Viral Power of YouTube Seeds Video Advertising

June 30, 2009 – If YouTube were a country, it would be the third largest behind China and India with 420 million unique global users. That was a data point shared by Google’s Eileen Naughton, the company’s director of media platforms, at the OMMA Video conference in New York in mid-June.

But third-largest doesn’t translate into cash cow. While online video has been dubbed the “fastest growing medium of all time,” the amount of ad money flowing into this medium is still tiny — $699 million by year’s end, according to media agency Magna.

Even though Internet users watch more than 14 billion videos per month, that doesn’t constitute the all-important “scale” most advertisers want, according to speakers on several panels and keynotes at the OMMA.

There are exceptions to the rule, though, and one of those is the high-pitched YouTube star “Fred.” During her keynote, Naughton said Lucas Cruikshank, who plays “Fred,” is making a six-figure income from his YouTube videos. That includes YouTube partner revenue and money from “Fred’s” ongoing ad deal with Zipit Wireless.

“Fred” is the most subscribed YouTube channel of all time and has earned more than 300 million views total. Other YouTube celebrities are supporting themselves from the site too, including most notably Michael Bukely’s “What the Buck,” which he has said earns more than $100,000 a year from his videos.

Marketers, too, have launched their own brand channels on YouTube, such as H&R Block and Wal-Mart, to help promote their businesses. Naughton added that 75 of the top 100 ad agencies have used YouTube to reach their audiences.

These efforts will help online video achieve better scale and investment from advertisers. Though the base is small, online video has grown by 30 percent to 40 percent year over year, according to most reports. Plus, it now account for about 4 percent of all ad spending, Naughton said.

To grow further, advertisers want scale, as well as better targeting and an array of ad formats, Naughton added. “We need metrics that prove the value of online advertising,” she said.

That sentiment was shared by Andy Markowitz, digital marketing and media director at Kraft, during his keynote. “We need more types of online ads,” he said. “We need to be able to reach our potential customers and you have to so in a bigger way than you can today.”

Agencies like Starcom are testing a range of new online video ad formats with Web publishers and marketers. Plus, by Magna’s reckoning, online video should grow from $699 million in ad revenue this year to $1 billion by 2011. Still, few advertisers can achieve scale solely using online video at this point, Magna has said.

Also, don’t expect much online video ad money to flow during the current television upfront buying season, said Brian Wieser, global director of forecasting with Magna. That’s partly because online video is bought and sold throughout the year, but it’s also because TV still commands such a bigger portion of budgets. And many agencies are still siloed, with online and TV having separate agency budgets, he said.

The potential for the medium to corral more ad dollars exists though because the Web is highly measurable, said Artie Bulgrin, senior VP research and analytics at ESPN.

“Wherever there is solid measurement, money does follow,” he said.