Inside Online Video

YouTube Rolls Out Overlay Ads at $20 CPM

by Mike Abundo on August 22nd, 2007

Taking a hint from AdBrite InVideo, YouTube rolls out to limited partners today what it’s been testing since May: YouTube InVideo, dismissible translucent overlay ads appearing at fifteen seconds in the lower 20% of a video.

If you’re interested by what you see there, clicking on the overlay launches a deeper interactive video ad that we think is relevant and entertaining. (The video you were watching is temporarily paused.) If you choose not to click on the overlay, it will simply disappear, so that you’re in full control of your YouTube experience.

In case you later become interested in an ad, you can always recall it by clicking on a tab in the lower right corner. Overlay ads can also be animated.

Here’s how it works: Fifteen seconds into a music video for the band Madina Lake, an animated pink doughnut rolls along the bottom portion of the video with Homer Simpson in hot pursuit. Viewers can click on Homer to watch a trailer for “The Simpsons Movie” while the video they originally chose is paused. If they don’t click on the ad, it disappears after 10 seconds.

YouTube confirms what viewers have known all along: prerolls suck.

Shiva Rajaraman, product manager for YouTube, said internal tests show more than 70 percent of people give up when they see a pre-roll. By contrast, less than 10 percent decide to close an overlay, which they can exit by clicking on an “X” in a corner.

CTR on YouTube InVideo ads is five times that on YouTube page display ads. YouTube InVideo ads can be targeted by age, gender, genre, time, and/or location. Video creators can decline all ads or filter selected ads. Ad videos can be any length, since viewers can dismiss and recall them at will. By adding a second layer of airtime possible only inside online video, YouTube has completely bypassed the traditional time limits of TV ads.

Unlimited length, dual ad formats (overlay and video), demographic targeting, 5x CTR, and 90% voluntary engagement all come at a whopping $20 CPM for the overlays. Think about how much money YouTube could make here. YouTube streams 1.7 billion videos a month. Assuming YouTube InVideo and the YouTube Partner Program eventually roll out to all YouTubers, that could eventually translate into $34 million in ad revenue per month. That’s $408 million a year, almost equal to what the entire online video ad industry now makes in a year. Of course, video owners share the wealth.

Seth Godin likes to point out that the key to online advertising success is permission, not interruption. YouTube is taking his advice all the way to the bank. Ad execs rejoice: you can now reach people who actually want to see your video ads. Videographers rejoice: there’s no better time to become a YouTube star.

(Screencaps by Jordan McCollum.)

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POSTED IN: Advertising / Marketing, YouTube