Digital advertising campaigns are like snowflakes: no two are alike.

But buyers of digital video advertising still spend money the way they do on display ads. That’s like paying the same price for a 30-second video spot that you would for a billboard, banner ad, or magazine spread. When it comes to video content, it’s about paying for time – not just space.

Dynamic as they can be, the cold, hard fact is that videos simply take longer to deliver a message than static images or simple animations do. In other words, it takes consumers more (and more valuable) energy to absorb them.

Adherence to impression-based ad models in television was understandable given the rigidity of the delivery platform and the metrics available to buyers. But digital delivery of video ads is enabling a rapid evolution in the diversity of syndication methods and the incentive structures buyers can use to compensate their delivery partners.

One clear outcome of this trend has been the rise of performance-based pricing models.

Online advertising 101

First things first, let’s do a quick rundown of impression-based buying and performance-based buying:

Impression-based video advertising comes largely in the form of pre-roll video and in-banner video. These units are easy for buyers to understand because they keep with the display paradigm of buying on a Cost-Per-Thousand (CPM) impressions of the advertisement. These impressions do not require consumer interaction and are typically bought for pennies (sometimes even less) and are governed by broadcast principals such as reach and frequency.

Image by The Inspiration Room via Flickr

Performance-based video advertising is typically priced on a cost-per-user-initiated view (CPV) basis. A CPV is a consumer interaction metric that looks a lot like buying a click on a Cost-Per-Click (CPC) basis from Google AdWords. These interactions are typically bought for north of a dime and are governed by principals such as keyword targeting (like search terms) and conversions (the percentage of times a click results in the advertiser’s desired action).

 

At the end of the day, video advertisers require only two things from the consumer to do their job effectively: time and attention.

The primary advantage buyers have with performance-based pricing is that they can provide distribution partners with the financial incentive to deliver viewers who opt in to the ad experience and are most likely to be paying attention to the message for the duration of the ad.

The current standard in performance-based pricing, the CPV, allows advertisers to achieve the same goals with less “waste.”

With growing frequency, CPV pricing is being used to purchase audiences for viral videos, as well as branded long-form video content, because consumers’ intentions consistently dovetail with their desired actions.

In short, the viewer’s initial interest in an advertisement translates into engaging with what’s being advertised with growing regularity.

Monetizing attention

CPV pricing is not the last stop on this journey. For one thing, it doesn’t fully capture the duration of consumer attention or the quality of interaction. A consumer who clicks to watch a branded video and then leaves after five seconds is priced like someone who watches an entire six-minute-long branded video with CPV.

As performance pricing continues to evolve over the next several years, here are a few trends that are likely to emerge:

Buying video is going to look like buying search

Video buyers are already looking at video advertising as a hybrid between search and display buying. Most major agencies that have search buyers on staff use them to buy sponsored views on YouTube through AdSense, like any other search buy.

And unlike display buyers who look most intently at metrics like lift in purchase intent and brand awareness, video search buyers look at metrics like conversions and actual purchases as well.

Increasingly, delivery channels for CPV video buys will be judged by these same metrics, which should result in greater diversity of CPV pricing both up and down.

Performance pricing is coming to in-banner and in-stream video

In-banner video networks are being pushed to charge on user-initiated views rather than autoplay views, which can be intrusive, unwelcome and – let’s just say it – annoying for users.

In pre-roll, advertisers are paying CPV rates for pre-rolls that they have the option of skipping (like YouTube’s Cost-Per-Completed Pre-roll product).

Interactivity will become even more important

If you look at videos produced by top YouTube talent you will notice that they’re filled with calls to action and “hotspots” that drive the user to another video.

The reason this is so ubiquitous on YouTube is that producers know these calls to action work. As advertisers become more concerned about hitting specific performance metrics, providing this type of interactivity in any piece of video will become more and more commonplace.

Earned media will earn its place

In much the same way that social media is permeating every other aspect of our online existence, video will follow suit.

In social media, the audience becomes a key distributor of advertising. For social video advertising, the success of a campaign is frequently measured by the number of views that were earned through people watching a video, and then sharing it as advocates.

The future of performance

The bottom line is that performance-based video buying is going to continue to become more complex over the next several years. Armed with new pricing models, metrics, and delivery channels, buyers will continue to find new ways to use video to boost sales.

Expect video to start being used throughout the sales funnel, from ensuring that viewers spend enough time with their ad, to helping close the sale of a product, to helping existing customers remain loyal.

Amid this flurry of complicated and unique advertising opportunities, why not let it snow?