Advertising in

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Advertising in Distributed Content Markets
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Topics

• Online advertising and video growing dramatically
• Big Flies in the Ointment
• Advertising Models in P2P
• Where has all the content gone?

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I. The future of online advertising

• Advertising will grow at 4.8 CAGR, outpacing GDP
  growth of 3.5
• Internet will grow at 20
• Web eclipses radio in 2008, according to
  eMarketer
• Internet will eclipse newspapers in US by 2011
  according to Veronis Schuler
• Search and video advertising will propel internet
  ad growth

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US Video Advertising Expect Huge Growth

• Video advertising to grow to 4.3 billion from
  todays 775 million.
• Will become 11 of internet advertising from 2
  today
• Taken together video and search will fuel
  advertising growth
• Video includes all forms, including embedded ads
  in video content

• Compound Growth
• Advertising 5
• Internet 20
• Video Ads 56

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Summary Search Video Drive Net Ad Growth
Sept. 2007 (Nielsen)
41
111
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Inclination to Experiment in New Media
Ad Budget Targeted to New Media
Source eMarketer, AAF, February 2007
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Video Ad Click Thru Rates 5x of banners
DoubleClick March 2007
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II. Big Flies in the Ointment

• Measurement
• Panels vs. Server Logs
• Style.com - server 1.8 m, panels 400k-500k
  (Comscore, Media Metrics)
• Forbes.com server 11.6 m, panels 5.8m-7.5m
• Served ? arrived
• IAB No More Panels!
• Web 2.0 makes this worse since page views arent
  refreshed
• Data being returned from these new ad formats is
  not uniform
• Makes return on spending calculations difficult
  for media buyers

• Formats
• Differing formats and behaviors make it difficult
  for advertisers to deal with new forms of
  advertising
• ABC.com, NBC.com, etc. have different formats
• Causes advertisers to reproduce ads for each
  service, reducing ROI
• Services should agree on formats and behaviors
• STARTUPS Dont Invent New FORMATS!
• Still leaves the data uniformity problem

Lack of standards increases buying
settlement friction, thereby reducing market
liquidity
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III. Advertising Models in P2P

• Its a two-sided market
• Ad supported P2P services must understand they
  are a two-sided market
• Two-sided markets are not well understood (not
  conventional supply and demand)
• There is always a platform in the middle that
  must ad value (buying, settlement etc.)
• The inducements the service provides to consumers
  and advertisers must incentivize the right
  behavior

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Ad-Supported vs. Pay
(FTI believes ad-supported models will perform
better than this)

• Predictions for online video are that paid will
  slightly exceed free, ad supported models.
• Consumers dislike ads, but in general dislike
  paying more.
• Free ad-supported models allow experimentation in
  deep catalog.

eMarketer Internet video audience will grow 45.8
percent from 107.7 million in 2006 to 157 million
by 2010.
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Four ad-supported models in digital content

• Viral links initiate streaming with ads (YouTube,
  widgets)
• Closed P2P with ads (Joost, BBC)
• In-stream ads or
• Client-side caching
• Open P2P Teasers not full content (Media
  Defender, Intent)
• Open P2P Advertainment (Comedy Time)

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P2P Advertising Pros Cons

• Pros
• Potential to reach the greatest audience
• Delivers long-form content cheaply making
  ad-supported content possible
• Client enables reliable ad measurement
• Cons
• Still largely misunderstood by content owners and
  advertisers
• Unlike streaming, requires DRM
• Requires a client

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Where Has All The Content Gone?

• Legal P2P networks are plagued with obstacles to
  good content
• Suspicions about P2P
• Exclusive rights windows and ownership confusion
  over digital rights
• Networks who want to stream it themselves or take
  most of the ad revenue (Joost gets 10)
• DRM virtually excludes Macs in most cases 18-24
  population is 50 Mac
• Content owners focused on pay models in the case
  of downloads NBC is the exception

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However, Ad Models Beat Some TV Models
Compares Favorably With Studios Barter Cable
Model
Closed P2P
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Summary

• Video advertising will grow enormously
• P2P most cost effective delivery method for
  advertising models
• General problems of ad measurement and format
  standardization hinder adoption
• Content rights also hinder adoption, but economic
  incentives will overcome these
• Ad-supported P2P could dominate
• Will find its way to TV displays in two years

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