Consumer Survey (9/08)



Figure 6 Seventeen Percent Of Online Video users Have abandoned Sites due to advertising

“I’ve stopped watching online videos on some sites because there’s too much advertising.”

Online video 26%
viewers 23%
17% 17%
13% 13%
9%

UK Italy France Spain Sweden Germany Average
Source: JupiterResearch/Ipsos Consumer Survey (9/08)

ADVERTISERS ARE WARMING TO SHORTER ADS BUT OFTEN IGNORE FREqUENCy
Over the past few years many advertisers have worked to make their in-stream ads more palatable
to users, who are concerned with both the frequency and length of in-stream ads (see Figure 7).
However, advertisers’ efforts have focused almost exclusively on ad length, ignoring users’ concerns
over advertising frequency.

Figure 7 users are More Concerned With In-Stream ad Frequency than length

“Thinking about the way you use the Internet, which of the following statements apply to you?”

When I watch videos online, 36%
I see too many ads 28%

When I watch videos online, 20% Daily online
the ads I see are too long 19% video viewers
Monthly online
video viewers

Source: JupiterResearch/Ipsos Consumer Survey (9/08)



The Average European In-Stream Ad Is 16 Seconds
When mainstream sites such as Microsoft’s MSN and ESPN Internet Ventures first started accepting
in-stream ads in 2004, nearly all of the ads were 30 seconds long. Today most advertisers understand
the need to use shorter creative:

· Advertisers are producing shorter in-stream ads. Early on, most in-stream ads were simply
repurposed TV ads, and relatively few advertisers had access to creative shorter than 30
seconds. Today advertisers are more likely to create new video ads for use online than they are
to repurpose TV ads, giving them the flexibility to create any ad length they want. According to
our 2008 Advertiser Executive Survey, more European advertisers and agencies now run online
video ads that last 15 seconds or less than run ads that last longer than 15 seconds (see Figure 8).

· The average length of an in-stream ad in Europe is falling. Our 2008 Online Video WebTrack
shows that the average in-stream ad in Europe is 16 seconds long, down 1 second from 2007. In-
stream ads are longest in France (17.8 seconds on average), while the smaller European countries
(e.g., all those except France, Germany, and the UK) have the shortest in-stream ads — an average
of 13.5 seconds. European online video viewers are now three times more likely to see in-stream
ads that last 10 seconds or less than to see ads that last a full 30 seconds.

Accepting shorter in-stream ads may hurt sites’ ad revenues in the short term, as some advertisers
are willing to pay higher prices for longer ads. However, these shorter ads will increase users’
acceptance of in-stream advertising, providing a long-term benefit to publishers.

Figure 8 advertisers Have begun to use Shorter In-Stream ads

“Thinking about the online video ads you are running in 2008,
which of the following statements are true?”
We have run ads over
30 seconds long 13%
We have run ads of between
15 and 30 seconds 20%

We have run 15 second ads 19%
We have run ads under
15 seconds 17%

Base: 70 Western European advertisers and agencies



Advertisers Not Focused Enough On Sites’ Frequency Controls
Despite the fact that European online video viewers are more concerned with in-stream ad
frequency than in-stream ad length, just 7% of advertisers consider sites’ ability to limit ad
frequency when deciding where to run in-stream ads. Advertisers can — and should — ask sites to
control frequency in two ways:

· Limit the frequency of each advertiser’s message. Just as advertisers manage the reach and
frequency of their TV campaigns and set frequency caps on their online banner campaigns, they
should control the number of times each user sees their in-stream ads. This keeps users from
burning out and forming a negative impression of the advertiser and also ensures that the ad
buy reaches the largest possible number of users.

· Cap the total amount of in-stream advertising each user sees. In addition to controlling how
often users are exposed to each individual advertiser’s message, smart publishers also limit users’
overall exposure to in-stream advertising. Too many publishers overwhelm video viewers with
advertising: In our 2008 Online Video WebTrack, six of the 27 European sites with in-stream
ads ran at least one ad for every piece of content, and less than half heeded our recommended
ad-to-content guidelines.

