A Forrester Consulting Thought Leadership Paper Commissioned By SpotXchange

Online Video RTB Primed For Dramatic Growth

Online Video RTB Rapidly Expands As It Attracts Premium Brands And Premium Publishers March 2012

Forrester Consulting

Online Video RTB Primed For Dramatic Growth

Table Of Contents
Executive Summary .....................................................................................................................................................................................................2 Online Video Has Become A Critical Channel For Advertisers And Publishers ...........................................................................2 RTB Is Emerging As A Major Component Of The Online Video Market ...........................................................................................3 RTB Is Enabling Two Distinct Online Video Buying Models ..................................................................................................................5 Multiple Factors Still Stand In The Way Of Future Growth ....................................................................................................................6 Key Recommendations ..............................................................................................................................................................................................7 Appendix A: Methodology ........................................................................................................................................................................................8 Appendix B: Supplemental Material ...................................................................................................................................................................8

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Online Video RTB Primed For Dramatic Growth

Executive Summary
Online video advertising is on the rise, and real-time bidding (RTB) is set to become a significant component of this market, accounting for 15.6% of US online video spending in 2012 and growing to over 20% of spending in 2013. In March 2012, SpotXchange commissioned Forrester Consulting to evaluate the online video RTB market. In conducting interviews with online video buyers, sellers, and technology providers, Forrester found that online video RTB has emerged into a substantial component of online video buys, both via bid-based buying and via private exchange driven direct deals.
Online video RTB spending will account for over 15% of all online video spending in 2012

Key Findings
Forresters study yielded three key findings:
US online video RTB spending will reach $387 million 2012. With real-time bidding (RTB)-enabled

impression volume increasing and demand rising even more quickly, RTB online video spending will account for over 15% of all online video spending in 2012 and grow to $667 million in 2013.
Online video RTB is making the future of digital media buying a reality today. Forrester believes that digital

media buying models are shifting from the opaque, manual process of traditional media buying to a more dynamic process where data-driven decision making and automated processes help buyers and sellers avoid redundant manual tasks and focus on delivering value. We find that this model is already a reality for some online video buyers and sellers who are using innovative tactics like impression-level decisioning and automated optimization to get more efficiency and effectiveness out of online video buys.
Display RTB experience has laid the foundation for video, but more is required for future growth. Buyers

experienced with RTB in display advertising have been among the earliest adopters of RTB in video. Familiarity with technology and audience-based buying has decreased barriers to entry, allowing online video RTB to grow even more quickly than display RTB in 2012. Nonetheless, for online video to reach its full potential, the industry must reach out and communicate clear value propositions to buyers (such as TV buyers) unfamiliar with RTB technology and solve for some of the measurement, platform, and supply challenges facing todays market.

Online Video Has Become A Critical Channel For Advertisers And Publishers
Even amidst greater economic uncertainty, the online video advertising market continues to grow at strong rates. Two key factors are driving macro-level growth for the online video ad market:
Consumers continue to gravitate toward online video content. 77% of US online adults watch online video

at least monthly and online video has expanded from its origins in short-form, user-generated content to a major channel for long-form professional content. Moreover, this viewing behavior is quickly expanding

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Online Video RTB Primed For Dramatic Growth

from just the PC screen to mobile, tablet, and IP TV devices, opening up an entirely new set of opportunities for advertisers and publishers.
Advertisers are gravitating to the creative format. The US online video market is set to grow to $2.5 billion

in 2012 with RTB emerging as an important component. This growth stems largely from brand advertisers historically underinvested online flocking to a familiar, TV-style creative format. While most of this investment comes from digital buyers, TV and print buyers are also beginning to see online video as a strong media buying opportunity.

RTB Is Emerging As A Major Component Of The Online Video Market

Advertisers continue to flock to RTB, attracted by levels of transparency and control that deliver both greater efficiency and effectiveness. With digital, print, TV, and agency trading desk buyers all looking to take advantage of online video, online video RTB spending will grow from $190 million in 2011 to $387 million in 2012 (see Figure 1). While online display still accounts for the bulk of RTB spending, RTB-based buying is emerging as a substantial piece of the online video market, growing to 15.6% of online video spending by 2012 (see Figure 2). Three key factors account for the rapid growth of the RTB online video market:
Display RTB experiences have laid the groundwork for video growth. In the online display market, RTB

