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CPM video advertising is a risky proposition

By December 4, 2006No Comments2 min read

So on my drive home from the office today, I saw someone with a TV in their car and realized that standard CPM advertising is a risky proposition for the online video space.  How I put those two together I do not know, but here is my theory: video costs proportionately more to distribute and produce the longer it is. But if advertising rates are based solely on costs per view, you could be yielding a significantly less profitable product the longer your content is. This is especially true for user generated content.Now you might be thinking, well thats freakin obvious, why are you the only one talking about this Brian? Well that I do not know, but look at it this way: online video monetization has to be built with this in mind. If you’re going to run the same length ads on every type and size of video you’ve got, you could be slicing your profits to razor thin levels.  So here are my tips for monetizing and pricing your online video advertising, along with my suggestion for a new model.Take your max allowed video size (lets say 5 minutes -> 100MB file size), and determine your ad CPM rate on that. If your video is only 2.5 minutes, then even better, you’ve saved yourself 50MB of storage, and your video serving is now more profitable. But wait, that still doesn’t make it ultimately fair to the advertiser right? So now we have to factor in cost per duration or cost per second factors into the advertiser’s media. Once we get those costs factored in, we should have a better idea of what to charge advertisers, and still remain profitable.So here is my proposed formula:(Max cost of hosting file (H) + cost of delivery of file(B) / length (t))*1.X (M) x being your profit levels you need to make ((H+B)/T)*M = Profitable ad supported video delivery.  I’ll go more into details on this later, so check back later for the followup.