IP Democracy: Make Way for the Video Advertising Overlay

The big news today is Google’s acknowledgment that it will be incorporating “unobtrusive” video advertising into YouTube videos. After months of testing, Google has opted to truly begin monetizing YouTube through what it calls “animated overlays” that appear at the bottom 20% of YouTube videos, 80% transparent ads that if clicked open up a video advertisement in a separate window.

If the user ignores the overlay, it disappears after 10 seconds. If a user watches the video ad, the original video will resume playing at the end of the ad. The concept is to reduce as much as possible the irritation generated by pre-roll or mid-roll or end-roll video ads. (More after the jump.)

It’s a genius way to incorporate video advertising into online videos, one devised not by Google but by web video pioneer VideoEgg. But with Google’s ad prowess and YouTube’s seemingly unstoppable popularity, Google has probably just opened the floodgates that will divert some of the billions of TV advertising away from the boob tube and toward the Internet.

Google’s charging $20 CPM for the overlay ads themselves, but the search giant says that users click on the overlays ten times more than they do on regular display advertising. For now the ads are limited to content partners, those companies that have licensed their wares for YouTube distribution, and Google plans to split the proceeds with the partners.

And the ads are seemingly not now “relevant” the way Google’s current text ads are; that is, the ads aren’t necessarily tied to the content of the video. Scott Karp thinks that the low-relevancy could be a big problem for advertisers. (Thanks, btw, to Scott for the images in this post. They’re straight from Publishing 2.0 because Google didn’t make any available and I couldn’t find any examples of ad overlays running on YouTube videos this morning…a sign, perhaps, that Google is being very, very selective with the video overlays.)

He might be right in the short-run, but in the long-run Google will no doubt build in relevancy features to its in-video advertising program. That’s a no-brainer for the company that virtually created the concept of relevant advertising.

Moreover, some ads don’t need relevancy, just the right target market. Movies aimed at teens, for example, might spread their ad budgets across YouTube regardless of the video content — or almost regardless of the content.

Henry Blodget has taken a serious stab at estimating just how much revenue the new overlays might create for YouTube and the numbers are impressive in the long run. But as NewTeeVee’s Liz Gannes points out in the comments to Blodget’s post, Henry misinterprets the $20 CPM figure.

He assumes the $20 applies only to 1,000 video ads actually viewed when in fact it seems that the $20 applies to 1,000 video ad overlays viewed. In other words, Henry has significantly underestimated how much money Google might make by assuming that YouTube will charge only for actual video ads viewed.

Whatever the precise level of revenue Google can create with its overlay business, my gut tells me that a whole new buzzword will quickly be on the lips of every Madison Avenue, Hollywood and TV programming executive. The word, of course, is overlay.

Posted by Cynthia Brumfield on August 22, 2007 12:16 PM to IP Democracy