Why The Video Ad Space Is Having A Moment

videoAdap.tv was not the only video company to have a good day yesterday. On the same day that AOL snapped up video-ad marketplace Adap.tv for $405 million, digital ad management provider DG saw its stock shoot up 25% to $10.31 at yesterday’s closing bell.

Although DG rescheduled its earnings call from Wednesday afternoon to Thursday, according to a press release, it had a strong second quarter. The company received $2.6 million in operations income for Q2, up from $0.5 million in the prior year period and the online segment generated $41.3 million in revenue, an increase of 19% from last year’s second quarter.

“We continue to make solid progress in our online business as demand builds for our digital campaign management platform,” said DG CEO Neil Nguyen in a statement. “The 19% increase in our online business this quarter reflects customers’ growing use of video, data driven campaign optimization and greater campaign insights through our new analytics tools.”

Online video is one of the fastest growing advertising markets and companies are attacking it from various directions. While DG has been busy combining the various technologies and products it has bought and built into its “VideoFusion” platform, AOL is ramping up its programmatic capabilities in video.

The Adap.tv acquisition “shows how much online ad buyers and sellers are transitioning to video formats; all media companies, including newspaper, magazine and radio companies, are becoming video companies,” noted BMO Capital Markets analyst Dan Salmon. “For all parties, including ad tech and intermediaries, it also shows how much the adoption of programmatic is changing the sale/transaction process.”

Forrester Research analyst David Cooperstein agrees. “I think the Adap.tv acquisition is indicative of the fact that video is a fundamental part of the digital advertising landscape, and that requires large media sites (and in particular ad network platforms like AOL) to be able to deliver video both at scale and with the level of targeting and measurement that search and display already have mastered,” he said.

Despite the growing interest in video advertising, the road to monetizing video continues to be rocky as Adap.tv rivals YuMe and Tremor Media have discovered. Both companies have yet to justify their decision to enter the public markets.

Looking ahead, analysts will be watching the moves of other players like Yahoo and Google, which are unlikely to remain passive for long. “The interesting responses will have to come from Yahoo and the larger media networks if they don’t already have a video strategy,” Cooperstein maintained. “Google’s YouTube is clearly a leader in this space.”

Update: During this morning’s earnings call, DG CEO Neil Nguyen noted that the company’s programmatic business has “nearly doubled over the prior year” largely due to “the synergy of our data services, specifically [ad tech provider] Peer 39 as well as integration with the market-leading demand-side platforms.” In addition, the company has rolled out more than 40 campaigns to date using its new VideoFusion broadcaster online service, according to Nguyen.

In regards to AOL acquiring Adap.tv, Nguyen said, “The interest in online video from advertisers around the globe is one of the most exiting trends we see.” He called the move “a step towards how TV media dollars are bought and sold. Advertisers are looking to the industry to manage their video budgets holistically across multiple screens.”

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