Google and AOL, which have made billions of dollars with text ads linked to search results, are now moving into video advertising, encroaching on lucrative territory dominated for more than half a century by television.
At the same time, some powerful advertisers, such as Wal-Mart Stores Inc., are looking to shake up the time-worn way networks sell advertising. A group of ad agencies is moving forward with an auction-based system run by eBay Inc. that would allow advertisers to bid on television commercial spots, sapping some of the networks' control.
Google Inc., the Internet's most-popular search engine, said yesterday that it would begin selling space for video ads up to two minutes long. The ads will not appear on Google.com or its related sites, but on sites that pop up when users search for information.
Last week AOL LLC bought District-based Lightningcast Inc., which specializes in inserting video advertising into live, streaming and downloadable Web content; in other words, adding commercials to Internet programming, just like on TV shows.
The moves are the most recent threat against traditional advertising on television, specifically network television.
"This year and next year, in terms of dollars, I would not be very scared if I were a network," said Sascha Zorovic, an analyst with Oppenheimer & Co., who covers Google. "I don't think they're going to be missing their quarterly estimates because of Google.
"But longer term, I would be worried, because Google gets it," Zorovic said, adding that as more viewers move online to watch video programming, "Google will be there to deliver an ad."
Until the late 1970s, the Big Three networks of ABC, CBS and NBC had a lock on video advertising, the most powerful mass-marketing weapon. The rise of cable TV channels, however, caused the slow seepage of video ad dollars away from networks. The parent companies of networks sought to keep some of the money in the family by buying or starting cable channels.
Now, Web sites such as Google, AOL and Yahoo want in on video ad dollars. The idea was virtually impossible in the dial-up days of slow-speed Internet connections, with balky video and sound. Now that 17 percent of U.S. households have high-speed Internet connections, watching an ad on the Internet is almost the same as watching one on television, only smaller.
Perhaps most chilling for television broadcasters is that unlike the early days of cable television, when a network could buy a cable channel for a reasonable sum, Web sites such as Google have grown so fast that no network can afford to buy them. Now, the reverse is more likely. Google's market capitalization is about $114 billion, compared with CBS's market cap of about $19 billion.
Zorovic said the Google video ads' low cost and ease of use for advertisers -- they can upload their video and pay online by credit card -- should be a concern for television networks.
"If you want to buy an ad on TV, boy, it will take you forever," he said. "You've got to find the right person, set up a meeting, maybe go to New York."
A major volley in the assault on the networks' lock as video advertisers came last summer. Julie Roehm, then director of marketing communications for DaimlerChrysler AG and now senior vice president for marketing communications for Wal-Mart Stores, gave a speech at an Association of National Advertisers Forum that suggested replacing the current system where networks sell advertising with a market-based system, modeled after the Nasdaq Stock Market.
"In general, if we agree the stock market creates a fair and efficient market, it can do the same in TV," she said in her speech. She imagined a system set up like an initial public offering, where every advertiser has an opportunity to bid on networks' commercial spots, instead of having to carry out individual deals that can freeze out some advertisers in favor of others.
At an ANA conference this month, online auction powerhouse eBay unveiled a system that would let advertisers bid on commercial slots, like model train enthusiasts trying to buy a Lionel locomotive on eBay. The ANA endorsed eBay's system last week.
Frank Ahrens, The Washington Post. May 24, 2006
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