Google's (NASDAQ:GOOGL) decision to allow Nielsen Holdings (NYSE:NLSN) to measure ads running on its video properties, including YouTube, will draw significant ad dollars away from TV content providers. This may cause them to struggle to maintain ad revenue in a TV-everywhere market.
Ad agency ZenithOptimedia released figures saying that global ad spending will climb through 2015, but only digital ad spending will grow. The remainder of the media outlets will experience declining ad spend during that period of time. This is why TV ad spend is projected to drop slightly by 0.5% through 2015 (from 2012), while Internet ad spend will jump from 18.3% of global market share in 2012 to 24.6% by 2015.
Now that Google will allow its video ads to be measured, the estimated numbers for 2015 may be on the low end of the actual results.
Importance of measuring online video ad views
Video is considered the holy grail of online ad spending, and of all content categories attract the best price. Advertisers have been slow to move dollars to Google because of the lack of confidence in ad view numbers that Google releases because of an obvious conflict of interest.
Also important for Google is it has fallen behind AOL (UNKNOWN:AOL.DL) in regard to the number of video ads viewed. This is due to AOL acquiring Adap.tv, which has helped it to catapult to 3.6 billion views in September, easily surpassing YouTube's 3.2 billion ad views. That means that AOL will command better prices because of it being the market leader. Bear in mind that AOL is the market leader in video ad views, not overall online video views. Google is still the leader there.
This is probably what pressured Google to finally allow its video ad views to be measured by an independent company, as marketers would increasingly move spend to AOL and other companies that have had more trustworthy metrics. Online video ad revenue is one of the few bright spots for AOL and its growth strategy.
Why Nielsen was chosen
The reason Nielsen was chosen by Google is market demand. While comScore is also being used as an independent source, many advertisers already have a trusted relationship with Nielsen and wanted it to be the company to measure ad views for Google.
Nielsen is enjoying this season of growing digital ad demand, as content providers everywhere are seeking to monetize to the fullest ability their content. That hasn't been happening primarily because of the lack of digital metrics, which Nielsen is benefiting from as it rolls out new services.
Marketers have basically said that they need ratings data that are similar to television audience ratings data so they can make intelligent spending decisions based upon trusted numbers. This will benefit all parties involved, and is the major reason why digital ad spend will continue to grow in the years ahead.
When will this all be in place?
Nielsen has already implemented a testing period in which it is measuring Google YouTube ad views, along with all other Google video ad properties.
What Nielsen is doing it applying what are called "measurement tags" on the videos. These tags will provide accurate data as to the number of viewers viewing or engaging the ads.
Expectations are that all of Google's video properties will accept the measurement tags by the early part of 2014. That means it will probably start to have some minor material effect on Google's ad performance in the second quarter of 2014, with the third quarter of 2014 most likely to be the first full quarter where we'll see how it's adding to the top and bottom lines of the tech giant.
Where it's all heading
The currency of ad spend of any type is trustworthy metrics. Now that Nielsen is participating in the gathering of data for Google, that will make its video properties much more attractive to marketers. This will in turn generate significant revenue once it is all brought together.
For Nielsen, this is a terrific catalyst. It will continually roll out new services to meet this high demand. Google, AOL, and other content providers will produce and/or look for more premium video content that they can offer to marketers looking for content to place their ads against.
This is the long-term growth trend for ad spending in general. It remains to be seen whether or not it will replace the declining revenue generated from ads placed against TV content, of course. For tech companies primarily targeting online video, though, this is going to be a revenue gift that keeps on giving for a long time.
Gary Bourgeault has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.