JP Morgan Analyst Explains Bearish Outlook for Online Video Ads

It's not surprising that during a downturn, the clear metrics and ROI offered by performance based ads are looking more attractive. But in his wide-ranging '09 outlook, JP Morgan analyst Imran Khans expects marketers to treasure performance-based ads even when the larger economy begins to grow again.  The report, Nothing But Net: Outlook for Global Internet Stocks in 2009 (PDF), predicts that the mostly performance-based U.S. search ad market will rise 10 percent in 2009 to nearly $16 billion.

Bearish online video: Khan expects the accelerated shift to performance ads having a dampening effect on the growth of online video ads. Even in a series of downward revisions, online video ad growth still seemed poised for healthy gains this year. For example, at the end of November, eMarketer forecast online video growth of 44.9 percent, which was still nearly half of the 81 percent growth rate the researcher predicted for 2008. Khan believes that online video is headed for a considerable slowdown because one, it's still reliant on the CPM model, as opposed to performance-based measurements like cost-per-click or cost-per-action based display.

And unlike television, which still can count on advertisers to respond to CPMs, online video can't guarantee viewership for any specific video the way TV does in the upfront model. Plus, considering the unpredictability of popular videos, they uneven quality and the continued battles over copyright, JP Morgan doesn't expect online video to have great prospects for the next few years. However, Khan is intrigued by Google's experiments with an e-commerce platform—i.e, performance-based model—for YouTube videos. For example, if a user watches a a song featured in a music video, they can click on a link that lets them buy music directly Amazon and iTunes, with YouTube getting a cut of the revenue.

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