With so many professionals expecting 2011 to become the year that online video goes mainstream with marketers and finally garners the ad dollars to reflect that fact, content owners and distributors are facing inversely related challenges that prevent them from growing faster.

While ad dollars continue to flow away from print, television and online display (and to a lesser extent, search) to online video, there is a dearth of premium, brand-safe, click-to-play ad inventory available.

The Haves (Distribution) Tend to Have Not (Content Ownership)

Last week, market leader YouTube announced that it will throw $100 million (in the form of royalty advances) into content creation, hoping to improve the content quality and quantity it can sell to advertisers.  It will also establish a bigger presence in Hollywood as it seeks to lure big-name talent online.

Indeed, YouTube still generates the lion’s share of its volume from user-generated content or pirated content; at the recent IAB conference in New York, Visible Measures’ Brian Shin suggested the number was close to 80%.

Super-premium content distribution company Hulu is consistently on the lookout for ways to grow its inventory of premium advertising, but it has to do so through incremental distribution, and not necessarily additional content, as online advertising revenues continue to offer a lower return than television does (for Hulu’s traditional media rights holders).  But that being said, Hulu itself is tinkering with original programming for the Web, knowing that the rights it has can evaporate.

Meanwhile, while DailyMotion and Metacafe are large properties in the aggregate, some will argue that neither drives meaningful volume for content owners.  Either way, they too probably face the same kind of ratio of unsellable inventory that YouTube sees.  Recognizing that YouTube was on its way to becoming a near monopoly of eyeballs, Break Media got into content creation as a means to rely less on erratic content owners who may be here today, but gone tomorrow.  But given Break’s DNA as a site aggregating short funny videos, it probably also has a lot more UGC and less-desirable inventory than it would like to have (desirable in marketers’ eyes).  This is why, some would argue, that Break Media launched a network, to push out its videos and ads on third-party sites to create more ad inventory.

With YouTube’s acquisition of Next New Networks, at face value, YouTube is sending mixed signals.  On the one hand, NNN’s origins came from content creation, but as Tom Pickett, director of content at YouTube, admitted on deal day: “If we wanted to create content, we wouldn’t buy Next New Networks.”  Ultimately, NNN’s initial original programming can now be seen as the proof of concept as the company shifts focus — and now will serve as YouTube’s in-house talent management arm.

The Have Nots (Distribution) Tend to Have (Content Ownership)

Inversely, content owners have all the rights in the world, along with the means to produce new content, but they have hitherto failed to monetize effectively, due to

–      the sheer clutter online;

–      the reality that quality is subjective to begin with;

–      the fact that users care little about content being professionally produced (though advertisers do),

–      the fragmentation of audiences;

–      the lack of ROI to produce for, or distribute on, the Web;

–      distribution companies generally building businesses on the backs of content owners — but showing few results to content owners.

What is happening on the front lines

While distribution companies and content owners need to get their acts together, the fact remains: Advertising is flowing online faster than ever, and marketers want to drive impressions in any way that they can.

As a result, you’ve seen the proliferation of video campaigns run in-banner and on auto-play, which is technically fine, provided the client has transparency and the pricing differs accordingly.  But, for marketers to derive the real value of video advertising, we need to find a way to create more instream inventory – or, at the very least, properly differentiate the two.

Marketers don’t help themselves by focusing so much on the click-through rate, but publishers only add to the problem by not properly breaking out in-banner from instream inventory, which skews the performance.

All about the content

Naturally, creating more authentic views boils down to programming, and programming can take shape in two forms: talent-driven or topical.  In order to recruit a big name, you need to find a sponsor to underwrite it.  But by doing so, producers run the risk of seeing the content become too commercial, which then fails to captivate the viewers and thus fails to build an audience.

Taking the topical approach works in creating content that users “discover” and “recover” when going about their usual Web surfing, but this lacks the kind of cachet that marketers want.  Ideally, you have a mix of the two: topical videos that lay down the foundation to your catalogue and help drive recurring and authentic views, then anchored by some kind of sexy programming that will make marketers stand up and take notice.

Ultimately, the course to success can be found by striking a balance between all of the variables that make up the ecosystem.   By doing this, you will be able to augment the ad rates you command and the number of deals you can close, and increase margins throughout.