The death of the online video ad model?

As news broke that online ad-insertion platform Panache is projected to insert its 1 billionth online video ad today, Fliqz CEO Benjamin Wayne released his predictions for online video in 2009 --  one of which is the death of the online video advertising model.

"Video advertising on the Web is a broken model that is extremely unlikely to work long term because of the inventory shortage and the prohibitively high cost of producing creative," Wayne said. "Despite massive amounts of funding and 20 different valiant approaches, online ads are still performing poorly. The model will meet its demise in 2009 because the companies backing it lack the long economic runway they need to sustain themselves while nourishing the model."

Jason Glickman, CEO of online video ad network Tremor Media, said he couldn't disagree more.

"We have more than 1 billion streams per month in our network that support six and seven-figure deals, so we're just not seeing any inventory shortage on an aggregate level," Glickman said. "We also see a lot of repurposing or reworking of existing creative ad content for online distribution, so the cost of producing that isn't prohibitive, its non-existent."

While Glickman said ads developed explicitly for the web can be more expensive, he said the level of audience response to these ads is usually higher, justifying the expense. He expects additional interactive features and possible widget-like functionality to drive the next wave of growth in online video advertising.

Glickman and Wayne's disagreement is not unique; just this week, I analyzed two reports, one from the Wall Street Journal and one from PermissionTV, that portray wildly different ideas about the direction the online video advertising market will take in 2009. The Wall Street Journal focuses on comments NBC CEO Jeff Zucker made about declining advertiser buys on Hulu.com, and it comes to the conclusion that online video advertising might get pinched along with other marketing budgets due to the recessionary climate. Conversely, the PermissionTV story paints a rosy picture of continued migration of dollars from print and broadband to digital media, with online video leading the way.

I tend to think Wayne is being too bearish on predicting the "death" of the online video advertising model, given the demonstrated success of companies like Tremor and Hulu. But I don't think online video advertising will be quite as easy a sell in a tough marketplace as PermissionTV's study indicates. Although the survey, focused on digital marketing plans for 2009, showed strong interest by advertisers and marketers to make online video part of their campaigns, I think budgets will be scrutinized to closely to see the sort of growth eMarketer's revised predictions indicate. The company sees 45 percent growth in the space to a total ad spend of around $850 million.

I believe total growth year-over-year in online video advertising will be between 20 and 25 percent, based on a more and more likely awful Q1 for advertising in general. I'd look for growth to pick back up in the middle of the year, as company's go out of lockdown mode and get aggressive about making the most out of the market opportunity presented by competitors faltering and an increase in consumer and enterprise spending after a few flat quarters.

PermissionTV's survey indicates that demand for and interest in online video is very high, so once companies feel they have successfully weathered the storm, I think they'll want to capitalize on the tremendous reach of online video advertising for their growth plans. I'd love to know what you all think about the disparate predictions, so drop me a comment or an email.

- Pete