Despite its many critics, television advertising is a $100bn-plus a year market. So it's not entirely surprising that the market for online video ads has evolved to look a lot like its offline counterpart.
There's the desire, now being realized, for digital up-fronts. There is a growing focus on channels. There are Hollywood-like deal structures. And, of course, the pre-roll is the dominant ad unit.
But television ads differ from their digital cousins in one key respect: the former are increasing in price while the latter are decreasing in price.
According to online video marketing firm TubeMogul, the average CPM for pre-roll ads purchased through its RTB dropped to $8.18 in the second half of 2012, down modestly from $8.83 in the first half of the year.
Inventory glut trumps effectiveness
Why the drop in CPM? Blame it on a glut of inventory: TubeMogul says more than 331m pre-roll ads were available each day in October and all told, inventory has grown 7.3% per month this year. So even though "ads are performing well", with pre-roll ads delivering not insignificant brand lift and purchase intent, particularly in the electronics and computer brands space, the law of supply and demand appears to be firmly in control and marketers clearly aren't prepared to bid up CPMs when they don't need to.
Which raises the question: are online video pre-roll ads going the way of the display ad?
Years ago, media kits hawking display ads at double-digit CPMs were the rule, and although many top-tier publishers retain those kinds of rates as list prices, display ads for properties large and small are largely sold like pork bellies despite publishers' best efforts to position their inventory as 'premium.'
While pre-roll video ads may prove to be more effective than display ads, it's clear that, unlike in the television market, there's room for inventory to grow, so it will continue to grow, making it harder and harder for publishers to command significantly higher prices for their pre-roll inventory. Some of the most prominent publishers, of course, may have the ability to limit the downward pressures on their pricing, but publishers generally would be wise to consider that a sinking tide eventually sinks all ships.