Could Post Roll Command Higher CPMs Than Pre Roll?

I posted my YouTube’s Potential Revenue piece to stimulate conversation about the best way to monetize the super popular web video phenomenon. I surmised that 100 million videos served per day could someday be worth north of $400 million in annual revenue and net YouTube something like $150 million in annual revenue.

It was a well-read post and I got a ton of great feedback on the post via comments and posts that linked back to mine. Most people got the fact that I was trying to stimulate a conversation more than project revenues for a specific company.

Here are my big takeaways from all that feedback:

1)    Many people think that sticking a pre-roll ad in front of web video will severely reduce their popularity. I agree but it also depends on the content. It could work for SNL clips, it probably won’t work for kids falling off skateboards.

2)    Many people think a $15cpm will never happen for web video on a service like YouTube. I think they are wrong and that it will happen.

3)    Several people (including Umair, who I always pay attention to) think the whole purpose of a service like YouTube is to blur the lines between content and advertising. They should be one and the same. I totally agree with them.

I’ve been letting all of the feedback rattle around in my brain for the past week and I’ve been using YouTube a lot as well. And I’ve come to the conclusion that post-rolls ads may turn out to be more valuable than pre-rolls. Here’s why:

Watching videos on YouTube is like surfing the web. You watch one, find another, watch it, and do that until you get bored. The end of every YouTube video is a frame that features two suggested videos. I rarely click on those suggested links right now, but I think they are extremely valuable because over time they will become the natural place to find the next video to watch. I think the ending frame is the killer post-roll advertisement. I don’t think they should run a video post-roll, they should just monetize those links.

I think YouTube ought to take a page out of Google’s playbook (if they haven’t already) and make one of the links paid and one organic. I’d suggest the top link be organic and the bottom be paid.

The organic link should be served up by an algorithm that surfaces relevancy and quality, the way Google’s pagerank does for a search query. That algorithm should take into account the creator of the video you just watched, user generated tags on that video, popularity, number of comments, etc, I don’t have any brilliant insights into what that algorithm should be, but I know it should take cues from Google’s page rank, Delicious popular, Digg, Flickr’s Interestingness, Amazon’s front page recommendations, and any other web discovery algorithms that have become popular.

Over time this algorithm will get optimized by marketers like the search engine optmization business has optimized Google’s search algorithm. And what they will be optimizing is the organic link to another video. It could be an advertisement or it could be a videoblog, or some other form of video content. The lines between content and advertisement will blur. I agree with Umair completely on that.

The second link in the post-roll frame should be a bidded marketplace like the right column on the search engines, but it should be only for videos on YouTube.

Say you are a marketer, like Nike. You make a video, doesn’t matter how long or short it is, about your new Nike sneaker that works with the your toaster so breakfast is ready when your run is over. You post that video to YouTube in your brand channel (which already exists on YouTube) and you buy a bunch of tags (user generated keywords) that you want that ad to be linked to from the back frame. You pay on a CPC basis, only for the clicks that come from that link and lead to plays of your video.

If your video is great and the audience loves it, passes it around, etc, you can probably stop buying traffic to it and rely on the organic linking and viral nature of the service to keep the video playing.

Maybe there should be a third link in the post-roll frame that is controlled by the creator of the video. It can be given back to YouTube and monetized and the content creator gets the lion share of the revenue coming from that link. Or if the video is an advertisement, that third link is to purchase the product that was advertised in the video.

My gut tells me that when YouTube does this (and I suspect they are already putting the pieces in place to do it), the post roll frame is going to become very valuable real estate, potentially more valuable than the pre-roll.

But YouTube and the other web video services need to do one other thing. They need to embrace services like NBBC that offer a model for “licensed content” to run on their services. If NBC wants to run pre-roll ads in front of Saturday Night Live clips, that should be their perogative. Over time, content owners may find that other means of monetizing web video (like the post roll scheme I just suggested) work better. But until YouTube and others “clean up” their services by working with the licensed content creators, it’s going to be tough for them to monetize any of the video because of the risk of monetizing someone else’s content without their approval.

This post, plus the YouTube’s potential revenue post, and the NBBC post sort of summarize my current thinking on web video. It’s a huge phenomenon already. And it’s only going to get bigger in the coming years. It will be monetized. And I think we are beginning to see the path for how this all plays out.