Solving Digital Video Advertising s Premium Dilemma

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1 A Forrester Consulting Thought Leadership Paper Commissioned By Teads June 2015 Solving Digital Video Advertising s Premium Dilemma

2 Table Of Contents Executive Summary... 1 Digital Video Advertising Is Primed For Growth... 2 Buyers Need More From Video Inventory... 3 Ensure The Future Of Video Ads By Addressing The Quality Supply Problem... 6 Key Recommendations... 8 Appendix A: Methodology... 9 ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. 2015, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to [1-S2OUSZ]

3 1 Executive Summary Digital video advertising represents a golden opportunity for advertisers, agencies, and media companies alike but the opportunity depends on resolving a few key challenges facing the market today. Ultimately, both buy- and sell-side firms have a role to play in determining the future success of this important advertising format. In January 2015, Teads commissioned Forrester Consulting to evaluate how advertisers, agencies, and publishers are adapting to new trends in video advertising. Then to further explore this trend, Forrester developed a hypothesis that tested the assertion that advertisers, agencies, and media companies are seeking alternative approaches to traditional digital video advertising because of the challenges associated with limited video inventory. In conducting a survey with 529 decision-makers representing advertisers, agencies, and media companies in Argentina, France, Germany, Italy, Mexico, Spain, the UK and the US, as well as six qualitative interviews, Forrester found that both buy- and sell-side companies are bullish on digital video advertising s future; however, challenges hold advertisers and media companies back from fully pursuing digital video advertising solutions. These challenges include defining premium video inventory, dealing with the availability and lack of premium inventory, and assuring digital video advertising performance. KEY FINDINGS Video is still a work in progress to fulfill its promise. Beyond simply wanting more premium inventory, advertisers and agencies want better targeting and measurement of their video ads impact. Media companies, on the other hand, struggle with the costs of video content and the ability of their sales force to sell it effectively. Advertisers, agencies, and media companies must build an accountable, transparent video ad market. As an emerging ad format, online video lacks the foundation of agreed-upon standards and practices other media enjoy. For their part, media companies that can deliver high-quality real estate, backed by assurances on performance, will be poised to deliver truly premium video ad inventory that will provide the confidence buyers are seeking. Buyers who then expand their definition beyond known and trusted media brands and embrace media companies that offer transparent and accountable measurement will benefit from more effective campaigns. Outstream advertising offers one solution to these challenges. While video content is a natural place for video ads, both the buy and sell side noted that video ads that appear within editorial content offer advantages. Media companies told us that outstream ads enable them to offer more premium video inventory and drive solid return on investment. Buy-side firms told us that outstream helps alleviate concerns around viewability, enables them to buy programmatically, and delivers a positive end-user experience. Forrester s study yielded five key findings: All market participants expect digital video spend to increase in the next two years. Video ads represent an opportunity for advertisers to reach customers with rich, engaging messages about their brands and products. For agencies, it represents higher fees and the opportunity to work on exciting ad content, and for media companies, it represents a significant revenue opportunity. Lack of premium inventory and disagreements about the definition of premium hold back video s growth. To avoid the worst of fraud and poor viewability, advertisers and agencies default to premium inventory. This drastically reduces the ad opportunities available and muddies the market with differing criteria for what qualifies as premium.

