Where Is the Online Video Advertising Revenue Going?

by: Ashkan Karbasfrooshan

According to eMarketer, the size of online advertising revenue is $1.35B in 2008.

Since launching WatchMojo.com in 2006, I’ve had some questions about that figure… so here goes:

Definition of Online Advertising Revenue is Unclear

I’d be interested to know what falls into the category: if it’s only video pre-rolls, post-rolls or mid-rolls, then we leave out companion display ads, which on a site like YouTube account for the vast majority of revenue. Moreover, accounting departments need to standardize this definition. On this item, we need transparency and clarity in accounting definitions and guidelines, I’d be curious to see if an eMarketer spokesperson can address this.

Rich Media vs. Video Ads

When I was running sales for a mid-sized publisher, I recall that rich media ads (Unicast, Eyeblaster, Eyewonder, etc.) were bundled in with video ads because many rich media ads contained video. Is this still true? I am not sure. Why?


In-banner vs. In-stream

Video ads can be in-stream or in-banner. In the latter case, it would be a video ad in a 300×250 that is rich media, Yahoo! (YHOO) has loads of these; then there are in-stream video ads, which go before, during or after video content. MSNBC has oodles of these. This is a very important nuance.

Double counting for partnerships?

Say FOX Sports has a partnership with MSN, who books that revenue? This kind of stuff is fairly standard, think of all ad representative firms who collect and remit ad revenue. But in MSN’s case, for example, it also has a partnership with NBC Universal on MSNBC.com. It’s somewhat useful to know how that is all booked. Is it case by case or is there an accounting rule that is actually respected industry-wide?

Ad Networks

Say an ad network such as Tremor Media, Brightroll, Video Egg, Broadband Enterprises, etc. place some of these ads, they need to be accounted for somewhere. The questions is: where are they accounted? My take is that like it was with display ad networks, video networks will touch 15% of the video pie.

Here’s our breakdown:

Using the figure from eMarketer for total US online video advertising revenues at $1.35B, up from $750M in 2007, as a benchmark.

Yahoo.com = $200M

Yahoo! did over $7B in total sales… with over $5B coming from ad revenues. Yahoo! has a lot of video content along with plenty of rich media on its site. As the world’s largest property, I could easily see Yahoo! doing even $250M in video-derived ad revenue, but when you consider that video accounts for less than 5% of the online video advertising pie, then we will assign a 4% share to online video for Yahoo! total ad revenues.

Viacom = $125M

I think Viacom (NYSE:VIA) generates a larger than normal share of its online advertising revenues from online video ads. Last year I noticed MTV.com running a good dosage of video ads when my wife was watching The Hills on their site (I swear she was watching it). I also think that between Nick.com, MTV.com, NeoPets.com, iFilm/Spike, Atom.com and Comedy Central.com, one reason why Viacom is making a big deal about piracy on YouTube is that it sees just how good the online video advertising business can be.

AOL Time Warner = $120M

Time Warner’s (NYSE:TWX) sources of revenue from online video includes AOL.com, TMZ.com, CNN.com, Time.com and many other prominent places. In fact, while TW does have the cable assets, if AOL TWX had more video assets, I think it could generate $200M per year from video, easily.

News Corp. (NASDAQ:NWS)/Fox Interactive Media = $100M

This is seemingly bullish, but note a few things:

Fox Interactive Media did $900M in total revenues, with MySpace.com doing $750M alone. Of that, it’s worth noting that MySpace is #2 behind YouTube, with MySpace TV making a push to get lots of premium content… leveraging News Corp.’s sales team, to boot.

Moreover, between AmericanIdol.com and IGN Entertainment (which includes IGN.com, GameSpy.com, RottenTomatoes and my old stomping grounds AskMen.com), this is actually quite feasible.

