YOUTUBE U.

YouTube Ads Bring In the Bucks, But Stifle Innovation

New media entities should put out ads in real time — like Oreo's aptly-timed Superbowl blackout tweet.
(Facebook)

(Facebook)

Google is launching a major new ad campaign. Billboards, posters, and subway trains are being emblazoned with its imagery. Magazines are rolling off the presses with pages printed in its bright colors. Television spots are set to run against a few nationally distributed shows and against local content in a few metro areas.

It’s a pretty standard traditional media campaign, except one thing: All of this media is advertising YouTube.

YouTube is using this traditional ad campaign to build its credibility with brands and media buying agencies in an effort to secure more upfront ad sales in this month’s digital newfronts. The new fronts is a week long event, held each year in New York where digital media companies show off their content and platforms in an effort to woo agencies and brands into allocating media dollars, just like its TV network predecessors do. Millions of dollars are spent to court agencies and brands at venues—serving up food, drink, celebrity guest appearances, concerts and gifts. No expense is spared.

This advertising ouroboros is an effort on YouTube’s part to work within the traditional media buying model. YouTube is attempting to sell agencies and brands on ad inventory among Google Preferred verticals comprised of the top five percent of YouTube content in popular categories. This process worked well for TV for decades, but its application in digital does little to benefit brands.

Typically, media buying agencies take a percentage off the top of a total ad buy—the more they buy the more they make. This creates a misalignment in incentives, where rather than focusing on results for the brand, they’re focused on ad spend, and in keeping overhead low. Instead of buying inventory through the YouTube ad marketplace, and working to optimize brand dollars, they’re committing millions to inventory months in advance—removing many of the benefits that digital media buying has to offer.

This is the old model being applied to the new to help Google/YouTube secure major media dollars. However, it has the regrettable collateral damage of stifling innovation, and inhibiting the ability by brands to react to real-time opportunities—instead locking brands into placements a year in advance.

A perfect example of the kind of nimble new media reaction I’m talking about has been going viral this past week. Honey Maid responded to negative comments on a YouTube ad featuring gay dads by creating this heartwarming response. It’s been shared all over social media, and as of this viewing has racked up over 2.5 million views—dwarfing the 167,000 views the first ad received. Another example was Oreo’s sweetly timed Tweet during the 2013 Super Bowl blackout. Oreo planned to be nimble: they had a 15-person social media team primed and ready to respond as the game went on. Putting the right message out at the right moment is powerful—and it’s that power brands are giving up if they plan all their buys out a year in advance.

For brands that have essentially given these buying agencies a monopoly over their ad budget, this strategy could ultimately prove disastrous. The agency representing them is guaranteed a cut—why work harder for the same money?

This new method of YouTube inventory will allow agencies to allocate media dollars at a higher margin while being accountable for fewer results. This is odd, because by all accounts there is more inventory than YouTube could ever hope to sell. The law of supply and demand dictates that instead of CPM’s going up, they should be going down.

While selling YouTube this way may not be ideal for brands, it does benefit some creators. Focusing on the top five percent of YouTube channels will have inventory directly sold at a higher CPM. This will be beneficial for the top creators, but is likely to have little impact on the other 95 percent of creators. YouTube CPMs have fluctuated considerably, and with 100 hours of content being uploaded each minute, what we’re seeing in online video is ad inventory outpacing demand. It’s a race to scale (an issue endemic of most online publishers). No creator or MCN is likely to direct sell all their inventory, and with tens of thousands of creators and billions of views each month, the market isn’t there today.

The majority of views will still be available to purchase ads against on the free market via YouTube’s Trueview ad platform, regardless of the channel’s network status or sales representation. Consequently, a crop of companies such as Strike Social, Octoly and Pixability have emerged with technology to help connect advertisers to the best views on the open market at the best price at the best time.

YouTube is attempting to artificially create scarcity to create a sense of urgency and get brands to buy a premium. Traditional media buying agencies may take the bait, but their clients may end up worse off because of it. The top five percent of creators on the other hand, are more than likely going to walk away with their ad inventory sold for a pretty penny.

Brendan Gahan (@brendangahan) is a YouTube expert helping Fortune 500 brands with their YouTube influencer and community building campaigns. He was named Forbes 30 Under 30 in Marketing & Advertising and one of the 25 Top YouTube Business Power Players for 2013.