Publishers have long held pre-roll as the focal point of their video revenue strategies — a seminal tactic when discussing the potential of untapped revenue streams. Best-in-class CPMs, the opportunity to maximise inventory, and the fact that it is directly attached to content with high engagement all make pre-roll an extremely appealing ad unit.

That’s the story we love to hear. But the uncomfortable truth is that generating margin on pre-roll is, more often than not, a break-even proposition at best. In fact, unless you have massive scale, it is virtually impossible to profit from pre-roll.

Publishers folding pre-roll revenue in with other display revenues when looking at margins sometimes lose sight of this reality.

The more video revenue you generate, the higher your costs go. These costs include bandwidth, video platform streaming, content acquisition, and staffing and production gear.

The struggle media outlets the world over face is that tier-1 video streaming is expensive. You cannot get away with endless shaky videos of cats playing piano.

Remember:

  • You need to license more and better content to engage audiences.

  • Streaming costs increase with audience engagement.

  • Ad serving costs increase with streams.

  • It’s tough to generate a good margin without scale.

It’s even harder when you consider that basically 10% of your posted video content will generate almost all your video pre-roll revenue. You just don’t know which 10%.

But here’s what it looks like when you break it out:

  • As a percentage of annual revenue: Pre-roll, 100%.
  • Cost of revenues: Content, 50%; streaming: 32%; cost of sales, 15%.
  • Total Costs: 97%.
  • Margin: 3%.

That’s a tough business to rationalise, especially when you consider that this still doesn’t take into account staff or gear.

So, within this context how can you operate a profitable video business?

Here are some options:

1. Use traditional avenues (news video monetised by pre-roll) to build and engage video audiences, and pay for our business.

2. Launch products with more manageable content creation or acquisition costs. Many publishers have embraced providers that package a video platform, content streamed into the platform and pre-roll sales. These are generally provided on revenue-share deals where the provider covers all costs and simply cuts a check to the publisher at the end of each month.

Because they amass a large client base, these companies have the kind of scale where they can hold the line on streaming, content, and sales costs. The downside is, of course, that much of the content is the same as what audiences can find on competitor sites, and because the scale is massive, CPMs tend to be lower.

Some publishers will also be wary of abdicating so much control of their video strategy to third-party providers.

3. Layer on other types of initiatives and products with lower streaming costs that leverage your audiences. A product that has been making significant headway in the last year is InArticle or InStream video ads. These are ads that appear directly within an article, where the text on a story page parts and a video ad begins streaming with volume usually muted.

This solution is particularly intriguing because it removes the video ad entirely from the video content and leverages a significantly larger pool of inventory, potentially every article on your site.

4. Pursue video revenue not necessarily tied to streaming video at all. Finally, there is the creation of branded video programming for clients. This should be an easy one for publishers to grasp since creating advertorials and custom publishing has been around for a long, long time. This comes in the form of channel sponsorships, custom brand integrations, and native content opportunities for advertising partners

Not all the above solutions will make sense for every publisher, but tacking a few alternate tactics onto your video strategy beyond pre-roll will certainly give your video business some added revenue support.

After all, it’s hard to win at poker with just one card in your hand.