(Disclosure: WatchMojo.com is a content partner to MySpace TV)

NBC Universal = $100M

When it is not hosting the Olympics, literally, I think NBC Universal does about $75M from online video, when you consider that NBC’s online portfolio includes its namesake assets including NBC.com, MSNBC.com and the recently launched NBCSports.com. However, bear in mind, NBC also owns iVillage and Healthology, both sites that use a decent amount of video, and thus, generate online video ads. I think one reason why eMarketer pumped up its estimate to $1.35B is precisely because of the Summer Games in Beijing, which should generate loads of revenues for NBC and parent GE (NYSE:GE), I would put the 2008 take to $100M.

MSN.com = $100M

Depending on the accounting, MSN.com can be making anywhere from $100-250M, but seeing how NBC and Microsoft (NASDAQ:MSFT) remain 50-50 partners in MSNBC.com, yet Microsoft has reduced its stake in the television network to 18%, I suspect most of the accounting revenue falls to NBC, who then remits a cut to Microsoft’s MSN unit (I could be wrong on this). Anyway, between MSN.com and MSN’s video assets, I think MSN does $100M in annual revenues from video advertising.

Disney = $100M.

Disney (NYSE:DIS) consists of ESPN.com, Disney.com and ABC.com. That is a lot of video inventory.

Moreover, Disney is actually quite the king of online media. Well, at least it was, before News Corp. and CBS (NYSE:CBS) spent $2B in 2 years to accelerate their efforts. But the bulk of Disney’s $1B+ digital sales come from ticket sales at its themed parks, as well as merchandising… however, you know online advertising figures prominently, and video advertising growing quickly.

I had done an analysis previously, with Disney’s range coming in at a monthly low of $1M to a high of $7M.

Is it right? Who knows… do I look like Nostradamus? Unless you have a better idea, let’s assume the math makes sense… however, given a few factors, I now put Disney on the higher range, and give them an annual revenue from video advertising of $100M.

Hulu = $75M

Using AlleyInsider’s range of $45-90M in revenues, we’ll peg Hulu’s revenues at $75M this year in revenues. Hulu is now a top 10 video site, according to both Nielsen and comScore.

(Disclosure: Hulu is a distribution partner of WatchMojo.com, as well.)

Google/YouTube = $65M

The bulk of that $200M comes from display banners. The only part I would attribute to “video advertising” is the sum of revenues from promotional/commercial videos that YouTube runs off its main page. At an run rate of $65M per annum, that is $175,000 per day, times 365 days. It comes from Forbes’ analysis. I should state, all the way back in 2006, one month before Google (NASDAQ:GOOG) bought YouTube, I said “YouTube should be making $15M per month, or $180M per annum”. No comment.

(Disclosure: WatchMojo.com is a content partner to YouTube.)

CBS = $60M

CBS made $24M from March Madness, mainly from banners, but some videos, too. And CBS has been growing very rapidly, of late, launching its syndication network. I am not sure if CBS was doing much more than $5M per month on video ads because its reach was largely on third party sites that consisted of the Syndication Network, and let’s face it, once you embed ads, no one embeds your content on third party sites.

So if CBS was doing more than $60M in online video advertising in 2008, then more props to Quincy Smith and his team.

CBS only recently cracked the Top 10 list of largest web properties, thanks to its acquisition of CNET, which takes us to:

CNET = $40M

CNET probably does $40M in video advertising, which out of a revenue of $400M is 10% of its total. Considering that on your average site online video accounts for less than 5% but CNET was an early mover here, I think that sounds about right… and yes, I am guessing here.

The clones (Metacafe, DailyMotion, Veoh, Break.com, Joost, etc.): $50M

I use the term clone affectionately, but I suspect that combining all of the players looking at becoming #3 in the online video distribution space would give you a figure north of $25M but less than $50M. Why? Too much UGC content holds them back…

To really avoid double counting, I am omitting all video networks, such as Brightroll, Yume, Tremor, Broadband, etc.

Rest of Web: $220M

Doing the math means that the rest of the Web is fighting for just under a quarter of a billion dollars.

What do you think? Does this breakdown make sense? Who are we missing?