Building a successful ad-supported video business requires operators to consider operational costs, such as ad serving, SSAI, commissions to supply side platforms (SSPs) and CDN costs. These are all equally important in terms of managing operational costs. Your advertising inventory sell-thru rate and CPMs (cost per thousand) will determine if you have a successful business, but operational expense needs to be minimized to have a good ROI. And of course CDN charges are typically the largest expense.

Three components of generating ad revenue

The three components of ad revenue include impressions available to sell, CPM rates and sell through rates. The basis for generating revenue from video ads starts with total ad impressions you generate through marketing, social sharing and watch time. 

The standard for estimation ad impressions is based on ads per hour typically being 2 ads inserted every 10 minutes. So if 1000 hit your site every day and watch about 60 minutes per day, you are looking at about  360,000 impressions. CPMs that advertisers pay for your inventory are based on region, device and the content itself. Average CPMs in India can be in the $4 to $6 range while US rates average $12 for programmatic ads. If you are viewing on a Smart TV, advertisers tend to pay higher rates. If you are fortunate enough to broadcast sports, then CPMs can be north of $30.

Sell through rates are the actual number of impressions that are actually sold. Do not assume a 100% sell thru rate. If you watch a broadcaster app, many impressions are house ads promoting network shows (these are unpaid impressions).

AVOD monetization on its face is pretty straight forward

A user clicks on a video which triggers a preroll ad.  Ad server delivers ads to Server-Side Ad Insertion (SSAI) to stitch ads into the video experience on the server-side, with the ability to deliver dynamic targeted ads to users. 

Aside from having enough inventory to attract buyers, the marketplace for inventory has many variables including the region, the content, and how you expose your inventory to direct ad buyers, SSPs, programmatic ad buyers, and other tech such as header bidding. 

The biggest problem with monetization

The biggest problem with monetization is having enough “tonnage” or ad impressions to get advertisers to stand up and take notice of your inventory. More valuable content will drive higher CPMs whereas user generated content or low tonnage will fetch lower CPMs.

Of course the best way to monetize is where you have direct advertiser buys with no commission payouts and higher CPMs. It requires a fair amount of available impressions and campaigns can run for several months with CPMs north of $20. Ads are trafficked on your ad server.

Best practices to monetize your inventory: Waterfall. 

A waterfall is a monetization strategy whereby you optimize yields by prioritizing inventory sold. The top of the waterfall might be media buys you have sold to advertisers. You may be required to sell a percentage of these ads per day and the ad server should have rules to comply with advertiser guidelines.

The next step in the waterfall might be SSPs such as SPOTX, Pubmatic and others who sell your inventory as they shop around for the best prices. They typically charge a commission from 15-30% of the gross CPM. Different regions will require different SSPs who know the market and again optimize your yields. The lowest tier is typically programmatic advertising; the largest being Google. 

The monetization of your inventory starts with getting your sell thru rate close to if not at 100%. Implementing a waterfall helps you optimize the yields on your inventory. 

Conclusion:

Minimizing your costs, such as ad serving and SSAI goes a long way to netting a profit for your AVOD initiative. You need to generate enough views to get noticed by advertisers and generate good CPMs. And of course, the largest cost is video delivery, but we will leave this topic for another article.


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