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Monday, August 07, 2006

Google's New TV Model Is Small Potatoes

Stocks: (GOOG)(VIA)

Late word comes that Google and Viacom will begin offering MTV clips with video ads over the Google AdSense program.

This may not work very well. The transition from dynamic banners and Flash based ads to online video advertising has worked well. The demand for these ads often outstrips supply.
The Google AdSense network is text ad based. This leaves open the question about whether Internet users who go to sites in the Google network (including 247wallst) want to see video advertising as part of the experience.

Video advertising has a number of advantages for the advertiser. It commands rates per thousand users that are about the same as traditional broadcast video ads and much higher than most web advertising. The ads tend to get high "click-through" rates due to the attention that video gets on static web pages. The major drawback to these ads is that they are intrusive, and can take attention away from the content on the page.

Google is a text medium. It has not even evolved to the point of being an image medium yet (eg banners and photographs) on the great majority of its pages (Google video notwithstanding). Making the jump to video may not be as seemless as Google and Viacom hope. The reaction from a text-based world may not be all positive.

Viacom's stock has been badly manhandled since the company was split from its sister firm, CBS, to form a new public company. The stock has dropped from $45 last December to its current price under $35. Google has lost some of its mythical status by dropping from over $475 in early 2006 to $374 now.

Video ads on the web may help both companies get some attention in the market, but this form of advertising is still only a very small part of web advertising inventory. According to an eMarketer story on Internet ad forecasts, online research experts at Jupiter do not expect video ads to be a significant part of the web revenue mix until 2009 to 2011. Even at that point, Jupiter does not think video will be a dominant part of web advertising dollars. Jupiter projections show online video revenue going from $400 million this year to $1.3 billion in 2011. Getting a small piece of a little over a billiondollars a year will not be of much help to either Google or Viacom.

Douglas A. McIntyre can be reached at He does not own securities in companies he writes about.

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