- The Washington Times - Thursday, May 18, 2006

The online video market is exploding, and AOL this week purchased a D.C. company with expertise in placing ads in the emerging platform.

AOL has used Lightningcast Inc.’s advertising insertion technology — first for audio and later for video streaming — since 2002 and announced its acquisition of the previously privately held company yesterday. Financial terms were not disclosed.

“In 2005, we reached a crucial threshold with half of [U.S.] households with broadband access, and that is one of the catalysts pushing all this video stuff forward,” said Joe Wilcox, a senior analyst at JupiterResearch. “Apple’s ITunes selling TV shows was like the rocks setting off an avalanche of interest, and that was followed by YouTube with people putting up their own content.”

Founded in 1999, Lightningcast and its 34 employees will continue its current operations as a wholly owned subsidiary of Baltimore-based Advertising.com, which is a wholly owned subsidiary of AOL in Sterling, Va. Lightningcast will continue to be based in Washington.

Lightningcast established itself as a market leader by focusing on audio and video ads while its competitors specialized in Web site banners, e-mail and other forms, said Tom MacIsaac, the company’s president and chief executive officer.

Lightningcast clients — including Microsoft Corp., Walt Disney Co.-owned ABC, and Viacom Inc.’s MTV — decide individually whether their viewers can fast forward through the ads and when to add or update the commercials, he added.

AOL spokesman Nicholas Graham said the acquisition was made because Lightningcast is at the nexus of two areas where AOL wants to prosper — the growth of online advertising and consumer adoption of high-speed Internet access. He added that Advertising.com and Lightningcast are free to continue relationships with companies that may be considered AOL competitors.

Analysts said that although online video advertising is still in its infancy, technology and media companies are already exploring ways to best use the burgeoning money-making opportunity.

“The fact is this is entirely new ground for everyone,” said Susan Feldman, research vice president for content technologies at IDC in Framingham, Mass. “People are scrambling to put advertisements in any of the new media outlets,” especially when TiVo and other digital video recorders allow users to speed through traditional TV ads.

The online advertising market was about $12 billion last year, mostly from the major search engines placing ads, Ms. Feldman said.

“It’s going to grow much larger, and you’ll see more large companies gravitating toward more new media advertising and continuing with the old media,” she added.

And the competition is heating up.

In addition to Apple Computer Inc.’s ITunes Music Store and Google Video’s selling episodes of popular cable and network TV shows, the networks themselves are expanding their broadband video offerings.

Companies now must balance how to best serve the market and how to make money from it.

“The question is which of the many possible models will be successful,” Mr. Wilcox said.


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