Double the Online Ads? This Pill is Hard to Swallow.

At the NATPE conference, ABC.com shared new research data (conducted in partnership with Nielsen Media Research) that shows online TV viewers would tolerate double the current online ad placements. The research also revealed that increasing the number of brands as well as the commercials in an online TV program is not only effective but increases ad recall.

The first thing that comes to mind is…Really? I’m a big proponent of understanding what ad types and placements are most preferred by the viewer/consumer. For example, what ad formats/placements are most preferred online? What type of targeted TV commercial will increase engagement and decrease ad avoidance? Do consumers what to see ads on their mobile phone? And what type of mobile ad is most appealling? Does ad relevancy matter? The only true way to answer these questions is to consult the viewer/consumer.

Well, apparently ABC.com and Nielsen have done just that because their research shows online TV viewers are okay with double the current commercial load in their online TV programs. Really? But then again, Hulu.com found somewhat similar results as detailed in this blog.

Will advertisers and/or ad agencies swallow this pill? According to the Ad Age article, Donna Speciale of MediaVest Worldwide warns the danger is finding “that very fine line and balance before we push them over the edge of being pissed.”

If you would like a small sample of what the viewer really thinks of ABC.com’s new data read the Your Opinion section of the Ad Age article (see hyperlink above).

Come Test the Waters at “The Pool”

The WSJ featured an article today announcing the formation of “The Pool.”

Lead by Publicis Groupe’s Starcom MediaVest and VivaKi, The Pool is a consortium of six major media companies including Microsoft, Yahoo!, CBS Interactive, and Hulu.com as well as several marketers. The Pool was assembled with hopes to increase online video ad revenue by developing effective ad format standards and identifying which online video ad formats are most preferred by online viewers.

The group will test five different online video ad forms in a focus group setting. The top two ad formats will be subject to beta testing on the media companies’ websites. Starcom MediaVest and VivaKi clients participating in the Pool will help test the preferred ad formats during the beta test.

I found this announcement particularly interesting as it confirmed my position as detailed in a blog I recently wrote, In 2009, Make Consumer Ad Preferences Priority One. I anxiously await the results!

In 2009, Make Consumer Ad Preferences Priority One.

As 2008 ended in a bang (I’m talking flames not fireworks), industry analysts scrambled to revise their advertising forecasts for 2009 and beyond. The current economic recession has caused increased uncertainty in the minds of advertising industry executives (as well as anyone who eats, breathes, and sleeps in the U.S.). I’ve read countless articles related to the advancement of new digital advertising technologies specifically targeting TV, online, and mobile. And while the opinions and predictions are fascinating, they also make my head spin especially when considering recessionary setbacks.

Most digital media advertising forecasts have been reduced from double-digit growth to single-digit growth for 2009 and beyond. Even so, all forms of digital media will see continued growth in advertising revenues at the expense of more traditional forms of advertising. Good news for digital media during a recession.

While the ad industry (content providers and publishers, technologists, advertising/media agencies, and media companies) contemplates which new forms of advertising will dominate in the future, I suggest all involved consult the consumer first.

Why? Digital media has created a consumer-centric world. It’s about what the consumer wants, when they want it, and how they get it. No longer does the Field of Dreams adage, “If you build it they will come” apply. Especially, when considering Generation Y/Millennials/Net Generation - depending on the source the monikers represent persons age 11 – 31. This generation is accustomed to a two-way communication approach since childhood – this applies to advertising as well. They’ve “grown up digital.” Advertisers are already looking at this generation in order to understand future purchase processes and preferences as this group matures into legitimate consumers.

Targeted, Addressable Television Advertising via Set-top Box.
Although I stated earlier on that ad revenue on digital media will grow at the expense of traditional mediums, I’m not predicting the death of traditional TV advertising. However, I do believe television advertising will eventually evolve into a targeted, addressable form delivered via cable and/or satellite set-top box.

In late October 2008, I posted a blog suggesting 2009 would be the year for advanced cable television advertising. However, until the economy stabilizes I highly doubt major cable companies, through the creation of Canoe Ventures LLC, will be financially positioned to advance and build-out targeted, addressable TV advertising via set-top box in 2009. Daily announcements of job cuts, operating budget cuts, and overall conservative spending in 2009 will halter the advancement of new forms of cable TV advertising. So, now is the time to ramp up efforts to better understand what types of targeted TV advertisements consumers will embrace and the forms they will not.

