A new pricing model has been launched for online video that should make it easier for advertisers and publishers to buy and sell video advertising.

Launched by digital advertising specialists Exponential, its called CPME and is a hybrid model that combines the best of the current CPM (cost per thousand) and CPE (cost per engagement) pricing models. It works by charging a CPM price for the number of views of the video ad and then automatically moves to a CPE model if people engage with the ad in some way (such as rolling over an ad to expand it, clicking to the advertiser website or playing a game).

Jason Trout, Exponential’s UK MD, says, “This model is about combing the best of both worlds by automatically valuing each ad exposure correctly, whether it’s a passive impression or an active engagement. Valuing it in this way encourages greater investment in the ad teaser experience itself so it is optimised for the right people. At the same time, it places a value on the engagement, ensuring that ad quality is not sacrificed for quantity.”

This is how it works - if 1,000 people view the ad and 100 go on to engage with the ad, the advertiser would be charged a CPM for the 900 views and a CPE for the 100 engagements.

“Highly engaging video teasers will skew towards fewer impressions, whilst those more appropriate for broad awareness will be optimised without forcing engagement rates”, said Trout. “This allows agencies to scale and optimise campaigns between display, in-stream and mobile more easily.”

Exponential says the model has been brought in to enhance the effectiveness of the two pricing models, which both have their strengths, but are potentially stifling creativity and advances in targeting technology. For instance, CPM pricing ignores the value of engagement, whilst CPE pricing isn’t focused on finding the right audience in the first place.

Published on: 5:23PM on 2nd April 2015