Visual computing expert Mike Sullivan published a piece last week through MediaPost that ought to get every TV executive’s attention. “Why Now Is The Time To Shift TV Ad Dollars To Online Video” is a serious look at the burgeoning market for online video advertising, and it’s straightforward in its advice to advertisers that now is the time to switch. I want to talk about this, because those who aren’t prepared for it have precious little time to get ready. We’re back to talking about digital dimes again, unless we get serious about the whole business.

There is a giant turd floating in the punchbowl of online video advertising that we simply must acknowledge and do something about. It’s called the pre-roll ad. This is one of those “counterintuitive” arguments, so I’m not expecting any great response from the industry of media. As long as we think we’re in the content business supported by advertising, what follows here is meaningless, because our history is to do anything we can to maintain that illusion (hint: we’re in the advertising business).

First, let’s review Mike’s article. He cites new research from Nielsen revealing that during April 2011, Americans streamed 14.7 billion videos, a record for the most streams in a month. YouTube, he notes, likewise had a record month in April. These numbers are headed north in a hurry for reasons often discussed here.

Media buyers commonly believe that online videos can’t be measured with traditional TV metrics such as Target Rating Point (TRP) and Gross Rating Point (GRP). Recently, new technology has emerged that can provide the same rating points and can also accurately determine the content of the video, offering a chance for ad buyers to take early advantage of the 90% of non-premium online video inventory, yet to be claimed.

He goes on to note that targeting options are improving at light speed, and that advertisers can be as specific or even more so than on television broadcasts. Gone are the days when advertisers had to worry about their ads appearing next to questionable content.

Now advertisers can have total clarity about online video content and total control through custom channels that allow them to select the exact online videos where they’d like to advertise. From specific subjects such as extreme sports or wine tasting, to exact channels such as ESPN and TNT, advertisers can now target their ads and engage audiences with the same precision for online video that they have with traditional TV spots.

This poses two significant problems for broadcasters. One, the cumulative money we get for broadcast ads is far more than what we get for online videos and video clips, and replacing that is problematic, at best. Two, most of our online video ad business comes from a corrupt pre-roll ad strategy that’s going to bite us in the butt, if we’re not careful.

The problem is that pre-rolls “work,” but the average is 15–30 seconds in length. People turn away before seeing our content, so the money-making apparatus is significantly borked.

Mark Robertson, writing for ReelSEO.com, a top online video marketing resource, notes that pre-rolls outperform everything else in the online video ad space.

For clients targeting commercial views, pre-roll is by far the best value on a cost-per-view basis. In fact, in-banner video is often 10 times or more expensive on a cost-per-view basis, unless of course it is auto-played which comprises the comparison. For clients targeting clicks, pre-roll delivers five to 20 times the click-through rate of comparable banner or sponsorship units. Lastly, multiple studies of online video have further demonstrated that pre-roll scores strongly in measurements of brand recall and brand lift.

But here, Madison Avenue has its biggest challenge. Despite the fact that they “work,” they are annoying as hell, and that doesn’t sit well with people who want to watch those video clips.

Many studies reveal a depth of anger over pre-rolls. In February, for example, YuMe — a company serving an average of 30 million video ad impressions per day on behalf of the 600+ publishers utilizing its advertising management platform ACE — reported that pre-rolls were the fasting growing segment on its online universe and that ad completion rates, while significant, are no where near 100%.

Format and Completion Rates

• Pre-roll continues to be the dominant ad format, representing 96.7% of YuMe’s volume in Q4.
  • 15 second pre-roll remains the most common ad length making up 57% of impressions served in Q4.
• The Female audience continues to have a higher video completion rate at 74% versus 67% for Males.

Over one-fourth of women exit before the ad finishes along with one-third of the men, and that includes 15-second ads. No ad view. No content view. Pissed off people. This is not a scalable strategy, folks, and publishers need to step forward, because Madision Avenue doesn’t give a crap and has no reason to want to change.

Many years ago, Microsoft studied responses to pre-rolls for MSN. The result was accidentally published by Mediapost in an article about online advertising. The optimum length for pre-roll was 7–12 seconds, according to the study. A day after it was published, however, the article was edited to show that 15–30 seconds was acceptable. When I investigated, I was told by Microsoft that 15–30 is what advertisers wanted, and Microsoft had not intended for the 7–12 second reality to get out. Nice.

The problem, of course, is that publishers simply cannot permit ad agencies to dictate whether people view our content. It’s suicide. You can say a lot in 7–12 seconds, and the bonus is nearly 100% fulfillment and satisfied “viewers.” Yet, we insist on forcing what is a broadcasting paradigm on a medium for which it was not intended, simply to take easy money from ad agencies.

There’s a fortune to be made, if we get this right, but, like I said, I don’t really expect any action over this. We’ll once again toss our future to the winds of fate — which is where the disruptors are having a ball — as we try and hold our ground. The Web — the Great Horizontal — is all about people, and people are no longer simply “consumers.” They refuse to be treated like a bunch of captives anymore, and the evidence shows that pre-roll ads are an unwelcome time-waster. If we don’t learn that lesson, we’re doomed.

