Tag Archives: programmatic media buying

Has France Solved the Media Transparency Issue?

24 Feb

dreamstime_xs_13261288Earlier this month the French government passed a new edict extending the coverage of Loi Sapin, their anti-corruption law passed in the early 90’s which made the process of buying media more transparent.

There are two key tenants of Loi Sapin, which afford French advertisers a level of protection related to certain non-transparent revenue sources which the Association of National Advertisers (ANA)/ K2 2016 media transparency study showed were prevalent in the U.S. (and elsewhere around the globe). Specifically, we are referring to the practice of media owners and publishers paying rebates to the agency and the use of media arbitrage, where agencies purchase inventory on their own to be resold to their clients at a higher rate.

Loi Sapin prohibits agencies from selling media to their clients that the agency had purchased in its name. In today’s parlance, it prohibits media arbitrage or “principal-based” media buys. Secondly, the law clearly stipulates that the ad agencies cannot derive revenue from a media owner, stating that agencies can only be paid by advertisers.

To France’s credit, the new decree, which will take effect in January of 2018, expands the coverage of the anti-corruption law to include digital advertising and digital advertising services. Of note, this includes agency trading desks, which sometimes buy and resell digital media to their clients. Yes, agencies will still be able to provide programmatic media buying services through their trading desk operations to advertisers, they will simply have to disclose to their clients, upfront, those affiliates or entities where they or the agency holding company have an ownership interest.

Interestingly, the decree will also require the media owner to direct bill the advertiser and compels them to provide detailed information about the services that they provided to the advertiser. This particular aspect of the law will further enhance advertiser transparency and virtually eliminates the ability of an ad agency to blindly mark-up said services.

As U.S. advertisers and the Association of National Advertisers (ANA), continue to evaluate the most effective means of improving media transparency, France’s anti-corruption law and its new decree covering digital media services certainly provides some interesting food for thought.

Principal-Based Buying: A Wolf in Sheep’s Clothing?

29 Apr

dreamstime_xs_36536323Recently, Ad Age ran an article entitled: “Risky Business: Why Media Agencies are Betting on Principal-Based Buying.” To be honest, my first reaction was, what in the world is principal-based buying? It didn’t take long to figure out that it was simply a new descriptor for media arbitrage.

Clever, principal-based buying sounds so much more appealing and less subversive than media arbitrage. However, arbitrage is arbitrage, regardless of what moniker that is placed on the act of purchasing media and reselling said media to advertisers. According to Merriam-Webster, the definition of arbitrage is clear:

The nearly simultaneous purchase and sale of something in one place and selling it in another in order to profit from price discrepancies.”

We certainly understand the primary allure of media arbitrage to agencies; the potential for higher margins than what traditional remuneration models would allow for. Let’s face it agency holding companies are publicly traded entities with a fiduciary obligation to drive shareowner profitability.

Simply, “principal-based” buying is a practice that is in clear violation of the principal- agent relationship, which has long been the driving concept behind client/ agency relations.

Forget the opacity, which is a hallmark of this buying tactic and the potential risks to advertisers seeking to optimize media value and boost working media ratios. The main issue with agency ownership of media is the potential impact on the objectivity of the advice, which it offers its clients.

Media time and space is a perishable product. It is also speculative in nature when it comes to projecting future value from a relevancy and audience delivery perspective. So what happens in the event an agency, indulging in arbitrage, has a significant ownership position in distressed, dated inventory? Could such a position create internal pressure on the agency’s media staff to move that inventory? In turn, might such pressure result in agency media team’s pushing that inventory off on clients, whether it represents the best fit at the best price?

Assuming that an advertiser knowingly engages their agency partner’s trading desk and believes that this relationship will yield a price advantage over traditional buying practices there are a few questions to consider; “How will you know? What methodology will you apply to vet the quality of the inventory and the price paid? Who will conduct that analysis for you?” In short, is this a proposition whose economic benefit to the advertiser can ever be accurately evaluated?

Sadly, while the agency community may shrug off the notion of ever having committed to a principal-agent relationship with its clients too often we find that agencies, which have embraced media arbitrage, have not disclosed this fact to their clientele… in spite of the position often taken in the trade publications.

In our agency contract compliance practice we find that in most instances there is not a separate letter of agreement between the agency’s trading desk operation and the advertiser, that the language dealing with “related parties” within the contract is inadequate to cover such a scenario and that there are no limitations in place regarding the percentage of an advertiser’s media buy that can be run through the trading desk.

Hopefully, those agencies that intend to engage in and or extend their use of principal-based buying will also commit to fully disclosing this practice and its application to each of their clients, well in advance of implementing this buying approach on those clients’ behalf.

From an advertisers perspective, it is imperative to assess the type of relationship that you desire with your media agency. If a principal-agent relationship predicated on full-disclosure and the fiduciary obligations, which underlie such relationships, are important to your organization, the client/ agency agreement will need to reflect that position. On the other hand, if there is interest in exploring principal-based buying consider contracting directly with the agency trading desk and establishing caps on the percentage of the budget, which can be invested through that operation.

