Hulu’s Ad Swap Shows Pre-Roll Rules

The conventional wisdom in the digital world was that running 30-second TV ads on the Web was downright blasphemous. Web video needed to be interactive. And it needed to be highly targeted using tons of sophisticated data — not bluntly targeted by using content as a proxy for demographics like TV. But six-plus years after YouTube put online video on the map, TV-like pre-roll ads are winning, and interactive, data-driven video ads are losing.

The Internet twist on the TV spot isn’t so much the fancy targeting or “hot-spotting” within video that was predicted but something more prosaic: giving users the choice of the ads they see. Take Hulu’s announcement yesterday of its new Ad Swap product. Ad Swap allows viewers to trade out whatever pre-roll ad they encounter for another ad from an advertiser they are more interested in. Hulu has already tested this concept of user choice with its Ad Selector placement, which presents users with a choice among three ads. That treatment became the basis for Vivaki’s Asq ad unit, which has been tested by 35 advertisers running 400 million impressions on 15 Web sites.

Hulu has only employed Ad Selector on 5 percent or so of its inventory, but the plan is to roll out Ad Swap across most of the site. Eventually, the company wants to present users with not two or three ad choices, but a full carousel of video ads to watch.

Over time, Hulu plans to compile data from Ad Swap to better target its users. This plan is noteworthy because many expected online video ad targeting to be far more sophisticated at this point, employing data and algorithms. Instead, Hulu’s targeting is fundamentally based on users telling the site what they like.

According to JP Colaco, Hulu’s svp of advertising, Hulu’s tests found that users who swapped out ads recalled the ads twice as frequently as those who did not. In other words, allowing people to control their ad experience deepens their engagement, even if they end up just sitting through another pre-roll ad.

“The power of choice is something that is a really incredible theme for the future of online advertising,” said Colaco, who spoke on Monday at the Interactive Advertising Bureau’s MIXX conference in New York.

Similarly, YouTube has mostly folded its tents in the war on pre-roll. Recall its first in-video ad placement attempt was overlay ads, with executives claiming that its tests found pre-rolls a bad user experience. It hasn’t abandoned those ads, but as it sees its future in high-quality content, YouTube has learned to love the pre-roll. It too has latched onto user choice as a way to gauge and even intensify user engagement.

Of course, Google’s view on choice is very telling regarding its philosophy towards advertising as compared to Hulu, and much of the industry. YouTube’s TrueView is entirely skippable: Users don’t have to watch the ads, and advertisers don’t have to pay for them. That’s a strategy that has rubbed some in the industry the wrong way. They question the wisdom in training people to think that the presence of advertising is an option. YouTube counters that in giving users the option, it raises the bar on ad quality.

With Ad Swap Hulu is making it very clear that advertising is part of the deal if you want to watch free content. Users get a choice, except the choice to have no ads entirely.

The medium’s two biggest video companies will certainly have an impact on the way the industry approaches video advertising. But not everyone is on the choice bandwagon. Just last week, video ad network YuMe announced a slew of interactive ad placements.

There are still plenty of players looking to bring lots of data to video advertising. Companies like Adapt.tv and Brightroll are doing so via video ad exchanges that bring in third-party data from sources like BlueKai, Exelate and others.

“Hulu is desperately trying to hold rates high in a category moving towards efficiency,” said Tod Sacerdoti, CEO of Brightroll. “AOL has proven this strategy fails over time and Hulu is just earlier in the cycle.”