12/09/2010 01:02 pm ET Updated May 25, 2011

Beyond Ad Networks, Smart Money Is Focused on Content Networks

The online media market has seen five acquisitions in less than eight weeks all targeted at building large syndicated online video networks. Why? It starts with the consumer. Nearly 180 million people in the US are "video snacking" (watching short video clips on computers) nearly six times a day. This is quickly becoming a significant untapped opportunity for both media and advertisers. It also represents a tremendous disruption to the large online ad business that continues to be focused primarily on display ads. The new digital "CBS and NBC's" of the world are being built right now and they are unlike anything currently dominating in the landscape.

Today, ad networks are the 800-pound gorillas of video advertising. These companies are essentially the "Sabre Reservations System" of ad inventory -- giant arbitrage desks that create value by efficiently monetizing existing inventory to maximize revenue. However, as users increasingly pursue content from an explosion of vertical properties, and viewership fragments across thousands and eventually millions of sites, there is a need for a new syndication model to support this emerging distributed media network.

Ultimately, the arbitrage model alone is not enough to provide the type of real media engagement that is necessary to help advertisers sell their products efficiently.

A new model is emerging to address the opportunity -- and the related challenges -- from the growth and fragmentation in the new syndicated video economy. Meeting these challenges are "content networks"; distributed media companies that create engaged audiences by syndicating professional video with advertising across thousands of digital properties.

Content Networks provide both content and advertising together as a unit, along with a robust publishing platform. This dual model actually creates inventory and new advertising opportunities by making it easy for hundreds of thousands of medium and small sites to deploy professional video at no charge. Instead, they engage in revenue sharing to the benefit of advertisers, content sellers and distributors.

Content networks also craft tailored distribution and context for lasting brand engagement. The currency of content networks is safe engagement. Brands and ad agencies have spent billions of dollars building reputations and optimizing messages and can't afford to see that equity diluted by sloppy ad placements.

The goal is to help consumers actually engage with online content video, not just put it on any site. That means putting the video on the top page not the bottom. That means marrying content that is relevant to the site's editorial and creating additional views by encouraging viewers to clock extra time.

For example, if a consumer is enjoying content around fashion or lifestyle programming, an ad network might feed a commercial anywhere on the site. Reach without engagement. Content networks care where on the web site your brand message is and work to create incremental avails by linking content feeds and technology to the advertising. The result creates a seamless, non-obtrusive experience that actualizes engagement and furthers purchase intent.

In a recent trial with a major consumer products partner, Grab Networks delivered a meaningful increase in purchase intent by creating real links between consumer interest and their branding messages. Since then, we've seen similar partners renew commitments, seeking to maintain a high level of engagement. Beyond fostering product goodwill, online video engagement solidifies a ROI unprecedented for the market.

Additionally, the value of video networks has been well documented in recent history by several acquisitions by major players. Companies like AOL and Yahoo! are looking to content networks to strengthen their video delivery in light of 2011's 60% expected growth in streaming video advertising. With only a few similar products available on the market, a true, independent full suite solution is becoming a rare option.

2011 will be a seminal year in the development of video programming. Online media will reach new levels of adoption, screens will begin to blend and living rooms will see their first real step towards digitalization. As such, distribution networks will have to create a sophisticated system of alignment between interest and ad delivery.

My bet is on content networks, what's yours?