It’s another form of death by a thousand cuts, something for which media companies are becoming quite famous these days. This is our fault, and yet we are silent. The wounds, it seems, are self-inflicted.

Cisco, the people who manage the pipes of the Net, is just one of the groups that are betting on the future of online video. 70% of the growth of Web content between now and 2014, they say, will be video. Other research shows that, too, and I have to agree that it sure looks like our lives are about to be much more video-centric.

You’d think this would be a good thing for broadcasters. After all, video is our world, and yet newspapers have been winning the online video race for a number of years. YouTube is THE repository of all that is video, and many other streaming portals are out there, too. The infrastructure is in place — or mostly in place — for this video-centric Web. Search is next, and search will include sophisticated image recognition software. It promises to be a fun world.

There’s a big “but” standing in the way, however, and where it goes will determine the winners and losers of tomorrow. I’m talking about how to make money with all that video.

Early Saturday I was perusing my RSS reader and came across an E! News video clip of Charlie Sheen making a fool of himself on the radio. I hit the play button, and up popped a 30-second Banana Republic made-for-TV ad. Nice ad, but it had no business running ahead of the Sheen video — for reasons I have discussed for many years — but its placement there is evidence that those who “should” own the video niche tomorrow won’t. Like bundled advertising was to newspapers, video pre-roll ads are a strategic blunder of trying to bolt the new onto the old instead of exploring options that better fit the Web. There’s a lot of money in pre-rolls, however, because that’s what Madison Avenue wants, and in this way, both Madison Avenue and legacy media are bedfellows in their own destruction. I don’t know how to state it more clearly than to ask you to consider the viability of a 30-second brand advertisement, one that’s made for a passive TV viewing experience, being slapped in front of a piece of video on the participatory, real time Web. Why do we shoot ourselves in the foot this way?

After the Sheen video, I clicked on another one that I wanted to watch, and wouldn’t you know it, there was the same Banana Republic 30 second ad. By this time, I was not only pissed at E!News, I was also pissed at Banana Republic. Somebody at E! gets a check from Banana Republic and deposits it into an account, and people go about living their lives. But they do so foolishly thinking “no problem.” Big problem.

Commoditized pre-rolls are simply not what’s going to drive Web video into the future. There’s lots of evidence that advertisers like pre-rolls and are willing to pay for them, but there’s an equal amount of research to suggest that users hate them. I’ve actually made the decision not to watch a video, because of a pre-roll, and I know I’m not alone. Long ago, MSN did research about the optimal length for a pre-roll. 7–10 seconds is it. Period. And yet, we’re running 30s knowing that we’re simply pissing people off. Why do we do that? Because it’s easy, and we need the money.

In so doing, we’re unwittingly handing over the keys to the online video niche to others — smart people who understand that the Web is not TV and that it must be served differently. They will discover other solutions, because it’s very unlikely those solutions will come from traditional television.

First of all, the Web is in real time and time is the new currency. Even though I can select what I want to watch and when I want to watch it, to the Web, I’m doing that in real time. There are opportunities for advertising relevance there. Putting a meaningless 30-second Banana Republic ad in my face when I’m looking to hear from Charlie Sheen disrespects me by wasting my time, and it misses the opportunity to do something meaningful with the here-and-now attention I’ve just given it. A 10-second topical promo for something coming up on TV that hour would be more relevant than a branding spot for Banana Republic. That’s perhaps a bad example, but you get the idea. If it’s late morning, how about a 10-second “McDonald’s for lunch” spot? Give me something relevant!

“But, Terry, Banana Republic wants to give us a wad of cash for those spots. Are you saying turn that down?” God forbid, but as we’re taking that cash, let’s make sure we understand the ramifications of so doing. The temperature of the water that our frog sits in goes up a little each time.

Secondly, the Web is incredibly efficient at delivering real time messages to highly specific targets. Direct marketing is its specialty. As long as we think of ourselves as video content providers and care nothing about connecting with individual browsers within our reach, we will continue to abdicate opportunity to others. We need the data to know who’s watching our videos, so that we can deliver specific messages tailored to them. At least it will increase the relevance when we interrupt them with pre-rolls. This also allows us to raise rates on advertising, because we’re not using the scattergun, mass-media approach that Banana Republic apparently likes so much.

Or how about getting into the post-roll business with a pre-roll banner? That way, people who want more information about who/what’s sponsoring the video can stick around without destroying the experience of the user who doesn’t. This is a YouTube model that I like very much, and I find myself sticking around for more ads than you might think.

The point is that video is still in its infancy, and now is the time to decide how we’re going to monetize that which we provide. I sincerely hope we don’t let Madison Avenue make the rules, because they don’t really give a crap about us. Sitting back and waiting to see what sells — as we’ve done with every other stage of digital development — will keep us from ever establishing for ourselves the value of our content. That’s going to require ingenuity and the courage to maybe even say “no” once in awhile when the Banana Republics of the world come calling.