Broadband Advertising Takes Flight

Madison Avenue's dalliance with broadband commercials may soon blossom into a full-scale romance. While the broadband video ad marketplace pales in comparison with the $60 billion TV ad market—broadband brought in just $121 million in 2004 revenues—it's growing. Streamed to online users with broadband access, the medium is similar to cable in the 1980s.

A relatively small marketplace now, this segment may one day determine how TV spots are measured, posted and priced, where and when they are viewed, and even how they are formatted.

Why? Advertisers know broadband video ads reach their desired audience, since click-through is required. Consequently, they pay for only those they reach; TV buys are priced on the assumption of reach.

Broadband video advertising look like TV spots, except they are shorter—usually 10 or 15 seconds. The major players are the big portals: AOL, Yahoo! and MSN, as well as niche publishers like ESPN.com. Broadband video ads don't target a specific audience per se, but the users tend to be younger, sought-after demos. For example, Yahoo! LAUNCH: Music on Yahoo! reaches the MTV crowd, while ESPN360 attracts younger men.

“Broadband video is hard to ignore,” says Bob Flood, EVP/director, national electronic media, Optimedia, New York. “It's a less cluttered environment and far more accountable than conventional TV advertising. You're dealing with an engaged audience that is in lean-forward mode.”

Viewers may be attentive, but buyers are still working out the kinks. Many agencies aren't sure what to do with broadband video advertising; they don't know where it belongs or how it should work. This won't change until TV buyers embrace the medium as a genuine alternative to traditional TV ad buys. That means comparable distribution, reach and ad costs.

Currently, broadband video advertising is more expensive than most forms of TV spots. With CPMs (cost per thousand) typically in the $20-$25 range, the medium is priced like top-tier prime time shows. Driving prices is a lack of inventory.

Even though the big operators have expanded their broadband video services, and new players like Forbes.com and WallStreetJournal.com have come into the market, there just isn't enough content to go around.

“Right now, broadband video ads are coming from the interactive agencies. But we're starting to get more feedback from media planners. Eventually, it will be rolled into general media plans,” predicts Allison Bodenmann, EVP for national/network ad sales at WorldNow, a company that bundles broadband video content from various media sites and creates reach for potential advertisers. (It functions like an unwired TV network.)

In fact, Flood's role at Optimedia underscores the way many big media agencies see the future of TV ad buys. He oversees all the national buys for his clients, but he is also responsible for developing enhanced forms of TV advertising, such as broadband video, video-on-demand and digital cable TV.

That dual role is emerging at most big agencies, where autonomous interactive media units are being fused or integrated into the traditional media-planning and -buying departments. Combining new and old media is having an effect on agencies, shaking up organizational structures as it begs the questions: Who should control broadband video? Does it fall under TV or online ad budgets?

The answer usually depends on the agency itself, its mix of clients and who currently leads the broadband video charge. In most cases, it is still the interactive-media team, but at least one major media buyer has merged all these elements into one.

Starcom MediaVest Group, Chicago, has formed a Video Investment Group that draws upon the interactive expertise of Starcom IP, Chicago, as well the traditional media buyers at its Starcom, Chicago, and MediaVest, New York, units. So far, clients include ESPN, Miller Beer, Nintendo and Coca-Cola.

The new unit is responsible for determining planning and buying strategies across any media platform capable of rendering a “video message,” says Rishad Tobaccowala, president of Starcom IP.

“This isn't about broadband or television. It's about a video-investment marketplace that includes many platforms: broadband, video-on-demand to a certain extent. We're even starting to explore mobile video over cellphones,” Tobaccowala says.

Of course, the idea of new- media groups devoted to new TV platforms isn't novel. What makes the SMG unit noteworthy is that it put its money where its mouse is.

Last year, the agency kicked off what it initially called a “broadband upfront” but later modified to a “broadband embrace.” SMG invested some $10 million to $20 million of its clients' TV ad budgets into broadband video advertising—though there was hardly any inventory available in the marketplace.

The agency simply considered it a first strike. If it didn't put real ad budgets on the table, the broadband video providers would have no incentive to develop content that would establish an online video ad marketplace. The move encouraged rival agencies, advertisers and broadband developers to jump in.

Tobaccowala is more circumspect about SMG's plans for ad spending on broadband video this year, but analysts estimate it could double. Nate Elliott, of Jupiter Research, projects that advertisers will spend nearly $200 million for online video ads in 2005.

Yet broadband video will remain a minuscule portion of the overall TV ad marketplace, accounting for less than 1% of the total marketplace by 2009, according to ZenithOptimedia Group.

Broadband video faces an ongoing penetration dilemma, though broadband access is expected to be available in 50% of U.S. households this year.

“The minimum threshold for a cable network to be considered [for ads] is coverage in about 35 million households. It is very hard to do a 35 million- household broadband video buy right now,” says Alan Schanzer, managing director of Digital Edge, Outrider and Wunderman Media. “Yahoo! LAUNCH is probably the only one that can really do it.”

Broadband video today is in the same place CNN and TBS were in the early 1980s; they didn't reach Madison Avenue's radar screen until they hit a certain penetration level. But as the field expands, commercials can be priced competitively with TV.

“Eventually, it will all merge together,” says Carat Digital EVP Mitch Oscar, “and when that happens, we'll call it television.”