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Despite its many critics, television advertising is a $100bn-plus a year market. So it's not entirely surprising that the market for online video ads has evolved to look a lot like its offline counterpart.

There's the desire, now being realized, for digital up-fronts. There is a growing focus on channels. There are Hollywood-like deal structures. And, of course, the pre-roll is the dominant ad unit.

But television ads differ from their digital cousins in one key respect: the former are increasing in price while the latter are decreasing in price.

According to online video marketing firm TubeMogul, the average CPM for pre-roll ads purchased through its RTB dropped to $8.18 in the second half of 2012, down modestly from $8.83 in the first half of the year.

Inventory glut trumps effectiveness

Why the drop in CPM? Blame it on a glut of inventory: TubeMogul says more than 331m pre-roll ads were available each day in October and all told, inventory has grown 7.3% per month this year. So even though "ads are performing well", with pre-roll ads delivering not insignificant brand lift and purchase intent, particularly in the electronics and computer brands space, the law of supply and demand appears to be firmly in control and marketers clearly aren't prepared to bid up CPMs when they don't need to.

Which raises the question: are online video pre-roll ads going the way of the display ad?

Years ago, media kits hawking display ads at double-digit CPMs were the rule, and although many top-tier publishers retain those kinds of rates as list prices, display ads for properties large and small are largely sold like pork bellies despite publishers' best efforts to position their inventory as 'premium.'

While pre-roll video ads may prove to be more effective than display ads, it's clear that, unlike in the television market, there's room for inventory to grow, so it will continue to grow, making it harder and harder for publishers to command significantly higher prices for their pre-roll inventory. Some of the most prominent publishers, of course, may have the ability to limit the downward pressures on their pricing, but publishers generally would be wise to consider that a sinking tide eventually sinks all ships.

Patricio Robles

Published 11 December, 2012 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (4)

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Steffan Aquarone

It's important to be careful when listening to media agencies spout statistics about how online video ads are growing - so too is online video viewing, and far faster!

Pre-roll is lazy. Why don't brands focus on producing content people want to watch - that they find useful, interesting or entertaining - rather than spending time and money trying to butt in to people elective viewing expectations.

over 3 years ago

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Steve Davies

I agree with Steffan, advertisers continue their race to bottom, with little to gain except the perception of increased eyeballs, who may or may not actually be watching their ads.

I used to run display ads on our site, but it's no longer worth the effort and they 'clearly' do not work. I find the notion of hosing 99.9% of spend down the drain to be reprehensible and just plain stupid.

Advertising brands would be far better off working on producing content that people actually want to see, but of course ads would no longer be ubiquitous since many brands really have nothing of interst to say. Hence they continue force-feeding audiences in the hope that some concede and listen to their message.

over 3 years ago

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David

There is another way to read this data: ad spending is not yet caught up with consumer habits in favor of digital viewing, at least to the point where CPMs are climbing in the US or UK. It is worth noting, however, that Australia is a totally different picture, perhaps a harbinger of what is to come. There, CPMs grew for all of 2012, sometimes topping TV CPMs.

To the commenters' points, creating content that viewers want to watch is no doubt important, but it is unlikely to support a national branding campaign without the scale of pre-roll, especially when you consider that less than 1% of videos on YouTube ever organically break one million views, and only 2.4% ever top 100,000. Of course, you can put videos in display ad slots or "seeding" units, but these come with their own own issues (e.g. ads autoplaying where viewers did not mean to watch).

over 3 years ago

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Leslie Van Zee

I like David's comment that advertisers are still a little behind the curve in terms of viewer habits. At our firm, where we work solely with display, videos playing in the display ad are incredibly effective. In looking at why this is, we found that the important thing to realize is how to use the medium to complement the viewer's experience rather than to interrupt it. A display ad that requires a click to get the full point across will never do as well as one with a video that can be accessed without having to leave the publisher's site. Pre-roll video works well for much the same reason.

over 3 years ago

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