LiveRail (our profile) has just released a 'State Of The Industry Report' for Q3 2008. It reports that video ad spending currently only represents 2.36% of all online advertising, but that it is expected to grow over 55% next year. Right now only 20.95% of internet video streams are being monetized. LiveRail also noted that NBC's online Olympics coverage failed to monetize well, however Hulu.com is doing good business.Online video ad network
Indeed LiveRail states that Hulu will be a more successful business than YouTube, because of its ability to sell advertising across 100% of its inventory - compared to just 3% for YouTube.
In July we reported that Hulu is set to earn $90m in its first year. After paying off their content partners, Hulu's net revenue will probably be between $12.5 million and $25 million. This seems like a success, surely, but we had some doubts. "As Hulu grows in popularity," we wrote, "their bandwidth, marketing costs, and overhead will increase as well, and it will remain a struggle for the company to earn revenue."
YouTube launched Adsense for videos back in August. YouTube's estimated worldwide revenue for 2008 is $200 million, with approximately half of that being US based. So according to LiveRail, "given that Hulu caters almost exclusively to a US audience, both YouTube and Hulu could see roughly the same revenues in the U.S. this year."
example of YouTube ad
LiveRail claims that "despite still being substantially smaller than YouTube, with 88 million videos served compared to YouTube's 4.2 billion", Hulu is more successful because it has the ability to sell out its inventory.
LiveRail suggests that this is due to Hulu's less 'risky' content. Hulu's "policy of only serving high-quality original content, and securing licensing deals from content owners, rather than allowing users to upload the content themselves [...] has removed the risk of copyright infringing content, or content of questionable quality; risk factors that most advertisers are anxious to avoid being associated with."
The one caveat appears to be Hulu's ability to sell out all its ads. We're also not entirely convinced about the argument that YouTube's UGC (user generated content) is inherently less able to monetize. As Google proved with Adsense for webpages, UGC content is able to be monetized on bulk despite its 'risks'. The same could yet prove true for user generated video content.
There is more interesting data in the report, which ReadWriteWeb readers can download here (pdf) thanks to LiveRail.