The online video market is exploding, and AOL this week purchased a D.C. company with expertise in placing ads in the emerging platform.
AOL LLC, signaling the importance online video will play in drawing visitors to its ad-supported Web sites, has purchased a small company that specializes in inserting advertising into video clips.
AOL of late announced that it acquired “Lightningcast,” a broadband advertising company, as the portal positions itself to cash in on the surging popularity of streaming video.
Lightningcast specializes in inserting video and audio advertising into video carried over high-speed Internet connections. The company also helps advertisers to develop web video ads and to analyze the effectiveness of their messages.
With the technology from Lightningcast Inc., AOL would be able to run targeted ads within video and even change ads from time to time without replacing the entire video file. Lightningcast’s technology also can insert ads into audio clips.
In addition to video and audio advertising creation and insertion, Lightningcast also handles ad campaign management and results reporting. AOL has had a working relationship with Lightningcast since 2002 and has used its services for AOL Radio, AOL Video and In2TV ventures.
By acquiring the company, AOL can better integrate sales and operations with Advertising.com, the online ad business AOL bought in June 2004.
“This acquisition will provide a huge infusion of talent, technology and publisher relationships for Advertising.com at a time when streaming video is growing at a blistering pace,” Mike Kelly, president of AOL Media Networks, said in a statement.
In 2005, we reached a crucial threshold with half of [U.S.] households with broadband access, and that is one of the catalysts pushing all this video stuff forward, said Joe Wilcox, a senior analyst at JupiterResearch. "Apple’s ITunes selling TV shows was like the rocks setting off an avalanche of interest, and that was followed by YouTube with people putting up their own content."
Since June 2004, AOL has snapped up six companies to fatten its online entertainment and advertising business including ad-serving and media-buying company Advertising.com.
The Time Warner unit has been moving into the advertising and broadband video business over the last few years. In June 2004, AOL acquired Advertising.com for $435 million; and in January of this year, it purchased Truveo, the owner of a video search engine.
Last month, AOL won the first Daytime Emmy presented for content delivered via the Internet, cell phones and other small-screen devices. Last July’s “Live 8” concert special — delivered in seven separate feeds, all without the meltdowns common with early online video events — was widely seen as a milestone in Internet video.
AOL later launched with Warner Bros. the “In2TV” broadband network featuring free viewing of dozens of old television shows like “Welcome Back Kotter,” “Sisters” and “Growing Pains.” AOL and Warner Bros. are both units of Time Warner Inc.
And earlier this month, AOL quietly opened its test of UnCut Video, a site where users can share clips they made with camera phones and camcorders, competing with the likes of Google Inc.’s video service and YouTube Inc.
As more people turn to the web for entertainment, portals like AOL, Google, and Yahoo are working feverishly to catch up to advertisers’ growing appetite for premium online space. Analysts predict a significant chunk of online ad dollars will move into online video.
“This acquisition speaks to two very critical and important strategic goals for AOL this year: growing the advertising business and our commitment to making AOL the destination for video on the web,” AOL spokesman Nicholas Graham told RedHerring.com.
Lightningcast’s technology works with all types of video — live, on-demand streaming and downloads.
“Online video really has become a part of the Internet experience. It is a big deal today and it’s going to be a bigger deal in the next few years,” said Tom MacIsaac, CEO of Lighningcast.
In 2005, Advertisers spent $225 million on online video ads, according to estimates from research firm eMarketer. That figure will grow to $640 million by 2007, and will hit the $1-billion mark in 2008.
Web portals are continuing to make online video a priority, but capturing the online advertising market is not a “winner takes all game,” said Will Richmond of Broadband Directions, a Boston consulting company specializing in broadband video.
The development comes as AOL intensifies efforts at driving traffic to free, ad-supported sites to compensate for declines in its traditional business of Internet access subscriptions. “But AOL faces immense competition.”
Apple Computer Inc.’s iTunes Music Store and Google Video offer clips for sale, generally $1.99 for an episode of a television show.
CBS Corp. recently launched an ad-supported broadband channel, “innertube,” with specially created Web series and material that has already run on television.
The Walt Disney Co.’s ABC is experimenting with making popular shows available for free on its Web site, complete with ads that cannot be skipped.
Founded in 1999, Lightningcast, a privately held company based in Washington, D.C., and its 34 employees will continue its current operations as a wholly owned subsidiary of Baltimore-based Advertising.com, which is a wholly owned subsidiary of AOL in Sterling, Va. Lightningcast will continue to be based in Washington. CEO Tom MacIsaac will remain with the company in that role.
Lightningcast clients — including Microsoft Corp., Walt Disney Co.-owned ABC, and Viacom Inc.’s MTV — decide individually whether their viewers can fast forward through the ads and when to add or update the commercials, he added.
AOL spokesman Nicholas Graham said the acquisition was made because Lightningcast is at the nexus of two areas where AOL wants to prosper — the growth of online advertising and consumer adoption of high-speed Internet access. He added that Advertising.com and Lightningcast are free to continue relationships with companies that may be considered AOL competitors.
Analysts said that although online video advertising is still in its infancy, technology and media companies are already exploring ways to best use the burgeoning money-making opportunity.
"The fact is this is entirely new ground for everyone," said Susan Feldman, research vice president for content technologies at IDC in Framingham, Mass. "People are scrambling to put advertisements in any of the new media outlets," especially when TiVo and other digital video recorders allow users to speed through traditional TV ads.
The online advertising market was about $12 billion last year, mostly from the major search engines placing ads, Ms. Feldman said. It is going to grow much larger, and you will see more large companies gravitating toward more new media advertising and continuing with the old media, she added.
“I think that the market is still expanding and there is lots of opportunity for many players right now. If you look by analogy at the number of television networks that have thrived over the years, there is a big audience out there that market participants can attract,” said Mr. Richmond.
The competition is heating up. Companies now must balance how to best serve the market and how to make money from it.
"The question is which of the many possible models will be successful," Mr. Wilcox said.
The deal was closed according to an announcement made by AOL. The financial terms of the Lightningcast acquisition were not disclosed.