Online Advertising
The online advertising space will fare well in 2009. With that said, the online advertising ecosystem is still evolving. There was much discussion in 2008 regarding how online ads are bought (ad networks, traditional advertising agencies, marketers, content providers), where ads are placed (professional sites, video-sharing sites, social networking), what online ad formats to use (linear video, non-linear video, banner, search), and most importantly, online audience measurement and effectiveness (ROI, CPM, CPC, CPA). The online ad industry is still trying to figure out the most efficient and effective best practices and guidelines and delivery solutions. As the advertising industry clutches its purses during the recession, focus will be placed on predictable mass audiences, performance-based advertising solutions (effectiveness and trackability), and brand safe content. All of which points back to the consumer.

Mobile Advertising
2009 will be a year of continued development, advancement, and revenue growth for mobile advertising. Continued growth will be spurred due in large part to the proliferation of smart phones (iPhone, G1, and Blackberry). Again, consult the consumer first. Avoid unnecessary build-out costs and ineffective mobile ad formats/solutions by enhancing your knowledge of consumer mobile habits and ad preferences.

It's Simple: Make Consumer Ad Preferences Priority One

In 2009, top priority should be given by all companies in the digital advertising space to consumer advertising preferences. Consult the consumer during development and prior to deployment of the ad technology, format, and/or solution. I review a lot of data regarding audience measurement, new advertising technologies and formats and their utility but as advertising evolves in a digital age the industry must consider what ad forms and ad placements consumers prefer. I don’t suggest the industry is unaware or unresponsive to consumer demand in regard to advertising, but I question the importance as relatively little is reported or discussed regarding the ad preferences of the consumer.

P.S. This article validates my point.

Coming Soon: Long-form Online Ads from Hulu?

In making a case for long-form online ad formats, Hulu released data showing that 88% of current Hulu viewers would opt-in to a long-form two-minute advertisement in order to avoid ads during the rest of the program. The study suggests that consumers don’t mind ads. They do however prefer being given a choice of ad content that is personally relevant. The findings also suggest that high opt-in rates are directly correlated to increased ad engagement.

While reflecting on Hulu’s findings, I question whether or not targeted long-form ads are a viable online ad format. Here are a few initial considerations:
1. One must consider the issue of audience engagement. True audience engagement is impossible to measure. The viewer could say they’d be willing to watch a two-minute relevant commercial. But what’s the likelihood that they will disengage from the commercial break in order to send an email or multi-task on a separate project? Especially when ad avoidance exists during a much shorter (30 second) ad format.
2. Long-form online ads are not a good fit for some advertisers. Imagine a two-minute ad for Wal-Mart. Now imagine this same commercial placed in the FOX drama House, which skews adults 18-34. (*Note analysis below.) Additionally, producing a long-form commercial that is creative and attention-grabbing is difficult to accomplish. With that said, it is possible. I immediately think of the Nike Football: Fate commercial. Great spot. While this is a one-minute advertisement, I think it would be difficult to extend the spot to two-minutes and retain meaning.

As I explore the idea of the long-form online ad, I decide to conduct an experiment on Hulu.com. I do so because I do not watch TV programs on Hulu and I want to familiarize myself with Hulu’s ad structure. Call me old fashioned, but I prefer to watch TV programs on a TV set. I analyze four programs based on Hulu’s most viewed list for the month of November 2008. The ad structure of these programs represents what a majority of the viewers experience.

Based on the analysis, I discover that the traditional 30 minute program (21-22 minutes online) typically does not contain two-minutes worth of commercials. So why would one choose to watch a two-minute ad even if they could choose the specific ad content? However, I believe it is feasible that one would prefer to watch a one-minute ad that is personally relevant in lieu of 4 random 30 second commercials (within a half hour program). Of course, it is important to note that Hulu’s commercial load varies with total commercial time accounting for 3 – 6% of total program time (based on my analysis). It seems acceptable that most online TV viewers would agree to watch 2 one-minute personally relevant ads in an hour long program.

Based on the analysis and initial considerations, extending ads beyond one-minute is asking too much of the viewer even if the program is free to view. I would also suggest that a two-minute ad (even if personally relevant and paired with the right advertiser and good production value) would inevitably cause audience avoidance. Even so, I do not make the assumption that Hulu plans to push long-form two-minutes ads in all of their online programs. In any case, Hulu is on track in seeking a better understanding of consumer advertising preferences in order to circumvent traditional advertising models.