Limiting frequency will not only appease users but also improve performance for advertisers —
offering an important and easy-to-sell point of differentiation for publishers.

VIDEO ADVERTISERS ARE PRIMARIly CONCERNED WITH HITTING THEIR TARGET
AUDIENCE
Advertisers consider a wide range of factors when choosing where to buy video ads, including the
quality of a site’s content, the size and image quality of a site’s video streams, and whether the site
offers companion ads. However, online video advertisers’ strongest focus is on hitting their target
audience (see Figure 9):

· Advertisers want targetable advertising inventory. Advertisers continue to increase their use
of behavioral, geographic, and demographic targeting for banner ads.4 But most sites — even
many of the largest video sites in Europe — don’t generate enough in-stream ad inventory to
support this type of user-based targeting. Instead, sites like MSN and networks like Tremor
Media offer advertisers the ability to target their ads based on the category of video content
they’d like to appear in. Sites that can offer user-based video ad targeting will hold a key
advantage in capturing video ad spending.

· Until user-based targeting is ready, advertisers will judge sites on audience composition. Given
the difficulty of applying user-based targeting to in-stream advertising, advertisers’ overwhelming
priority when planning campaigns is finding sites with audiences that already match their



campaign target. Almost three-quarters of European advertisers say the ability to reach their target
audience is important when choosing a site on which to run video advertising — nearly twice as
many as cite any other consideration.

· Targeting overshadows other considerations like companion banners and picture quality.
We recommend that sites offer companion banners alongside their in-stream ads to improve
direct response, as Microsoft’s MSN France and www.spiegel.de do, and that they run pre-roll
ads in large, high-quality video windows to drive greater brand impact like Telegraph Media
Group and www.vg.no. However, with advertisers telling us that they largely ignore these
best practices in their pursuit of targetable inventory, it’s clear that sites should consider these
features a secondary priority when building their in-stream ad offerings.

· Many advertisers are still scared by the specter of questionable content. In an online video
environment dominated by the sometimes questionable quality of user-generated content, many
advertisers remain concerned about finding access to high-quality video ad inventory. Not only
does professionally produced content offer name-brand sites an opportunity to attract more
advertising revenue, but the perception of low-quality content is clearly still a “deal breaker” for
many advertisers. Although YouTube leverages its huge base of users to offer some of the most
advanced video ad targeting available and only places ads within professional video content, the
site suffers from lingering questions over content quality. As a result, it still attracts relatively
little advertiser spending.

Figure 9 targeting Is More Important than Image Quality Or Companion ads

“When deciding where to place in-stream video ads, which of the
following factors are most important to you?”

The ability to reach my target audience 73%

The brand name or reputation of the site 37%

The site's ability to target my ads (e.g.,
by content, context, demographics) 34%

The image quality or screen size at
which my ads will appear 11%

The ability to run a companion banner
along my in-stream ad 10%

The site's ability to limit the frequency
of advertising its users see 7%

Base: 70 Western European advertisers and agencies



VIDEO AD SERVERS MAkE IT EASIER TO BAlANCE USERS’ AND ADVERTISERS’ NEEDS
While both advertisers and users prefer pre-roll ads to other formats — and sites can expect that
pre-roll ads will always dominate in-stream advertising — publishers should put other in-video
ads units into the mix as well. However, to date we’ve not seen any site in Europe effectively mixing
together different in-video ad units:

· Sites that accept video ads typically stick to just one type of in-stream advertising. Twenty-
three of the 27 European sites that we found running in-stream advertising accepted just one
format: 20 of them accepted only pre-roll ads, two (France 24 and Yahoo! Music UK & Ireland)
accepted only mid-roll ads, and one (www.sapo.pt) accepted only post-roll ads.

· Publishers should focus on pre-rolls but rotate through other formats as well. Because
advertisers are more than twice as likely to run pre-roll ads as other in-video ad formats — and
because most advertisers believe pre-rolls are the most effective in-video ad format — sites must
focus on offering pre-roll ad inventory. But rotating through different formats is vital to serving
the 19% of European advertisers who say they plan to run other in-video ad formats in the
next year (see Figure 10). This strategy would also give publishers more flexibility in their sales
packaging, allowing them to offer in-video ads at a range of different price points.