existed as a mere concept for years before it became a reality. On the contrary, online video RTB has shifted quickly from the conceptual to the actual. Most importantly, buyer and seller experiences with display RTB have paved the way for both parties to more quickly enter the online video RTB market. As one buyer told us, While there are important technological and tactical differences between display and video, our experience with display RTB has made us excited to use RTB capabilities in the growing online video market. In fact, agency trading desks tell us that buyers who have worked with RTB for display buys are more likely to embrace RTB when planning online video campaigns due to the transparency, targeting, and control that comes through RTB.
Audience buying is a natural fit for video. From digital to TV buyers, video has always been an essentially

audience-driven buying process. Buyers tell us that they love the granular, impression-by-impression targeting available via RTB and expect video and targeting-friendly verticals like auto and political advertisers to aggressively push more money into RTB video in 2012. In the words of one RTB video buyer, RTB allows us to be smarter about our buys. We can optimize to the right audience and do creative things like message sequencing that are difficult to do via traditional insertion orders.
CPMs are on the rise. Increased volume isnt the only factor pushing online video RTB forward CPMs are

also on the rise. In contrast to the display RTB market, which grew on the backs of direct response marketers looking for inexpensive but effective inventory, a brand-oriented buyer base and less fragmentation means demand for the highest quality inventory is well outstripping supply. This will result in average CPMs climbing from over $7 in 2011 to north $9 by the end of 2012 and premium publishers can expect significantly higher CPMs. As one agency executive said, The demand from buyers is very high.

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Online Video RTB Primed For Dramatic Growth

If a publisher is willing to provide inventory via RTB, its highly likely that we can find an advertiser willing to buy it. Figure 1 Online Video RTB Spend Will More Than Double in 2012

$700
$600

$667

$500
$400

$387

$300
$200 $100 $190

$0 2011 2012 2013

US online video RTB spending (in millions)

Figure 2 RTB Will Account For Nearly 22% of US Online Video Spending in 2013

100% 90% 80% % of online video spending % of online video impressions

70%
60% 50% 40% 30% 20.6% 15.7% 9.5% 15.6%

21.8%

25.4%

20% 10%
0%

2011

2012

2013

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Online Video RTB Primed For Dramatic Growth

RTB Is Enabling Two Distinct Online Video Buying Models

Although the term Real-time bidding suggests an auction-based model for buying and selling online advertising, buyers and sellers have found RTB to be a flexible platform, valuable for both: 1) pricing impressions (via an auction-based model); and 2) discovering inventory and optimizing delivery (by advertiserled evaluations of individual impressions). While RTB in the display ad market sees buyers typically using both these functions in unison, online video is evolving into a more bifurcated market with two distinct RTB usecases (see Figure 3):
Bid-based exchange buying. Much like in the display advertising market, RTB has found a home as a

mainstream pricing and delivery mechanism for mid-to long-tail inventory. Publishers like YouTube with its vast amount of in-stream inventory have been critical in creating scale for bid-based buyers. Bid-based exchange buyers come with a mix of brand and direct response goals and tend to be less concerned with their ads appearing in controversial placements like below-the-fold, auto-initiated, or syndicated video players so long as they have visibility into contextual and audience details before placing a bid. Many premium publishers remain skeptical of this model due to concerns about price cannibalization and channel conflict; however, forward-thinking publishers have found success by letting RTB demand compete with traditionally sold deals for impressions and letting price determine which ad gets delivered.
Direct deals and private exchanges. The primary use case for highly quality-sensitive brand buyers who

demand access to premium inventory, direct deals allow buyers and sellers to take advantage of the operational efficiencies of RTB, without the pricing uncertainty of a true bid-based environment. This method currently accounts for only a small amount of the total online video RTB market, but for some agency trading desks and publishers with high direct sell-through, this is the primary use case for RTB today. In this case, buyers typically at an agency trading desk will negotiate directly with publishers for the right to bid on a certain amount of inventory. For buyers, this means access to high quality inventory on a targeted, impression-by-impression basis. In return, publishers get to control pricing while tapping into new RTB budgets and filling excess inventory. Figure 3 Buyers Have Adopted Two Models For Buying Online Video Via RTB

Bid-based exchange buying

Prevalent among mid to long-tail inventory Moving into premium inventory through publishers letting RTB bids compete with traditionally-sold inventory Pricing determined dynamically via bidding Optimized based upon engagement and direct response metrics

RTB-based direct deals and private exchanges Growing among premium publishers with high sellthrough rates Pricing determined through a combination of pre-negotiated rates and dynamic bidding Optimized based upon cost of audience reach and brand survey metrics

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Online Video RTB Primed For Dramatic Growth

