YouTube is changing how its priciest ad format is bought to work more like TV - and it could start a bidding war among brands

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YouTube CEO Susan Wojcicki

• YouTube is changing how it sells its daily takeover ads, called masthead ads, from a fixed, cost-per-day rate to cost-per-impression bidding.
• YouTube has long been chasing TV ad dollars and says that the new pricing model reflects how advertisers buy digital TV.
• TurboTax will run a masthead campaign today, which is a coveted position for Super Bowl advertisers after the game.

YouTube is going bigger with its largest ad format.

The Google-owned video platform has long offered brands big, daily takeover placements called masthead ads that appear on the homepage of its site, and is now changing the pricing model.

The masthead ads are part of YouTube's "reserve" inventory, which is space that advertisers buy ahead of time through a representative to guarantee placement and pricing, similar to how advertisers buy TV ads.

Until now, masthead ads have been priced on a fixed, cost-per-day rate, meaning that only one advertiser can buy a slot each day.

Now, masthead ads will be sold on a cost per impression (CPM), allowing multiple advertisers to bid and set the price for up to seven consecutive days. A single advertiser can buy out the space for seven straight days or multiple advertisers can run masthead ads on the same day, depending on how much they are willing to pay. Masthead ads will remain part of the reserve inventory, and advertisers will still have to buy them through YouTube sales reps.

According to new data from YouTube, the prominent ad placement increased purchase intent by 46% and ad recall by 92% when consumers viewed 30 different digital ads in a row, compared to different types of ads on YouTube. The research was conducted by Ipsos and included 3,000 US residents.

Tara Walpert Levy, VP of agency and brand solutions at Google, said the pricing change reflects how advertisers buy addressable TV, a form of targeted digital TV advertising that is used by networks like NBCUniversal, Turner and digital TV companies like Hulu. Addressable advertising takes audience data from a set-top box or subscribers about what someone views and matches it with digital data to serve more targeted ads. For example, a brand can aim ads to run at certain times of day or to specific audiences like horror movie fans.

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"There's only 365 days in a year and a lot of advertisers have interest in the masthead and use it on more than one day," Levy said. "We also had advertisers who were interested in taking advantage of the massive reach [of YouTube] but wanted to customize it a little bit more specifically to either a campaign length or audience segment."

Pricing masthead ads on a CPM basis means that prices could increase based on how many advertisers are vying for the same ad space.

Super Bowl advertisers want more eyeballs on their ads

One use of reserved inventory is around big events like the Super Bowl or holidays because advertisers can get guaranteed ad inventory. For Super Bowl advertisers, the day after the game is traditionally a coveted day for the masthead ad because it's when consumers rewatch all of the ads.

TurboTax has a masthead ad running Feb. 4 that supports its Super Bowl campaign that featured a character called "Robo Child" and promotes a tax preparation software called TurboTax Live.

"It's about driving additional engagement, additional viewership of our biggest spot of the year," said Kathleen Ryan, VP of marketing at TurboTax. "The masthead allows for mass reach with a brand message as well as driving action on both mobile and desktop - there's a lot of flexibility within the ad unit."

Ryan and Levy declined to comment on pricing but in general, prices of YouTube's reserved inventory has increased. Last year, YouTube reportedly increased ad prices for reserved inventory, including masthead ads, by 20%.

TurboTax will also promote its ads on Facebook, Twitter, and Instagram and is sponsoring a section within Roku's app that promotes channels where consumers can watch the game.

"There's a lot of activity surrounding that one spot, and we've evolved into this strategy where you want to parlay the marquee investment with a lot of [media] support," Ryan said.

The growth in digital TV viewing is sure to come up when Alphabet-owned Google reports fourth-quarter earnings  today.

As cord-cutting grows, YouTube has tried to get a piece of TV ad budgets. In April, YouTube said that people are streaming 150 million hours a day of YouTube content globally on TV screens.

Streaming TV is a big growth area for publishers and tech companies, but technical challenges like ad serving and slow progress from TV networks make it hard for brands to buy.

"Given the fragmented nature of inventory and the lack of serving standards, consistent measurement is still challenging within OTT," Rob Auger, SVP of media technology at Digitas, told Business Insider in December. "It's less likely that bots are taking over your Hulu account and more likely that fraudsters are mislabeling low-quality web impressions as premium CTV inventory."