As video producers and distributors struggle to find new ways to get cash from their content, a wave of startup companies is entering the market to serve them.
One of these is a company called Panache, which offers software that helps video content providers which can be major companies such as Yahoo and CBS or niche Web sites harvest the eyes of online viewers. The Encino-based business contracts with the providers to deliver ads tailored to digital video audiences.
“Panache gives you the ability to sell advertising in your videos, no matter where you distribute,” said Steve Robinson, chief executive of Panache.
The company’s software inserts the ads in videos on any platform, including all digital media players, on cable and broadband TV, Internet sites and handheld devices.
Panache delivers the ads from a secure network server, allowing its customers to concentrate their efforts on producing and distributing their video ads without having to worry about the technical problems of deploying the ads across different formats or technologies.
It’s an advertising delivery system that works for Break.com, one of the largest destination Web sites for males between the ages of 18 and 35. The site specializes in humorous videos such as skateboard falls and minor car crashes.
Break.com features user-generated content as well as videos provided by corporations. With an audience of more than 1 million visitors every day, the site would seem like a potential goldmine for advertising revenue.
But matching ads to eyeballs can be a challenge, and content providers need to be able to quickly deploy new marketing strategies to keep up with the audience, said Nick Wilson, chief technology officer of Break.com in Beverly Hills.
Break.com began using Panache technology last summer with a range of advertising products that ad sponsors can buy.
“Increasingly, the real money in advertising is from promotion, where the advertiser is working directly with the Web site publisher,” Wilson said.
The marketers are careful to allow viewers to skip the ads if they choose.
“The ad is there, but you can ignore the ad and continue to watch the video,” Wilson said. “We never interrupt the video. That pisses people off.”
Recently, Break.com carried a movie trailer advertisement that was inserted as a pop-up window at the bottom of a featured video. In addition, the ad included links to interviews with some of the actors along with other options for the viewer to explore.
“Panache gives us the freedom to come up with ideas to sell ads to clients without having to involve software developers in our group,” Wilson said. Panache has increased ad revenue and enabled Break.com to launch ad campaigns that would not have been possible without the software, he added.
Lucrative market
Analysts agree that the advertising market for digital video offers enormous potential.
Major TV studios such as CBS and Warner Bros. are devoting more resources to the production of online video content.
ABC Television Group in February unveiled Stage 9 Digital Media, an experimental studio to produce online shows. There are 20 of them currently in development.
“There is a huge consensus now that the preferred business model in online video will be advertising support, so there is no question that companies like Panache are swimming in the right pool,” said Will Richmond, a media analyst and editor of online publication VideoNuze.
Internet video generated nearly $500 million of in-stream advertising in 2006 and is expected to reach $3.9 billion by 2011, according to the Yankee Group, a Boston technology research and consulting firm. In-stream means that the ad appears as part of the video presentation, rather than just alongside it.
But Pioneers like Panache are likely to face a wave of competitors.
“There are a lot of technology companies pitching content providers on how to better distribute and monetize their content,” Richmond said.
“Major players like Google could begin to offer the service for free as part of their overall ad placement and tracking service,” said Rob Enderle, principal analyst at the Enderle Group, a technology market research firm in San Jose. “Google’s budget for research and development in this area alone probably exceeds by several magnitudes the entire net worth of this firm.”
But until the market matures, there remains plenty of room for small players to carve out a profitable niche, he added.
Panache is already pushing into the market at full speed.
Flush with funds raised from venture capital firm NJK Holding in 2006, Panache is aggressively signing up video publishers as customers. Sales revenues started flowing in third quarter 2007 and accelerated through the end of the year.
“Our monthly revenue growth is significantly higher than 100 percent,” Robinson said.
The company is also confident in its capacity to accommodate its customers. After launching Panache in summer 2006, Robinson and his team spent much of the following year conducting extensive interviews with potential clients.
“The first year was a lot of listening to our customers about how their operations worked and understanding their needs,” he said. “We incorporated their thoughts into our software so that it would snap nice and clean into their operations.”
Robinson started his first software company in 1995. Panther, based in L.A., specialized in video database systems.
Panther gave him a good vantage point to the market. When digital video recorders became a phenomenon with the advent of TiVo, Robinson knew the game was changing. So he rolled Panther’s intellectual property into Panache.
“We saw a challenge coming to the industry,” Robinson said. “Suddenly, people were skipping ads on TiVo. So we figured out a new way to deliver ads to get them in the shows.”
Panache
Founded: 2006
Core business: Enterprise software that places advertising for video content providers across technology formats and platforms
Employees: 20
Goal: To insert ads in digital videos no matter where they are distributed
Driving Force: Growth in online advertising market for digital video