4 2 Digital Video Advertising Is Primed For Growth Digital video advertising is a dream format for everyone involved. For advertisers, it represents the opportunity to reach customers and prospects with rich, engaging content across screens. For media companies, video delivers higher cost per thousands (CPMs), and for agencies, it provides an opportunity to earn more on fees and work on more exciting content. Coupled with consumers increasing reliance on digital video overall, these enticements help explain why so many advertisers and agencies expect the digital video ad market to grow in the next two years (see Figure 1). This growth is dependent on a number of factors, including greater availability of premium video inventory (which 46% of agencies we surveyed indicated as a driver of online video ads growth the top option chosen), improving standards around targeting and ad viewability, and, especially for advertisers, evolving consumer trends toward time spent consuming online video content (61% of advertisers cited this as a crucial driver of online video spend in our study). they will either moderately or significantly increase their volume of video ad inventory in the same two-year timeframe. Media companies are driven by the lure of higher CPMs on video inventory, with 44% citing it as the main benefit of the format, but 29% of media companies also see video as a chance to deliver more engaging content to their audiences (see Figure 2). Both buy-side and sell-side firms are bullish on the future of online video; however, there are also challenges that must be identified and overcome it s critical that the market doesn t let drivers become inhibitors. I think [the amount of video inventory] will keep increasing because consumers like to consume video for either entertainment or information, and [video] is probably the easiest or the best way to do that. So I think there's in general a consumer demand for it, and on the other hand, it is the most impactful way to bring messages across. President at a global advertising agency Media companies have sensed that online video represents a major opportunity for them as well, with 73% predicting FIGURE 1 Video Ad Budgets Expected To Increase In Two Years How do you think your clients spend on digital video advertising will change in the next two years? Agencies How do you think your spend on digital video advertising will change in the next two years? Advertisers Significantly increase 31% Significantly increase 25% Moderately increase 39% Moderately increase 52% Stay the same 12% Stay the same 15% Moderately decrease 8% Moderately decrease 7% Significantly decrease 10% Significantly decrease 1% 70% of agencies and 77% of advertisers expect video budgets to increase in the next two years. Base: 108 agencies and 285 advertisers in Argentina, France, Germany, Italy, Mexico, Spain, the UK, and the US behalf of Teads, May 2015

5 3 FIGURE 2 Media Companies Are Driven By Video s Unique Enticements What is the main benefit of video advertising for your organization? Opportunity for higher CPMs Opportunity to provide more engaging advertising content to our audience Opportunity to draw budget from traditionally nondigital ad budgets Earning revenue off audiences that brands may not reach via TV Base: 136 publishers/media companies in Argentina, France, Germany, Italy, Mexico, Spain, the UK, and the US behalf of Teads, April % 19% 29% Buyers in North America (85% of advertisers and 79% of agencies) were most likely to expect increases in spend for online video, whereas media companies in the EU (80%) were most likely to predict an increase in video inventory over the next two years. 44% Buyers Need More From Video Inventory Buy-side participants are largely in agreement on the factors that threaten their spend in online video and interestingly, many of these threats are the mirror image of those that buy-side firms identify as crucial drivers (see Figure 3). Buyside firms worry that lacking standards around targeting, measurement, implementation, and best practices will hurt the market in the future, along with pressures on the availability of premium video inventory. For media companies that offer online video today, the challenges facing digital video s future are mainly focused on delivering inventory in a way that makes sense for them (see Figure 4). For one, media companies must balance the value of video s CPMs against the costs associated with becoming a video content producer, which can be prohibitive. FIGURE 3 Agencies And Clients Are In Step On Threats To Video Ad Spend Growth Which of the following factors do you think will inhibit adoption or spend in digital video? Agencies Advertisers [Video ads] show us how to be innovative, how to beat our competitors. It lets us do something different and be ahead of the times. Advertising manager at a European media company Lack of verification that the ads were delivered to the intended audience Lack of established standards around measurement Lack of established standards around implementation best practices Lack of premium video inventory 27% 43% 36% 33% 50% 46% 42% 40% Lack of established standards around ad viewability 37% 35% Base: 108 agencies and 285 advertisers in Argentina, France, Germany, Italy, Mexico, Spain, the UK, and the US behalf of Teads, May 2015

