Much has been said, hoped and wished for when it comes to video advertising. Its proponents argue that it has the potential to become a multi-billion industry. But its detractors claim that the combination of limited efficacy, a dearth of inventory, high costs of production, and low CPMs (cost per thousand views) are holding it back from becoming a viable form of advertising.

So who’s right? There’s convincing evidence on both sides. Supporters of video advertising usually point toHulu as a shining example of monetization done right, while opponents underscore Google’s persistent and unsuccessful efforts to offset the costs of YouTube. As other companies struggle to justify the costs of their own video initiatives, what examples should they turn to?

Hulu has done a tremendous job in creating an online video destination and in driving revenue from their video conent — but it enjoys advantages that few sites can replicate. With NBC and Fox backing it up, the costs of content creation and brand-building — multi-million investments — have been absorbed and offset long before videos are even posted to the site. A massive brand-loyal audience already exists for Hulu, and brand managers and ad agencies — the gatekeepers to media spending — have a history of success with NBC and its properties. In this rarefied atmosphere, video monetization is not only possible, but lucrative, and Hulu’s victory has spawned a number of copycats.

But for sites that must bear the costs of brand building and content creation — or sites that depend mostly on user-generated content — the outlook is less rosy. Advertising agencies, slow to adopt new media, are disinclined to gamble their spend on unknown brands, especially in a recessionary environment. User-generated content is an even bigger risk, with marketers worried that their brands might be damaged by running user-generated video that they can’t predict or control.

Accordingly, for the majority of web sites, spurned by agencies and major brands, monetization of online video remains elusive. The two alternatives for these publishers are blind and remnant advertising or in-page monetization. While both of these are legitimate options, the math is hard to overcome.

As a rule of thumb, it costs about a dollar for every thousand videos delivered. In order to offset the cost of distribution, advertising needs to generate $1 per thousand video views. In the case of video advertising, whose dominant forms include pre-roll, post-roll, and overlay, that $1 is hard to come by.

Post-roll is a mostly ineffective form of advertising, and very few sites have the kind of content that makes persistent pre-roll possible without massive audience defection.

This leaves overlay, typically delivered as a small pop-up within a video frame. Due to inventory constraints, typically no more than 50 percent, and often less than 25 percent of all videos will display as advertisement, meaning that the true CPM must be between $2 and $4 — a price point that is, practically speaking, impossible to secure in today’s market. In fact, CPMs and coverage rates for overlay advertisements continue to slide as the number of sites vying for an insufficient pool of investory continues to increase, and advertisers experience disappointing click-through performance.

In-page advertising may offer a more viable option for publishers, as the $1 CPM hurdle may be easier to overcome with traditional banner advertisement and sponsorships. This is well-trodden ground, however, with a decade of experimentation in online advertising providing lackluster results for all but a handful of sites.

As video continues to explode, the costs of production and distribution will inevitably decline, lowering the hurdle for monetary success in the medium. Experimentation with new forms of advertising, and a maturing understanding by brands and agencies of the possibilities video affords, may drive up CPMs and help to close the gap. Until that time, however, video monetization remains gold buried deep, and publishers must seek alternate methods to offset the costs of their video investments.

Benjamin Wayne is the chief executive of Fliqz, a company that hosts streaming video on web sites.