LiveRail, the video ad platform, has released its most recent snapshot of the state of online video advertising. On a decidedly small base—$371 million in 2007—online video advertising has grown along with the recent explosive growth of online television, even as monetization of user-generated video makes sputtering attempts to catch up.

Some interesting stats from this report:

• Although online video advertising growth is slowing, it’s still at a healthy double-digit tick: a projected 67% in 2008 vs 73% in 2007
• As a share of total online ad spend, video is still small, but growing: 1.75% (2007), 2.36% (2008), increasing to a projected 3.86% by 2010, when spend will clear $1.4 billion
• In-stream advertising (pre-/mid-/post-roll) constitutes 88% of online advertising
• Only 21% of online video streams are being monetized
• The estimated eCPM value of all 153 billion video streams projected for 2008 in the US is $4.05. Monetized video streams will have achieved an average eCPM of $19.33.

The study also points to marginally better monetization of overlay ads (like those used in YouTube, for instance) over in-stream ads ($18.40 vs $15.80; 16% better).

Why are only 1 in 5 streamed videos monetized at all? The report points to the fact that YouTube, easily the largest video streamer online, monetizes a scant 3% of its inventory. Advertiser interest in spending on UGC is low, and lowest for UGV (as a Collective Media study showed: ad performance on social network sites).

Interestingly, the heavily-promoted 2008 Olympics video stream generated less than $6 million for NBC, a drop in the $1 billion bucket the network is estimated to have generated through advertising. Why? A suspected reluctance to NBC to promote its video stream for fear of cannibalization of television viewership, and its usage of Microsoft Silverlight, not Adobe Flash, as its video delivery platform.

Full report.

The Wall Street Journal just published an article on the growing spread between search (predominantly text) advertising, and display advertising, as the economic downturn begins to hit marketing budgets. Although advertisers, continuing to follow eyeballs online, have been pouring in money into online advertising, recent statistics from eMarketer suggest search advertising is reaping the largest bounty.

Here are some interesting statistics from the eMarketer report, referred to in the WSJ article:

• search advertising is projected to total $10.4 billion in 2008, double that of display advertising ($5.2 billion)
• in 2007, the figures were $8.6 billion for search ads, and $4.5 billion for display ads
• search ads will comprise 42% of the total online ad market for 2008 (it was 40% in 2007)
• display ads will comprise 21% (the same as last year)
• the overall online ad market is growing healthily, with a 16% increase to $24.8 billion in 2008 over 2007 ($21.4 billion)
• Google dominates the search ad market, with more that 70% market share

The growing gap between search and display ads reflects a sensitivity towards performance, over visibility and branding benefits. Search ads are paid for on a per-click basis (CPC) typically, while display ads are typically charged on a per-impression (CPM) basis.

What display ad networks might consider to respond to the direction of the market is to allow pricing on a CPC or CPA basis, to allay fears that online advertising spend might not demonstrate tangible response figures. Not long ago, site/placement-targeted Google ads had to be purchased on a CPM basis; recently advertisers were given the option to make the same sorts of placements on a CPC basis. Other ad networks that look at Google’s growth with a touch of envy might do well do copy some of their moves.

Valleywag recently reported that YouTube is opening up sponsorship of its front page to large-format ads (we’re talking 600×300 “mega-banners”). Although most of the article focused on YouTube’s use of innovative formats to help monetize its enormous traffic (something it hasn’t really figured out yet), the big story here is that large-format, exceptionally high-quality ads are being favored by ad agencies for one reason: they create a high-quality user experience (and engagement metrics prove it).

An example: the 300×600 ad format; an official IAB ad unit, appropriately named a “half page ad.” Its width alone makes it far more appropriate for broadsheet-style news sites—much more of a comfort zone for ad agencies—than blogs. It also replicates the ad size we see in magazines. High-volume advertisers like AOL and MSN are promoting them as part of their portfolio. Why? Larger ads perform better, from both a CTR and conversion standpoint.

Brand advertisers are willing to spend, provided the context (the site) and the creative match and build their brand equity. As more and more of them move their spend online, to follow the traffic, from offline sources, big opportunities will develop for creative developers who can develop extremely high-quality, and large, ads, and sites that can accommodate them. Crisp, smooth video, and high-res, large creatives with the real estate necessary to convey a message, will score major wins. In short, online ads that replicate the ads we’ve gotten used to on primetime television and high-quality magazines will earn publishers excellent CPMs.

Here are some examples of creative, high-quality interactive video-enabled ads. Given the premium paid for novelty and quality, we should expect to see more of these:

• BC Hydro (pull the light switch)
• HSBC
• Emirates Airlines (click on the Jazz sign)
• Wags Boutique