Study: Online Video Ad Market Growing, Still Small

Improved viewing quality and more offerings have led many marketers to try online video advertising, but their spending is still small and will likely remain so for the next few years, according to a new study.

Jupiter Research, which is owned by the parent company of this site, said 65 percent of marketers it surveyed would try online video advertising this year, up from 38 percent in the past year. Trying, however, doesn’t mean spending a lot. Only 25 percent plan to spend more than $50,000, compared to 10 percent a year ago.

Jupiter associate analyst Nate Elliott, who authored the report, believes video advertising isn’t getting its due. “Online video ad spending is still small,” said Elliott. “But that just means it’s a great opportunity for marketers.”

The incremental growth Jupiter predicts will still leave online video as just a smidgen of the overall interactive advertising industry, accounting for just 3 percent on online ad spending this year. That works out to about $180 million. The segment isn’t expected to take off anytime soon, either: in 2005, it will account for just 6 percent of online ad spending, the report predicts.

Why aren’t advertisers spending? Jupiter found 38 percent of advertisers believe the online video audience is too small; another 27 percent cited the high costs, with online video ads running at $30 to $40 CPMs.

Advertisers are correct in their belief that the streaming online video audience is quite small, according to an Arbitron and Edison Media Research study published in February. It found that just 7 percent of Internet users reported accessing online video in the previous month.

Online video advertising got a boost earlier this year with the rollout of ESPN Motion, a cached online video service that can carry ads before it shows highlights from SportsCenter. According to the network, more than 1.7 million ESPN.com users have installed Motion since its debut in April.

“We have a really high demand from advertisers ongoing,” said ESPN.com spokeswoman Ashley Swadel.

Top-of-the-line advertisers like Gatorade, Lexus, Intel and Microsoft have run Motion campaigns. Swadel said ESPN.com was slowly rolling out Motion to other parts of its site, including its golf section and footage of NBA Draft prospects.

“There’s all these 18-to-35 males sitting at work all day that don’t have access to TV that advertisers want to reach,” she said.

Since ESPN.com visitors choose installation and focus on the video screen, it is the most attractive option for online video advertising, according to Jupiter, as opposed to video running in banners or even at a video destination site.

“There are similar opportunities out there,” Elliott said of ESPN.com’s success. “Marketers don’t think the audience is there, but they’re wrong.”