Will Internet TV Have Advertising or Not?

Will online video advertising become a viable business model or will it be supplanted by paid access to video content? Will Internet TV have advertising or not?

Video is obviously a hot topic right now, but there is a debate raging whether advertising in a video environment will be effective. The debate ranges from “video advertising is just as effective as TV”, as was stated in a report from HP and MSN, to the outlook for video advertising being dim as it “fails to resonate with consumers” as was cited by Forrester recently.

Let me enter the debate…

According to a report from Oppenheimer and Co. Inc. (and cited in a article Monday on Mediapost) advertising sponsorship opportunities will be “limited” in comparison to the consumers’ willingness to pay for streamed video content. This argument doesn’t work for me because throughout the growth of the web we’ve seen companies try to implement a paid access model and they never achieve critical mass. iTunes is a slight exception to the rule in that they allow for consumers to buy single episodes of programs you can watch online for free, but owning the episode and having the ability to watch it offline or on your PMD is a smart strategy for some people and not for others. This model applies mostly to people like me who travel and want to avoid missing their favorite shows, but online access to my favorite shows on CBS, NBC and ABC has altogether stopped my need to buy them. The only point of differentiation is timing and opportunity. Heroes is only available online for a short time, and then they will be pulling them down. iTunes will maintain them so they become a unique source for this content, which I agree is smart. All that being said, the landscape is littered with pay-for-access models and I don’t think this will be a successful model online, outside of iTunes. We all know that what you can pay for in one place you can likely access somewhere else for free on the web, especially when it comes to entertainment audio and video. The P2P sites still allow access to all this content if you just know where to look.

A study from Forrester cites that 82% of consumers say that ads within video are annoying, 75% say they ignore the ads, and only 10% of those consumers state they interact with video ads “sometimes”. I know this might be something of a stretch, but I would probably go as far as to say that 100% of consumers would love to see online video with no ads, and that 100% of consumers would love to watch regular TV with no commercials. No-one likes to watch commercials, even those of us in advertising. And as for the idea that only 10% of consumers interact with the ads “sometimes”, that is ten times stronger than most advertising. Consumers obviously want access to their favorite programs in the manner they would like, which is why location and time shifting devices are becoming popular, but advertising in this content is inevitable and is likely going to be accepted by the consumer. Our expectations need to be sound and we need to realize that video ads are strong drivers of brand metrics and should not be expected to drive immediate clicks and actions. We don’t expect that reaction from TV, so why should we expect that here?

As they stand right now, most online ads are annoying. I was watching an episode of Heroes and I saw the same ad play eight times through one broadcast. The ad was dull and did not speak to me as a consumer, but it’s early. Advertisers are still getting their feet wet and are still trying to determine how to use this new ad format. Once they feel comfortable and once there is more critical mass in this area, we will inevitably see a stronger play and unique ads being developed for this space. As I keep saying, Internet TV is inevitable and it’s a logical extension for what many advertisers have been doing with traditional TV.

So the bottom-line is that I think it’s too early to declare the medium a success or a failure, but I am 100% positive that we will see its growth over the next few months. It may take time for the models to become mainstream, but they will. I am going to be keeping an eye on this for certain, so feel free to check out my blog on the topic, Internet TV Today at http://internettvtoday.blogspot.com/. Don’t you agree?