NEW YORK (Reuters) - Any conversation about hot spots in advertising inevitably swings toward online video, with marketers anxious to reach a huge audience watching their favorite TV show or homemade videos on the Web.
Why, then, did U.S. marketers spend just $471 million on online video advertising last year, according to Forrester, representing only 2.6 percent of all interactive marketing?
Executives attending the Reuters Global Technology, Media and Telecoms Summit this week cite inexperienced creative and sales staff and fear of the unknown among the roadblocks for online video advertising.
They widely agreed, however, that it was only a matter of time before it takes off.
“You have some terrible ads which we could be ashamed of and you have some great ads,” Publicis (PUBP.PA) Chairman and Chief Executive Maurice Levy said.
“What you will see with online advertising and video advertising is what you have seen with print and TV advertising, which is a progressive improvement,” he added.
In an industry conditioned to lure consumers with 30-second and 60-second television spots, creating effective Internet spots has been difficult.
“Things can only grow as fast as TV advertisers will make them grow — and honestly these are guys who want to move very cautiously because they have historically held all the cards in the ad world,” Forrester analyst James McQuivey said.
Selling video ads is another big issue.
“I don’t think publishers are really clear on how to sell it yet or what formats work best for consumers and a lot of the ad serving technology, tracking and campaign management technology is still pretty immature,” said Saul Klein, partner at Europe’s top Internet venture capital firm, Index Ventures.
“Even the bigger players in the market, Google (GOOG.O) with DoubleClick, etcetera, don’t really have a robust answer on how video is going to work,” he added.
Still, Forrester expects online video advertising spending to roughly double this year to $989 million, then roughly double again to $1.86 billion in 2009. It puts the compound annual growth rate at 72 percent from 2007-2012, far exceeding any other type of interactive marketing growth.
“In terms of the growth rates, the online advertising in terms of video I think has more than tripled in the last 24 months,” said Jason Kilar, chief executive of Hulu, a video website owned by Rupert Murdoch’s News Corp NWSa.N and General Electric Co’s (GE.N) NBC Universal.
“You’re working off of a small base, but if you can keep rates anywhere near that for a number of years, you’re looking at a big industry, and certainly the projections suggest that,” he said.
Whether more money will go toward ads with full-length TV shows like “Saturday Night Live,” professionally created clips or user-submitted video, which to date has generated the lion’s share of viewing on video sites, remains up for debate.
For now, 70 percent to 80 percent of ad activity has centralized around traditional TV shorts on the Web, although that only accounts for 10 percent of viewing, Fred McIntyre, senior vice president at AOL Video, said in an interview.
“Advertisers will tell you that there’s not enough usage happening there, and if we just get more people to watch TV on the Internet, it’ll work,” McIntyre said.
But bigger growth could come from the middle tier of video types — professionally produced clips tailored for Web viewing. McIntyre said the format does a better job of attracting higher usage and engagement with viewers than TV shows ported to the Internet.
WPP Group Plc (WPP.L) Chief Executive Martin Sorrell predicted advertising for all three would take hold along the same timeline.
He dismissed those who say video advertising may simply not be suited for the Internet, calling them “moaning minnies.” He said advertisers must be willing to experiment because it was too risky to bet against it being a success.
“It may be the Beatles, it may not be the Beatles,” he said. “But we have to invest in some of these areas to understand what’s going on.”
(For summit blog: summitnotebook.reuters.com/)
Additional reporting by Kate Holton in London and Nicola Leske in Paris; Editing by Braden Reddall