VideoEgg is launching what it calls the “AdFrames Brand Response Network,” (available here) a new option for video advertising that moves away from charging by CPM (a price per thousand impressions) and instead determining rates based on how users respond to ads. Here’s how VideoEgg defines engagement:
“Engagement doesn’t begin until a user rolls over the ad, and the AdFrame Invitation has expanded into an overlay. AdFrames includes a three-second delay during the roll-over to ensure the user is not engaging with the ad inadvertently.”
The overlay format is nothing new – it’s currently being employed by a number of major video players including YouTube. As for paying by engagement, this is a big deal. Advertisers will obviously love it, since they don’t pay for people who completely ignore ads. On the other hand, for publishers, it means there is no revenue earned until a user has clearly indicated an interest in an ad.
Given recent data that suggests about 6% of Internet users (with some rather undesirable demographics) do 50% of clicking on display ads, the engagement metric may raise some eyebrows with publishers, especially those catering to folks not especially apt to engage with advertisements. In any event, here’s what it looks like (along with some further explanation from CMO Troy Young):
That said, some of VideoEgg’s more important publishers, including Meebo and Flixster have already signed on to participate in the program. Meanwhile, Microsoft will be running a campaign for Office, featuring comedian Amy Sedaris. 
All the while, VideoEgg isn’t putting all of its “eggs” in one basket and won’t be discontinuing its existing services, which pay publishers on a traditional CPM basis.
So, what we’re looking at here is a pretty radical experiment in how video advertising is paid for. Engagement is certainly a promising metric for advertisers, but it will require a lot of uptake from publishers to take off. On the other hand, given it’s hard for most publishers to sell out 100% of their ad inventory, an ad network like VideoEgg is well suited for using engagement-based ads for remnant inventory (inventory not sold on a CPM-basis) which ultimately results in more total earnings for publishers.
Who knows though - perhaps the premium advertisers will pay for engagement will make up for the more predictable earnings you can expect from CPM ads.
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