· Format rotation can prevent users from feeling overwhelmed. While ad frequency plays the
largest role in annoying users, rotating through various in-video formats can also help reduce
users’ feelings of being overwhelmed and prevent “banner blindness.” Sites that mix pre-roll
ads with less-invasive or less-impactful formats (e.g., mid-roll, post-roll, video overlays, and
video sponsorships) feel to users as though they’re running less advertising than they actually
are. Sites that rotate formats can therefore either provide users a better site experience with the
same level of advertising or potentially accept slightly more in-video advertising without further
overwhelming visitors.

· Video-specific ad servers are best-positioned to help publishers rotate formats. Mainstream
ad-serving platforms like Google’s DoubleClick DART and Microsoft’s Atlas DMT now handle
video ad formats. However, specialist video ad servers (e.g., Tremor Media, AOL’s Lightningcast)
are best-equipped to handle the unique challenges of managing, serving, and tracking video
advertising, and most are able to offer the type of ad rotation we describe here.



Figure 10 ad Servers let Publishers rotate among different ad Formats

Content queue Content and ad queue

Video clip :15 pre-roll + Video clip

Video clip Video clip

Video clip Video clip + :30 post-roll


Video clip Video clip with overlay



Video clip Ad server Video clip



Video clip Video clip + :20 post-roll


Video clip Video clip with sponsor






r E C O M M E N d at I O N S

SITES MUST IMPROVE ADVERTISERS’ PERFORMANCE WHIlE CONSIDERING USERS’
NEEDS
In-stream video advertising clearly offers the best opportunity for publishers to monetize their
online video content. Consumer product strategy professionals should embrace the following
tactics to give advertisers what they want while also remaining sympathetic to the needs of their
users:

· Partner with video-specific ad networks and ad servers. While forming a healthy, profitable
ad network partnership is always vital for small and medium-sized sites, it takes on increased
importance when publishers look to monetize their video content. Most sites outside the
top tier of online video simply can’t offer advertisers what they want: the security of a brand
name and the ability to segment and target users. respected networks — especially those
that specialize in video advertising — can help publishers satisfy both of these demands and
therefore get better prices for video ads. Publishers large enough to offer their own in-stream
ad targeting will find that video-specific ad servers help them get the most from their video ad
inventory.
· Create ad-friendly environments to monetize user-generated video. although most
user-generated video sites have added professional content, several told us they still get
more than 90% of their traffic from user-generated content (uGC). With many advertisers
still nervous about advertising in user-generated video — and with uGC video sites selling
very little advertising at very low prices as a result — such sites must create more “clean,
well-lit places” for advertisers. dailymotion’s “MotionMakers” initiative is a step in the right
direction: the site has identified its most promising and successful amateur contributors
and contracted them to produce content on a regular basis, thereby creating an advertiser-
friendly bridge between the sites’ professional and amateur content. uGC video sites could
also identify the clips that generate the most viral interest each day, sign single-video
contracts with their creators, and promote them in a “video of the day” or “top videos” section
featuring a sponsor or in-stream advertising.

SUPPlEMENTAl MATERIAl
Companies Interviewed For This Document
BBC Worldwide myvideo.de
clipfish.de Tremor Media
Dailymotion VideoEgg
DoubleClick YouTube
MSN



ENDNOTES
1
For a more detailed view of how sites’ video ad acceptance has grown over the past two years, see the
August 7, 2008, “Video Advertising In Europe” report, and see the August 29, 2007, “European Online
Video Advertising” report.
2
To learn more about what types of advertising users prefer in and around online video content, see the April
2, 2007, “Monetizing Consumer-Created Video” report.
3
For further analysis on traffic loss related to the introduction of in-stream video ads, see the August 7, 2008,
“Video Advertising In Europe” report.
4
Advertiser use of behavioral targeting in the US grew from 16% in 2007 to 24% in 2008 — and the growth
was even more dramatic in Europe. For more detail, see the November 24, 2008, “Behavioral Targeting”
report.


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Monetizing online video in europe

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