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One True Media, an online video creation and editing company, has raised $9 million in a second round of funding to market SpotMixer, a video ad service it offers to small businesses.

Small businesses can use SpotMixer to make and distribute their own professional-looking videos by using photo and video templates, along with marketing copy and voice-overs. These videos are essentially ads, which can then be embedded in an email campaign or posted to YouTube and other web sites. The company also helps businesses “optimize” the videos for keywords, so that they are easier to find in search results. SpotMixer also helps customers manage their ad campaigns. Creation is free, while adding the video to SpotMixer’s network costs money.

SpotMixer hopes to create ads that aren’t specific to any medium — for example, cable versus online. You make a single video and can easily distribute it to any source. If SpotMixer can work out the deal, the ad can be submitted to run on television.

Sample videos can be viewed here and on SpotMixer’s YouTube channel, which has about 15 videos right now. The video ad with the most views so far is a promotion for Eco Canteen.

The market for companies offering online video ad services is crowded, and a lot of companies are struggling to get a piece of a pie that is already looking anemic. One True Media’s competitors include Spot Runner, a leader in the pack that focuses on television ads, Mixpo and Jivox. A host of related companies are still getting funding, including SundaySky, which just got $8 million to help any web site transform its content into a marketing video (see our coverage today). However, while funding is still trickling in for some companies, reality is setting in for others. Spot Runner had a round of lay offs last summer despite a large round of funding in May 2008, which suggests that the business model is still being tweaked. And Spot Runner’s television ads are steep in price, which could give SpotMixer an opening to compete for businesses with microscopic ad budgets.

Unfortunately for all these companies, the recession could mean that businesses already strapped for cash will just focus on text and display advertising, and skip video ads altogether. SpotMixer, however, says it believes video advertising is three to seven times more effective. When asked about how many people were actually making videos on the site, a spokesperson stated that there were 10,000 videos since its launch in May 2008, with 2,500 created in December 2008 — on top of 10,000 partner videos from YellowBook and SuperPages. But the company did not disclose how many individual customers that translates into. The company also told me that, on average, its customers make more than just one video but wouldn’t give specific numbers.

Along with the funding announcement, the Redwood City, Calif.-based company said it also became the first authorized reseller of Google AdWords for video, which will allow its customers to take advantage of distribution through Google’s content network.

Kleiner Perkins Caufield & Byers backed One True Media with a first round of funding totaling $5 million in June 2006. The current round was led by DAG Ventures (a firm that often follows Kleiner in deals), with reinforcement from previous investor Kleiner Perkins and a strategic investment from NTT Finance, which hopes to distribute the platform in Japan. Chief executive John Love said this round of funding was over-subscribed, despite the economic downturn, as the company intended to raise $6-8 million.

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