Viral Video Grows Up

British marketer The Viral Factory helps companies overcome the misconceptions, and avoid the cardinal sins, of Web-based video advertising

It wasn't a very jolly holiday for Sony—at least in parts of the marketing department. Late last year, the consumer electronics giant promoted its PlayStation Portable game console with a blog and online video made to look like the work of genuine fans. After the campaign was exposed by bloggers as a marketing ploy, the company was subjected to a torrent of ridicule.

Sony could have avoided the backlash if it had called The Viral Factory. The small London startup specializes in crafting online video clips intended to be so appealing that consumers will send them to friends—corporate backing notwithstanding—spreading a client's message to multitudes, like a virus.

Done right, a "viral" video can get a brand in front of millions of viewers, even boosting sales. But often, as with Sony (SNE), it can go terribly wrong. The trick, of course, is knowing what to avoid as much as what to do. That's where The Viral Factory comes in. "We know what we can achieve," says Viral Factory co-founder Matt Smith. "We also understand when and when not to use viral."

Building Branded Entertainment

It's a recipe that has served The Viral Factory well. The firm has produced 115 clips that have been viewed an estimated 1 billion times. Not bad for a company that's only a half-decade old. Smith founded The Viral Factory with TV producer Ed Robinson in 2001, before the viral craze took off. At the time, venturing into online video ads was a crapshoot for companies, says Smith, managing director of the firm. "They didn't really expect anything," he says, laughing. "Which is good—because we blew them away completely."

Like in 2003, when the The Viral Factory released a video for the Ford (F) SportKa featuring a car hood that flips away a bird threatening to sully the paint job. That same year, the outfit introduced the "Trojan Games," a series of videos for Trojan Condoms (CHD) featuring made-up highlight clips of athletes participating in adults-only sporting events.

The Trojan clips were viewed more than 35 million times. Both campaigns helped put The Viral Factory—and, in some measure, video marketing itself—on the map. What's more, they gave Smith and colleagues confidence that viral video could work as a real marketing vehicle. "We finally nailed the trick of getting the brand integrated into the content without ruining the entertainment value," he says.

Viral Is Not a Miracle

Since then, PR firms, ad agencies, and even camcorder-wielding consumers have produced and posted countless viral videos, but few achieve the right balance of entertainment and strong brand awareness. "Anyone can produce a piece of footage that is so funny that it goes right around the world," says Robert Campbell, managing director of Outsider TV, a London-based production company that collaborates on some projects with The Viral Factory. "But to do that with a brand attached, consistently, is very difficult."

That means The Viral Factory has a lot of misconceptions to overcome. Among them: that viral video is a panacea. Many advertisers believe "…viral is cheap and that it can solve all their marketing issues in one go," Smith says. Others come in thinking "…they can make some dopey TV commercial and stick it online and that will be viral."

In recent years, The Viral Factory has seen its client list grow to include such names as Italian automaker Fiat, British mobile phone provider Orange, and Viacom's (VIA) MTV. Sales reached $2.5 million in 2005, an increase of almost 50% over 2004. "Things are moving really fast now," Smith says. "Viral is becoming a standard part of the marketing mix of major brands, along with radio, TV, and online."

Time to Get Serious

But competition is on the rise, in part thanks to the spread of user-generated video. And viral video remains a tiny part of the roughly $15 billion spent annually in the U.S. on online advertising and marketing. Most viral campaigns cost $50,000 to $200,000 to produce, including a negligible "seeding" fee to distribute the video online through sites like "It's still play money for advertisers," says Nate Elliott, senior analyst with JupiterResearch.

Clients, nevertheless, are willing to play with higher sums. Advertisers will spend more than $1 million for a viral video campaign now, says Smith, a far cry from the $10,000-$20,000 he and Robinson charged for their earliest projects. "The market is maturing," he says. "It has been a little bit slapdash and little bit adolescent until now. As budgets grow, there needs to be more rigor and professionalism brought into the process."

Before it's here, it's on the Bloomberg Terminal.