6 4 FIGURE 4 Media Companies Struggle With Costs, Focus, Lack Of Inventory You mentioned your company currently offers video advertising. Which of the following challenges have you experienced with selling video ads today? The ROI is not as high as we would like due to costs of producing video content to host the ads Video is too small a part of our overall revenues to dedicate sales or traffic manager resources to it We don t have enough video inventory Our sales force lacks familiarity with CPV models Base: 103 publishing/media companies in Argentina, France, Germany, Italy, Mexico, Spain, the UK, and the US behalf of Teads, May % 37% 34% 44% Another issue is a lack of agreement around what exactly constitutes premium video inventory. The quality of the media brand and content is an important consideration for all, but media companies ranked viewability more highly on their list of considerations than their buy-side counterparts, and they also focus more heavily on the end user experience. Agencies and advertisers both ranked the quality of data supplied for targeting as their third most important consideration, while media companies ranked targeting as only their sixth most important consideration (see Figure 5). How do we define premium? This is not easy to answer. Realistically, everyone has their own methodology. CEO of a global advertising agency In addition to dealing with the costs of producing video content, over one-third of media companies have also struggled with getting their sales force up to speed on how to sell video ads, as lack of familiarity with cost-per-view (CPV) models has emerged as a challenge. For media companies that are digital native or have video as part of their existing content, lack of video inventory was the key challenge (47%). Non-native video media companies were most concerned that ROI (balancing costs and returns) of video content would not make sense for their business (45%).

7 5 FIGURE 5 Buy-Side, Sell-Side Firms Define Premium Video Inventory Differently Of the following, whichthree do you take into consideration when determining if video ad inventory is premium? Advertisers Rank 1: editorial content (44%) Rank 2: media brand (37%) Rank 3: Quality of data supplied for targeting (36%) Rank 4: Viewability of the ad (35%) Agencies Rank 1: media brand (39%) Rank 2: editorial content (38%) Rank 3: Quality of data supplied for targeting (38%) Rank 4: Placement of the ad (35%) Media Cos. Rank 1: editorial content (63%) Rank 2: Viewability of the ad (58%) Rank 3: media brand (57%) Rank 4: Ad end user experience (46%) Base: 529 publishing/media companies, agencies, and advertisers in Argentina, France, Germany, Italy, Mexico, Spain, the UK, and the US behalf of Teads, May 2015 When buy-side firms run up against these challenges with executing video ad buys, they report a host of negative outcomes, including foregoing open programmatic buys for direct buying or private marketplaces and abandoning digital video ad buys altogether (see Figure 6). Agencies FIGURE 6 Unaddressed Challenges Cause Buyers To Opt Out What impact have these challenges had on your/your clients approach to video advertising? 57% 52% 38% Only bought video selectively through manual buying or private marketplaces Decided to repurpose existing video assets rather than produce specific online content Decided not to pursue digital video campaigns 55% 41% 35% Advertisers The pattern is similar for media companies as well. Over half stated they had favored custom executions over programmatic approaches to selling video content or had held back pursuing video ads as heavily as they otherwise would. These behaviors result in lost opportunities that affect everyone lost opportunities for advertisers to reach their customers or prospects with rich, engaging content; lost opportunities for agencies to earn on commissions and work on engaging material; and lost opportunities for media companies to earn revenue off of more valuable video inventory. 31% Sought out other opportunities or formats for digital video content 34% Base: 103 advertising agencies companies and 281 advertisers in Argentina, France, Germany, Italy, Mexico, Spain, the UK, and the US behalf of Teads, May 2015