Ad Structure of Hulu’s Most Popular Programs – November 2008

The Office/NBC Season 5/Episode 8 21:29
:05 pre-roll Nissan
:30 Wal-Mart
:30 McDonald’s sponsored The Reality House Show
:30 McDonald’s sponsored The Reality House Show
Total ad time: 1:35 (represents 6% of total program time)

Family Guy/FOX Season 7/Episode 4 21:49
:05 pre-roll Nissan
:30 McDonald’s sponsored The Reality House Show
:33 Airforce
Total ad time: 1:05 (represents 5% of total program time)

*House/FOX Season 5/Episode 5 44:04
:05 pre-roll Sprint
:30 Wal-Mart
:30 Wal-Mart
:15 Wal-Mart
:30 Wal-Mart
:30 Wal-Mart
Total ad time: 2:20 (represents 5% of total program time)

Heroes/NBC Season 3/Episode 7 41:37
:05 pre-roll Nissan
:15 Nissan
:33 Airforce
:15 Blu-ray disk
:15 Blu-ray disk Total ad time: 1:20 (represents 3% of total program time)

The Four-Way Judo for the Dominance of Advertising

Microsoft’s bid for Yahoo turned hostile, which spiced up the game-playing among the four major players in the online advertising space: the named two plus Google and AOL. Yahoo, as the party being acquired, can’t comment much, but the other three recently couldn’t help but trading jabs at each other. Google’s objection to the deal has been widely known and Microsoft knows that it can’t befriend with Google in any circumstances. But recent rumor between Yahoo and AOL about potential collaboration opportunities appeared hitting Microsoft’s nerves. During a speech at the IAB conference Ecosystem 2.0 on Monday, Brian McAndrews, former aQuantive CEO and currently senior vice president of Microsoft’s advertising unit, made a bold prediction that over the long term, the only two viable players in the online advertising space are Google and Microsoft. AOL people in the audience were apparently irritated by such a comment. So on Tuesday when it was AOL chief executive Randy Falco’s turn to give a speech, Mr. Falco fired back by saying: “Microsoft and Google can ignore us and leave us off the charts, but they will do it at their own peril.”

Things are getting more and more interesting in this four-way fight to command supremacy in the online advertising market, which Parks Associates estimated to grow to $35.5 billion by 2012. Search advertising is one of the pillars of this fast growing industry and also the focus of the Microsoft’s acquisition of Yahoo. But the four players apparently are jolting with one another for advertising opportunities beyond search. Google has extended its tentacles from online display ads to offline radio and TV ads. Most recently it announced video ads through its adword search program where keyword search can end up with featured videos made by advertisers, who will bid each other for positions at the top page. Yahoo hasn’t lost its focus in spite of the merger talk and the potentially nasty proxy fight with Microsoft. It has already built a partnership with major newspaper publishers to help them sell ads. At the Ecosystem 2.0 conference, Jerry Yang also unveiled Yahoo’s new Apex platform that promised to allow marketers to buy display, search, video, or mobile advertising in a convenient one-stop fashion. These four platforms combined will generate almost $29 billion in ad revenue by 2012, according to Parks Associates’ projection (analysis and projection of online video and mobile advertising industry is featured in Parks’ recently published study New Advertising Platforms and Technologies). By coincidence, AOL’s own one-stop ad platform is called “Platform A” (We quibbed at Parks that if AOL merged with Yahoo, integration would at least be easier for naming the new ad platform). As Mr. Falco put it, AOL is unlikely to compete with Google or Microsoft/Yahoo on search advertising, but in other areas, AOL boasts assets that are not inferior to any of the other three competitors’.

A year ago, all four players were in a frenzy in acquiring technologies, ad networks and other ad-related capabilities that complement their own portfolio. In 2008, they strive to make themselves more relevant to a booming online ad market and a potentially bigger and more lucrative offline world where ad delivery increasingly starts to benchmark what online world has been able to show to the advertisers. Microsoft’s Yahoo purchase attempt is only the start of a much bigger trend. Therefore if the deal is valued based on Yahoo’s search business and current portfolio, $31 per share appears to be justified. But if accounting for combined Yahoo-Microsoft influence for the entire ad industry (not just online) in the future, Microsoft might have to cough up a few more bucks per share to satisfy Yahoo’s board and its shareholders, in our view.

What about Google and AOL? Time will tell.

Disclosure: The analyst owns shares of Time Warner, Inc, parent company of AOL.