Video is taking off, but an advertising model that appeals to both big brands and viewers is still years away. Here's what to do in the interim.

In the three years since the launch of YouTube, internet video has reached a fever pitch. Consumers view over 8 billion videos a month, which has transformed the very nature of web content and made us question everything we knew about how websites attract, engage, convert and retain audiences.

In order to deliver this massive river of content, sites have turned to specialized software and infrastructure providers. But most importantly -- and most expensively – they've turned to content delivery networks like Akamai, Limelight Networks and Panther Express.

Sites will never be able to completely escape these expenses, but to offset their massiveness publishers are looking for new methods of monetization. Foremost among these is video advertising; the delivery of either pre-roll or overlay ads that appear during video playback. Early evangelists postulated that not only would online video overtake television as the dominant medium for advertising, but CPMs would also eclipse anything being paid at the time, moving into the heady realm of $50 to $100.

Early showings have been a disappointment, and with CPMs heading through the floor, this is a dynamic that is unlikely to change in the foreseeable future. There are many reasons for the failure of video advertising, but some of the foremost issues include the dearth of monetizeable content, the high production costs of video ad creation, audience rejection of the format and the resultant poor performance of video ads compared to other forms of advertising.

The lack of monetizeable content is by far the largest problem currently facing the industry. Although monthly video streams number in the billions, the lion's share of this viewership is commanded by YouTube, where the majority of content falls into two categories: novelty videos (i.e. skateboarding dogs) and copyrighted content. The first category is of limited interest to the large brands that comprise most worldwide advertising spending, while the second category is of no advertising value whatsoever. There are only a handful of sites that control high-value, proprietary content.  When these sites can command a large enough audience, brands will eventually come, but for the majority of sites where viewership is not measured in millions of monthly impressions, or user-generated content comprises the majority of their asset base, the prospects are bleak.

Also unfortunate is the high cost of video ad production compared to banner and other forms of online advertisement. A bevy of startups are jockeying to address this problem with cheap alternatives, but production quality remains low and big brands are still loathe to engage. Advertising agencies control the bulk of media spend, and because captive production is a cornerstone of their business, this is unlikely to change in the near future.

As if this wasn't bad enough, end-users despise video advertising with a vengeance. Online video is not television and viewers are quick to click away when advertising intrudes on their viewing experience. Web surfers are goal-driven and look to be entertained when they click play. The moment a pre-roll starts, freezes their controls and locks them into an ad experience, they're gone. The asset value of online video has not yet eclipsed the impatience of the online audience when it comes to their viewing experience.

As a result -- and not surprisingly -- online ads perform terribly. Users refuse to click regardless of format and the form factor is ill-suited for awareness marketing. Without audience acceptance, there's little reason for brands to advertise and the exploratory spending of the early days of video is drying up. The dogs aren't eating the dog food.

There are two solutions to this problem, and they depend on the nature of content being shown. For the sliver of sites that have made the multi-million-dollar investment and produce their own content, pre-roll is a viable solution, but only if they can amass an audience large enough (1 million streams a month, at least) to make the numbers work.

Assume a site sees 80 million streams a month, which definitively puts it in the top 10 video sites worldwide. Even with a $2 CPM it is still only seeing a measly $160,000 a month, all at a cost of delivery that's roughly half that -- hardly an encouraging statistic for the rest of the online world.

For sites with user-generated content, the options are more limited. The most effective strategy is to ignore in-video advertising and focus on page sponsorships. In such an environment, video views equate to page views, and banner revenue is at least an option for monetization.

As the market continues to develop, video advertising that commands both the spend of big brands and the attention of audiences may indeed come along. But that market is years away. In the interim, sites are best off doing what they have always done: monetize banners where possible and focus on customer purchases and subscriptions elsewhere.

Benjamin Wayne is CEO of Fliqz.