8 6 Ensure The Future Of Video Ads By Addressing The Quality Supply Problem To help drive the digital video opportunity, many buy- and sell-side firms are opening themselves to additional sources of premium video inventory, including outstream advertising, which places video ads in the heart of written editorial content, rather than depending on native video content to host the ad (see Figure 7). FIGURE 7 Buy- And Sell-Side Firms Seek To Diversify Their Video Ad Mix In the future, how important will the following video ads be to your clients overall advertising portfolio? (Showing more/much more important than today ) Outstream ads Instream video ads Banner video ads 77% 70% 69% 60% 60% 72% 59% 65% 54% Agencies Advertisers Publishing/ media Base: 529 publishing/media companies, agencies, and advertisers in Argentina, France, Germany, Italy, Mexico, Spain, the UK, and the US behalf of Teads, May 2015 Eighty-five percent of agencies and 82% of advertisers in North America believe outstream advertising will be a more important part of their media mix in the future. Media companies in Latin America (81%) are most likely to see outstream becoming more important, followed by 67% of media companies in the EU and 63% of media companies in the US. Buy-side firms that have adopted outstream advertising reported that it helps address some of their concerns around online video 70% of advertisers said it opened up more inventory and allowed them to buy video programmatically, 69% reported it helped them with determining viewability, and 65% felt it drove a positive end user experience, thereby avoiding potential backlash from consumers as their brands are associated with an annoying video ad experience. Media companies reported that outstream has indeed relieved pressures on producing video inventory for their buyers. Among media companies that have offered outstream video, over 60% stated it has enabled them to offer premium video inventory and has opened them up to selling programmatically. Additionally, more than half stated it provides better return on investment (ROI) compared with other ad formats, which is partially explained by the lowering costs of native video production (see Figure 8). FIGURE 8 Outstream Advertising Has Made It Easier For Media Companies To Offer Video Inventory How strongly would you agree or disagree with the following statements about the outstream video you offer your clients? (Showing agree or strongly agree ) More inventory means we are able to execute video sales programmatically It lets us offer additional premium inventory for video ad content It provides a better (less obtrusive) end user experience than other digital video advertising It delivers better ROI than other ad formats Base: 86 publishing/media companies in Argentina, France, Germany, Italy, Mexico, Spain, the UK, and the US behalf of Teads, May % 59% Ultimately, advertisers and agencies want more assurances they re actually reaching their audiences, and they want better standards on viewability and measurement so they know their valuable video dollars are paying off. While some of the solution here rests with media companies devoting themselves to transparency, the industry as a whole is seeking stronger, more clearly worded standards a responsibility ultimately shared by companies representing both the buy and sell side of the video ad market. For their part, media companies told us they were looking for lower-risk opportunities to get off the sidelines or go 67% 66%

9 7 deeper into the video advertising opportunity. As they do so, they need to bear in mind that video is a costly proposition for their buy-side clients as well. Therefore, they must devote themselves to effective means for targeting, as well as transparency in viewability and performance to instill confidence in their buyers that their investment has found a safe home. Premium does not have to be costly, but it must provide a guarantee of transparency and how to manage what clients want (through transparency). CEO at a global advertising agency

10 8 Key Recommendations The video advertising market can and should be a boon to advertisers, agencies, and media companies as it evolves and matures. That said, there remains significant room for improvement to ensure this opportunity makes sense for everyone involved. Buy- and sell-side firms can contribute to the success of online video ads by: Buy-side: Demanding clarity on the tough questions. It is incumbent on buy-side firms to demand accountability for their digital video advertising buys. Prioritizing buys that help address questions around effective targeting, setting high standards for viewability, requiring accountability on performance, and bearing in mind the experience of your customer will show that solutions that can address these questions will be valued more highly and influence your sell-side partners to focus on delivering to your needs. Sell-side: Understanding that you can be a video ad provider without necessarily being a video content producer. Using video ad formats that don t depend on living within existing video assets are a way to expand (or create) a media property s available video inventory with lower cost and risk than having to create ample video assets to meet advertiser demand. Realize, however, that buyers expectations for accountability are rising, and choose solutions that provide accountability and a positive end user experience. Sell-side: Finding technology partners that can help you get off the sidelines. Media companies have been held back from pursuing video advertising (either at all or as heavily as they may like), due to the hurdles of cost, time, and employee skills that are in front of them. Look to technology partners to help cut these hurdles down to size through powerful capabilities but also a robust service layer to support your first steps. Everyone: Understanding that premium ad real estate is about more than just the neighborhood. It s only natural to consider the reputation and quality of the media brand as an important aspect of defining premium inventory, which is agencies first consideration in driving the future growth of online video. However, both buyand sell-side players should embed performance and end user considerations into their equations for defining which inventory to classify as premium.

11 9 Appendix A: Methodology In this study, Forrester or conducted an online survey of 529 advertisers, agencies and media companies Argentina, France, Germany, Italy, Mexico, Spain, UK, and the US. It then supplemented the survey findings with 6 qualitative interviews. The study evaluated the current state, benefits of, and challenges and solutions to online video advertising. Survey participants included decision-makers involved in video buying or selling at their respective companies. Questions provided to the participants asked about their current video advertising buying or selling practices. Respondents were offered a small incentive as a thank you for time spent on the survey. The study began in January 2015 and was completed in May 2015.

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