As Internet Video Activity Grows, the Search for Profit Continues

Online data research firm Comscore reports that the viewership of video online continues to rise rapidly.

Video Metrix service showing that 181 million U.S. Internet users watched nearly 37 billion online content videos in March, while video ads topped 8 billion for the first time on record.

The ability to make profit in the online video and advertising business remains the Holy Grail for the industry. Video ads bring in much more based on CPMs than display ads do. And there is evidence that how much marketers will pay for Internet display has fallen, which makes the improvement of video revenue all the more important.

By far the most watched video site is YouTube, the viewership of which makes up most of the traffic for Google’s (NASDAQ: GOOG) video. Total unique visitors to Google video sites numbered more than 146 million in March. Those visitors watched nearly 16 billion videos during the month, and each visitor spent an average of 426 minutes on the Google sites over the course of March. But Google’s revenue from YouTube is so small that it is not even broken out in quarterly earnings figures. Google is still a company that makes its money from search dollars and not video views.

The same problem of low video ad volume is present among the next tier of sites based on traffic. Yahoo! (NASDAQ: YHOO) sites had 60 million unique visitors in March. Yahoo! management often says that video ads are essential to the company’s future, but, again, the portal firm will not say how much revenue this represents. That is probably because the figure is comparatively small. The same holds for Facebook, Viacom (NASDAQ: VIA) and Aol (NYSE: AOL). The management of each touts the importance of video ads. None gives concrete evidence that these ads are a large part of their revenues.

As a contrast, CBS (NYSE: CBS) had over $14 billion in revenue in 2011. Most of that came from its television business. Wall St. has pushed the company’s shares to all-time highs. Investors understand that broadcast and, to a growing extent, cable programs are the favored environment for video ads. So far, the size of online video activity has barely changed that.

Douglas A. McIntyre