Online video ads expected to grow

NEW YORK -- Frank Harper is well aware that all those free video clips on the Internet come at a price: advertising.

But that doesn't mean he sits idly as short video ads precede many of the dozen or so clips he watches each day at sites like Microsoft Corp.'s MSN.

"For the most part, I just mute the volume," said Harper, 55, who runs a security consulting firm in Sterling, Va. "Or I just look at something else, look at another headline ... or go to another site while the thing is playing."

Marketers and Web sites alike are struggling to bring to the Internet ads that resemble television without turning off viewers the way TV ads often do.

Spending on online video ads represents less than 4 percent of all Internet advertising and just 1 percent of the amount spent on TV, according to eMarketer. But growth is expected -- with the research firm forecasting U.S. spending more than tripling to $4.3 billion in 2011 -- especially as more viewers embrace full-length TV episodes and other video online.

The challenge is finding the right formula -- in the creative approach, the format or the frequency with which the ads appear -- so visitors notice the pitches without getting so annoyed that they never come back.

"Users love free content and advertisers love to fill up every minute and pixel with the messaging, and publishers do have to find that balance," said Geoffrey Coco, an advertising executive with Microsoft, which has a video news partnership with The Associated Press. "There's been a lot of innovation but I don't think we've settled down yet."

The results so far have been mixed -- even when sites force viewers to watch video ads by making them impossible to skip.

Google Inc. and other search companies have generated billions of dollars from text-based ads that appeal primarily to merchants seeking a direct response, such as an immediate sale.

But for companies more interested in longer-term brand promotion, video could make a much more lasting impression.

"It's emotive, rich. It grabs your heart," said Suranga Chandratillake, founder of video search company Blinkx PLC. "It combines all that is great about TV advertising with all that is great with online advertising" -- the ability to more accurately track who's watching, when and for how long.

Although many advertisers are simply repurposing television ads as online "prerolls," a few are trying to break from that mold with ads that are more interactive.

During a recent episode of "Lost" on ABC's Web site, for instance, Taco Bell offered a virtual photo shoot with Sports Illustrated swimsuit model Daniella Sarahyba.

As viewers watch video of Sarahyba on location, they use the mouse to move around and snap up to 100 shots. Afterward, viewers can download the photos (with a Taco Bell logo in the corner), choose another locale or resume the show without missing a second.

"It becomes a lean-in experience rather than just a lean-back," said Shawn Chapman, senior manager for brand communications at Yum Brands Inc.'s Taco Bell chain. "I think consumers give us credit for doing things a little bit differently."

Meanwhile, Google's YouTube and Time Warner Inc.'s AOL have introduced "overlay" ads at the bottom of selected video clips. Clicking on an overlay pauses the video and launches the full pitch, such as a preroll or movie trailer. The overlays disappear after several seconds if the viewer does nothing.

Yahoo Inc. plans a similar offering later this year. In February, it also began offering HBO, Pepto-Bismol and other brands three-second teasers that users have to click to watch the entire preroll ad. Otherwise, visitors go straight to the video.

Microsoft has been exploring overlays as well as ways to insert ads at the right time -- for example, finding the 10 seconds in a video where an advertiser's logo in a corner would interfere least with the action in the clip.

"The preroll is really a first-generation ad format," said Fred McIntyre, AOL's senior vice president for video. "The new formats over time are going to end up being more popular. On balance, it's not where the market is today."

Industry experts say alternative formats could work best with shorter clips, the ones popular on YouTube. After all, who wants to watch a 30-second ad just for a 15-second clip?

Advertisers, though, will have to figure out how to get people to click. They'd have just a few seconds instead of their usual 30-second palette to make a message engaging.

Rebecca Paoletti, director of Yahoo's video strategy, said Web sites must embrace prerolls for now because of the disparity between television and Internet spending.

Even if the Internet manages to lure some of those television dollars away, Paoletti said she doubts advertisers will ever abandon TV completely, meaning sites must continue to offer similar formats.

Taco Bell agrees. Debbie Myers, the company's vice president for media services, said online-only ads like the virtual photo shoot can be expensive to produce. She also said there is value in giving consumers a unified experience -- the same ad -- "no matter what screen they are on, whether it's the television, cell phone or computer."

Some preroll advocates believe the key to making prerolls work is good targeting, something sites large and small are exploring.

John Lumpkin, a vice president at Heavy Inc., said his video site has been successful at running ads for movies, video games and other entertainment of interest to its audience of younger men. The site, unlike many others, even lets viewers fast-forward commercials -- the advertiser still gets charged -- but Lumpkin said few viewers bother.

It ultimately comes down to viewer control and engagement through interactivity.

"We are very much at the formative stage," said Marcien Jenckes, chief executive of video distributor Voxant Inc. "At this point, a lot of online video advertising is unsophisticated. To make sure that the television dollars turn into Internet dollars and not pennies, we need to take advantage of our medium."