Bill Gurley has a short post on his idea for online video ads -- let the user decide what commercial to watch. My comments have less to do with the proposal, and more with some of his assertions in general about monetization fundamentals for premium online video.
First, the idea itself is a good one, and one that we POC'd as a new ad format in Brightcove almost 3 years ago. Hulu has already adopted a variant of this -- chose to watch a few ads during your show or one long one up front, and I believe also a format with choosing which type of car ad you want to watch. This kind of end-user empowerment is great for everyone, as Bill noted.
However, the real challenge for this kind of ad format TODAY is that the vast majority of online video publishers simply don't have enough scale to make it viable. With the exception of Hulu and a few others, any given publisher's online video inventory simply does not offer up enough usage volume to make it viable to have multiple advertisers to choose from. This is especially the case in a world of publisher-controlled ad sales (vs. networked sales), where they could easily sell-out all of their inventory with one or two publishers. As a result, in fact, today we still face the "creative fatigue" issue with online video ads -- not enough inventory = poor frequency capping = crappy user experience.
To make this concept viable today, more publishers would need to elect to use 3rd party sales network whom in aggregate having enough diverse inventory to meet the scale requirements for this level of consumer choice. There are also challenges on the buy-side with this, with TV/video media buyers in general looking for certainty in their buys, and not willing or interested to buy video on a performance basis, which in some respects this 'choose your own ad' approach would require.
Anyway, I do love the idea, and I do think it will happen over the long-term.
However, I also wanted to challenge or at least engage with Bill against some of his other "core assumptions" on monetization in premium video on the Web.
" 1) No one will ever monetize commodity content well. If the same video is on YouTube, Veoh, and Metacafe, you won’t have the “right” to ask the consumer to wait for an advertisement. Only by”controlling” unique/premium content can you ask the user to participate with advertisement."
I don't think it is true that no one will ever monetize commodity content well (i guess in part it depends on how you define 'well'). Certainly in the context of largely UGC and 'Torso' based experiences such as YT, Veoh and Metacafe, the advertising community has clearly devalued inventory given risks/context, but in 'premium' video contexts (MSN, AOL, Yahoo, Hulu, etc.) even commodity content is monetized reasonably well -- many of them carry CNN feeds (arguably a commodity), or AP feeds, and these still garner high CPMs for video ads.
2) Some networks, like ABC, are already doing a great job with online video advertisement. I have heard numbers as high as 80% of the revenue per viewer hour compared with regular network television. That said, I think the model below will dramatically enhance this number.
No argument here, and have heard the same numbers. Clearly, the combination of premium content, premium user experience, and engagement-based selling proposition through interactive Flash ads has differentiated this product. It is totally shocking to me that more publishers have not used interactive Flash take-over interstitial ads given the clear superiority of the format and its ability to drive higher CPMs. We've had it in our product since late 2005.
3) Having multiple sales forces selling the same premium video advertisement is counter productive. It drives down pricing.
Not much of an argument here, but a couple of thoughts. Commodities that are distributed through multiple premium outlets and sold by multiple sales forces are OKAY, since for the most part the media buyer is buying a defined audience, genre or segment from the publisher, vs. specifically buying that content (e.g. They're buying 'News' on AOL Video, not CNN, etc., and AOL is providing a distinct demographic product as well). But the fact that these are commodities does have an impact on pricing, without a doubt. More importantly, though, I think this is one of the very strong reasons why more and more premium content owners are engaging in syndication and distribution relationships with major sites where they maintain control over advertising sales. Until the Big 4 (AOL, Yahoo, MSN and MySpace) gave in to the networks (Hulu and CBS) on control of advertising, things were pretty broken, and one of the key reasons was that it is/was complicated to have '24' sold by 5 sales forces on 5+ different sites.
4) “Distribution” is a confused word online. Everything can be one-click away. As such, there is no real reason to have someone “distribute” your video in the old classic sense - especially if it is important for you to control the advertising.
On this is I largely disagree. Reality is that most online video consumption is serendipitous, not intentional, and so the paradigm of quickly searching and finding the program you want from the primary destination site doesn't necessarily hold water. Furthermore, major 'distributors' (e.g. portals and large video sites) can bring unique marketing against specific content, and are a home to an audience that are often repeat visitors to those sites. On the flip side, the 'chromeless player syndication' model that we and others have been promoting opens up a great approach where the distributors maintains control of the user experience and site/brand integration, the content owner maintains control of the programming, advertising and analytics, but bears the operating expenses for their online video and rev shares back to the distributor. The number of premium brands that we work with who are pursuing this strategy continues to grow, largely because these publishers are in search of more and more inventory. This isn't going away, it is really only getting started.