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Online originals face battle to win over advertisers’ hearts

By Emily Steel in New York

April 18, 2014

Jerry Seinfeld rides in cars with comedians; Sarah Jessica Parker goes behind the scenes of the New York City Ballet; Seth Meyers stars as a cartoon superhero – welcome to the vast, varied and increasingly star-studded world of original online video series.

Chasing the $236bn global television advertising market, internet companies, newspapers and magazine publishers are producing a proliferation of television-like series designed for people to watch on their smartphones, tablets, computers and web-connected televisions. Not to be eclipsed, traditional networks such as Comcast’s NBCUniversal are also pouring resources into digital video programmes.

The originals range from short four- to eight-minute clips, such as Ms Parker’s docudrama city.ballet. on AOL, to television-series length programmes, such as Mr Meyers’ animated comedy The Awesomes on Hulu.

More than a dozen companies, including AOL,  Google, Hulu,  Microsoft and Yahoo, will host presentations in New York in the coming weeks to showcase their latest video programmes to advertisers as part of the third annual Digital Content NewFronts event.

“There is a massive wave here, ” says Ran Harnevo, president of AOL Video. “Here’s why it matters: If you really want to create a meaningful video brand today, you have to have a mix of really good technology and really differentiated content.”

The week-long event comes weeks before US television broadcasters host their own glitzy parties for advertising buyers to showcase their upcoming programmes as part of the annual “upfront” market, when the networks sell about two-thirds of their commercial inventory of advertising space.

Despite the flurry of programming announcements and the buzz surrounding original web series – bolstered this year by the critical success of Netflix’s originals House of Cards and Orange is the New Black – advertisers say that web producers still have much to prove before they start committing TV-sized dollar sums to the digital video programmes. (Netflix and Amazon, which also develops original content, don’t sell digital video ads and make money via subscriptions.)

Factors holding back advertising spending on the programmes are the limited audiences for most series, high prices, the quality of the shows and issues measuring both viewers and the return on the ads, marketing executives say.

“The originality of the original online series is behind us, ” says Rob Norman, chief digital officer of WPP’s GroupM, the world’s largest online ad buyer overseeing more than $5bn in billings. “Unless these come with significant audiences then significant dollars are not going to follow them.”

Indeed, traditional television continues to dominate ad budgets as marketers seek a one-stop shop for reaching mass audiences, and TV continues to deliver. Ad spending on broadcast and cable television is expected to reach $68.5bn in the US this year, more than 11 times the $5.89bn directed toward digital video, according to eMarketer, a market research company.

“It is safe to say that nobody has cracked the code on digital video to get a huge audience behind any of their properties, ” says John Muszynski, chief investment officer at Publicis’ Spark media buying group. “There are some good signs of programmes starting to get traction.”

As people spend more time watching video on digital devices, television’s hold on ad budgets is expected to decline. Ad spending on television is set to increase a tepid 3.3 per cent this year while spending on digital video is expected to surge 41 per cent.

“Younger audiences, 18- to 34-year-olds, are spending more and more time watching video and not just on television, ” says Carl Fremont, global head of digital for WPP’s MEC ad buying group. “That audience is very coveted by marketers.

A significant factor that has deterred advertisers from premium online video is expensive ad rates. Marketers buy commercial time based on the number of people who will see the spot. With audiences for online programmes often limited, that makes less commercial inventory available for sale and leads to higher prices.

Two years ago, internet companies set the rates for digital video ads at about a 50 per cent premium over cable television, according to ad executives.

Prices have steadily decreased. Last year the average rate for an in-stream online video advert that reaches 1, 000 people was $23.03, 38 per cent more than the average rate for cable television advert targeted at the 18 to 49-year-old audience, according to research firm SQAD. Network television commands the highest rates, charging an average of $44.11 to reach 1, 000 people in the 18 to 49-year old audience.

To lure more viewers and ultimately advertising budgets, online outlets are pouring more resources into marketing their original series. Hulu, for instance, promoted the new season of its supernatural comedy Deadbeat at the South by Southwest festival in Austin, on The Tonight Show Starring Jimmy Fallon and advertising on bus shelters in New York. The show also is featured prominently on Hulu’s site.

“The biggest question we get is how are you going to promote these shows, ” says Peter Naylor, head of ad sales at Hulu, the online video service owned by Walt Disney,  21st Century Fox and Comcast. “A lot of people can pursue this original content avenue, but you have to go out of your way to make sure that it is discoverable and that you are building an audience for the marketer.”

Some experiments are starting to pay off. Citi, the financial services company, is returning this year as the sole sponsor for the second season of the city.ballet. series on AOL which follows the lives of company members of the New York City Ballet. The series has gained about 14m views to date.

Video ads for Citi appear before the start of each episode and paid off in return-on-investment measures, according to Pete Stein, global chief executive of Publicis’ Razorfish, the digital marketing agency that brokered the deal on behalf of Citi.

“I don’t know if I would say that [advertising on online original series] has reached prime time, ” he says, “but it is on everybody’s radar.”