Web video advertising: awaiting the boom

By Kenneth Li and Paul Thomasch - Analysis

NEW YORK (Reuters) - Any conversation about hot spots in advertising inevitably swings toward online video, with marketers anxious to reach a huge audience watching their favorite TV show or homemade videos on the Web.

Why, then, did U.S. marketers spend just $471 million on online video advertising last year, according to Forrester, representing only 2.6 percent of all interactive marketing?

Executives attending the Reuters Global Technology, Media and Telecoms Summit this week cite inexperienced creative and sales staff and fear of the unknown among the roadblocks for online video advertising.

They widely agreed, however, that it was only a matter of time before it takes off.

"You have some terrible ads which we could be ashamed of and you have some great ads," Publicis (PUBP.PA: Quote, Profile, Research, Stock Buzz) Chairman and Chief Executive Maurice Levy said.

"What you will see with online advertising and video advertising is what you have seen with print and TV advertising, which is a progressive improvement," he added.

In an industry conditioned to lure consumers with 30-second and 60-second television spots, creating effective Internet spots has been difficult.

"Things can only grow as fast as TV advertisers will make them grow -- and honestly these are guys who want to move very cautiously because they have historically held all the cards in the ad world," Forrester analyst James McQuivey said.

Selling video ads is another big issue.

"I don't think publishers are really clear on how to sell it yet or what formats work best for consumers and a lot of the ad serving technology, tracking and campaign management technology is still pretty immature," said Saul Klein, partner at Europe's top Internet venture capital firm, Index Ventures.

"Even the bigger players in the market, Google (GOOG.O: Quote, Profile, Research, Stock Buzz) with DoubleClick, etcetera, don't really have a robust answer on how video is going to work," he added.

TOO RISKY TO AVOID

Still, Forrester expects online video advertising spending to roughly double this year to $989 million, then roughly double again to $1.86 billion in 2009. It puts the compound annual growth rate at 72 percent from 2007-2012, far exceeding any other type of interactive marketing growth.

"In terms of the growth rates, the online advertising in terms of video I think has more than tripled in the last 24 months," said Jason Kilar, chief executive of Hulu, a video website owned by Rupert Murdoch's News Corp NWSa.N and General Electric Co's (GE.N: Quote, Profile, Research, Stock Buzz) NBC Universal.

"You're working off of a small base, but if you can keep rates anywhere near that for a number of years, you're looking at a big industry, and certainly the projections suggest that," he said.  Continued...