- Summary: Microsoft Corp.'s MSN has a strong position in Web video ads, ahead of Google and Time Warner's AOL and behind only Yahoo, in contrast to its almost non-existent market share in the pay-per-click and banner ad market. MSN spent heavily in recent years to acquire Internet rights to programming from major TV networks, and is strongest in news clips via a 99 year deal with General Electric's NBC. Microsoft recently signed a deal to license episodes of the Fox comedy "Arrested Development" for the next three years. Yahoo, in contrast, has focused on its own video content, while AOL carries content from Time Warner's Warner Bros. and cable channels Nickelodeon and the History Channel. The popularity of YouTube, which doesn't insert ads into video uploaded to its site but soon plans to, has forced its competitors to carry user-uploaded video on their sites as well. Google has stumbled in the video ad market by offending content producers by giving away transcripts and still images, and suffers from the challenges of video search. AOL has acquired a couple of video search comanies and expects its video search to be on par with its text search next year. Yahoo has allowed users to upload descriptions of their videos to aid search. While video ads currently comprise only 2.3% ($385 million) of the total online advertising market, they are forecast to rise in value at double the rate of the overall ad market to $2.35 billion by 2010 according to eMarketer. A 30 second video ad commands the same price as a 30 second ad on ABC's hit show "Desparate Housewives" -- about $25-30 per 1,000 viewers. 80% of online video ad inventory was sold out in 2005, and demand is expected to rise five-fold in 2007, faster than supply.
- Comment on related stocks/ETFs: Incrementally negative for Google (GOOG), positive for Microsoft (MSFT) and Time Warner (TWX); neutural for Yahoo (YHOO). Positive for Internet content companies that have announced expanded video offerings including CNET (CNET) and TheStreet.com (TSCM). (Full disclosure: short TSCM at time of writing.)
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