Multiple Factors Still Stand In The Way Of Future Growth

Online video RTB has grown at an extraordinary pace; especially considering video has nothing close to the inventory glut issues of online display. Nonetheless, multiple (highly solvable) challenges still stand in the way of RTB becoming more than a niche part of the online video market:
Limited transparency and toolset immaturity. For both buyers and sellers, transparency is a major part of

the RTB value proposition. Unfortunately, nascent video RTB tools mean that individual vendors vary dramatically in capabilities to deliver transparency Weve tested most of the platforms on the market, and it feels like we are where we were 18 months ago in display. Its hard to know what to expect out of these platforms. Buyers say that they still often dont get enough information about a video impression in order to make a bid. Most notably, buyers cite concerns with below-the-fold or auto-play video players, both of which are likely to garner lower bids from buyers. Likewise, publishers should be pushing vendors to provide more transparency into bidding trends, useful data for informing pricing and inventory availability decisions.
Lack of measurement consistency. At this point, buyers are still in experimental mode for finding the best

metrics to measure online video campaigns, and that moving towards a more common language for evaluating success will be critical for bringing more advertisers on board. For many digital buyers, this means focusing on engagement metrics like video completion rates or even rudimentary direct response metrics like click-through rates. TV-buyers, on the other hand, are gravitating towards metrics more aligned with their offline measurement methodologies. Multiple trading desks told us that they are successfully courting TV buyers by helping them analyze video RTB buys on a cost-per-GRP point model.
Inventory quality and premium publisher adoption. As a brand-oriented channel, online video relies on

high quality content from name-brand premium publishers like TV networks and news agencies. Premium publishers remain behind advertisers in their adoption of RTB especially for online video. While these publishers recognize the value of RTB in giving them access to new budgets and helping them monetize unsold inventory during peak traffic events and in syndicated environments, they cite familiar concerns about channel conflict and price cannibalization and overlook opportunities to create operational efficiencies and drive up price by letting RTB and traditional buyers compete for impressions.

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Online Video RTB Primed For Dramatic Growth

KEY RECOMMENDATIONS
With spending set to hit $387 million in 2012, online video RTB has become a significant opportunity for both advertisers and publishers. But despite its advantages in facilitating better transactions, its continued growth is not inevitable. Advertisers and publishers will have to work together to push online video RTB into a mature market that delivers performance for advertisers and yield for publishers. Both parties must start by: Making the right technology investments. Online video RTB isnt possible without the right connective pipes and trading desks, agencies, and publishers need to move beyond merely experimenting with technology partners and make investments to create greater consistency across the marketplace. This means doing the due diligence necessary to separate vendors with vaporware capabilities from those with the ability to tackle the unique technical and workflow challenges of online video. Adopting critical industry standards. Both buyers and sellers can benefit from having clearer expectations about what its like to transact via RTB this is fundamental to bringing liquidity into any marketplace. However, todays rapidly growing market has meant many parties remain mired in past standards. As one advertiser told us, Publishers being up to date with ad standards is critical to us being able to buy from them. The VAST standard is there and publishers need to start adopting it in order to see our spend.Publishers should ensure compliance with IAB VAST standards if they hope to maximize demand for their inventory. Educating participants new to RTB. Experienced display RTB buyers have been among the earliest adopters of RTB for online video, but the future growth of this market will require new participants to embrace programmatic buying methodologies. Experienced buyers like digital buyers will have to help educate new-to-RTB colleagues like TV buyers and publishers will have to clearly articulate how RTB-enabled buyers can do business with them. Vendors like exchanges and DSPs must also educate end users and work together to help create a consistent language for talking about the online video RTB market.

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Online Video RTB Primed For Dramatic Growth

Appendix A: Methodology
As part of the forecast modeling, Forrester develops comprehensive historical and base-year market size estimates based on a variety of sources, including public financial documents, executive interviews, Forresters proprietary primary consumer and executive research, and analysis of the Internet traffic database. All of Forresters forecasts are designed by a dedicated team of forecasting analysts who build the models, conduct extensive industry research, and manage the process of formally building consensus among Forresters analysts. Forecast analysts have backgrounds in investment banking, management consulting, and market research, where they developed extensive experience with industry and company forecasting. In this study, Forrester interviewed 10 organizations in the US to evaluate the perspectives of ad agencies, publishers, and DSPs in the RTB online video market. Participants included decision-makers with sufficient insight into the current trends in the market including specific knowledge of pricing and inventory trends. Questions provided to the participants asked about factors driving spend, the quantity and quality of current inventory, differences between display and video RTB, metrics used to optimize campaign performance, and the major players in the market.

Appendix B: Supplemental Material

Related Forrester Research
The Future of Digital Media Buying, Forrester Research, Inc., September 21, 2011

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