According to a report from eMarketer, ad spending on online video is forecast to surge 41.4% this year and almost 40% for 2014 (hitting $5.7 billion). It’s certainly bad news for traditional operators like CBS (CBS), Viacom (VIAB) and Comcast (CMCSA), but for well-positioned digital players, it’s a great opportunity.
The mega digital shift makes a lot of sense. First of all, the availability of broadband is pervasive in the U.S. Smartphones and tablets have exploded into the hands of consumers, and are becoming increasingly common ways to watch videos.
Another important factor: Unlike traditional broadcast TV, online video allows for much deeper analysis. This is definitely important as advertisers want to get a sense of the return-on-investment on their expenditures.
So which companies are most likely to benefit? Here’s a look at three:
Tremor Video (TRMR) operates an online video ad network. At the core is a technology called VideoHub, which allows customers to display their ads across desktop computers, smartphones, tablets and even connected TVs. The network includes about 500 websites and mobile apps, with more than 200 involving exclusive partnerships.
An important part of the technology — which leverages Big Data — is that it filters for obscene or offensive content. No doubt, this is critical for major brands.
TRMR is a speculative play. Since going public in June, shares have plunged 37%. The upside is that the dip has made the valuation attractive, with the price-to-sales ratio at only 2.5.
Given Tremor’s technology and video expertise, the company could make for an interesting acquisition, which could put a floor on the stock.
Based on a report from comScore, Facebook (FB) is the No. 2 player in the video market. And the company is only continuing to ramp things up. The most notable effort was the recent launch of Instagram Video, which competes with Twitter’s Vine.
A big advantage for Facebook is its extensive data on its users. With this, the company can provide highly specific targeting for demographics.
Interestingly enough, Facebook hasn’t even monetized its videos yet. That’s expected to change soon, though, and a report from Morgan Stanley predicts that the company will generate as much as $1 billion from such ads in 2013. By 2019, the revenues are expected to reach $5.5 billion.
Of all the players in online video, Google (GOOG) seems to be in the best position. The company operates the most successful online video platform, YouTube, and has more than 1 billion users who watch more than 50 million hours per video a day.
With this kind of scale, there will likely be lots of interest from traditional sponsors. Google is also getting more aggressive about snagging premium content. Keep in mind that — according to a report from AllThingsDigital — the company is trying to buy rights to the NFL’s Sunday Ticket package, which is now owned by DirecTV (DTV).
While Google does not report revenues for YouTube, they are likely in the billions. According to a report from Morgan Stanley, the site will generate $4 billion in revenues and $711 million in operating income for 2013. By 2020, the forecast is for $20 billion in revenues and $5 billion in operating income.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.