                                   

Sourcing Your Programmatic Buying Partner

14 Dec

3 rsWritten by Peter Portanova, Project Analyst for Source One Management Services

The concepts of reach and frequency have long guided the way marketers approach advertising, and when multiplied, they provide the calculation for Gross Rating Points (GRPs) to measure and evaluate the success of your campaigns. However, the rise of programmatic ad buying (automated buying based on real time data analysis of competitive rates) forces marketers to reconsider their historical understanding of success in marketing, and encourages the consideration of new and potentially more effective metrics.

GRPs are hugely important across a variety of marketing channels, exclusive of programmatic buying. The ideology that more GRPs means greater success is severely flawed, and by using such a calculation in a highly targeted and customized solution like programmatic buying, one misrepresents the technology’s true value. However, instead of arguing the utility of GRPs, it is more critical to consider alternative means of success in marketing and how embracing programmatic can revolutionize your approach to online advertising, while driving a variety of critical KPIs.  

Programmatic buying is growing quickly, and is responsible for billions of dollars in digital media placements. Programmatic buying is the intersection where data and advertising truly meet, with engineers, traders, and data-management platforms replace traditional sales planners. Agencies would like you to believe that their programmatic efforts reduce overall costs, but the truth of the situation is that, when viewed holistically, programmatic buying is actually more expensive.

Implementing programmatic buying efforts does have its merits, and agencies are quick to note that initial costs can be negated quickly. However, for programmatic buying to reach its maximum potential, marketers and advertisers must learn to move past the traditional reach and frequency mindset, and consider the long-term advantages of highly targeted placements. In fact, industry experts note that using programmatic buying to place more advertisements decreases transparency, which can lead to fraudulent placements. In using programmatic buying to deliver a highly targeted message to the right individual at the right time, brands are able to increase their visibility to the appropriate segments, increasing potential brand engagement.

Marketers must begin to understand programmatic buying from a holistic perspective. Why is this more expensive? Does it involve fewer people? Most marketers are shocked that programmatic buying proposals suggest fewer advertisements at a greater cost. While inventory is cheaper in programmatic buying compared to manual buying, there are substantial costs of doing business to implement and manage these efforts. In an article on AdAge, a media agency executive said, “Five full time employees are needed to spend $100 million national broadcast budget, while the same number would be needed for a $5 million programmatic buy.”

Understanding the discrepancy in FTEs and costs becomes more complicated when you also factor agency commissions into the equation. The employees required to manage a programmatic buy are in far greater demand, having a unique skillset that commands salaries 50-100% greater than manual buyers. The technology and the platforms do not eliminate the need for human input, and therefore it is critical to entice highly skilled employees for retention. Traditional full-service agencies have seen these employees move quickly to digital agencies that have a greater focus on new technologies, including programmatic buying.

The true cost of programmatic buying becomes noticeable when considering agency commissions that are charged to simply breakeven. The same agency executive interviewed by AdAge stated that, with a budget of $100 million, break-even points begin at 1% with TV, and quickly jump to 10-12% with programmatic. It is also worth noting that the 12% commission is only the break-even, with many agencies charging a rate of around 20%, to turn a meager profit.

There is a substantial cost of placing media through a programmatic partner. AdAge refers to these costs as an “intermediary tax” which accounts for all the transactions that take place to make a programmatic buy occur. With 7% to 20% taken by ad exchanges, another 10% to 20% taken by automated software providers, and then another 15% for the data-management platforms, there is potential that only $.50 of every dollar will reach the publisher. While these rates may seem expensive, there is value in using programmatic buying; however, the marketer should be fully aware of the intended use of programmatic, with no expectation that they are receiving a more targeted solution for a lower price.

While so far we have discussed mostly the potential benefits (and drawbacks) of programmatic buying, there is always a need to manage costs. Consider the following best practices when working with your agency to ensure greater transparency in your agreement.

  • Contract Language
    • When contracting with your programmatic buying partner, ensure that language exists around specific rates. Furthermore, consider a period where you can renegotiate these rates to be more favorable.
  • Redundant Services
    • Prior to considering your programmatic needs, understand the services you require and what you may need outside of traditional manual buying. When working with multiple vendors (which is common with programmatic buying), there is potential to be charged for the same service multiple times.
  • Liberate your Data
    • Unless specifically outlined, your data may not belong to you after working with a particular partner. If you are unable to retrieve your data during any part of the process, the supplier immediately gains tremendous advantage.
  • Understand your Options
    • Do you need managed service, or do you need self-service? In a self-service agreement, the vendor charges for the use of their technology, but does not charge for any resources associated with operating the platform. A managed option typically has charges for not only the technology, but also the management fees associated with run and execute a campaign.
  • Consolidate
    • Find a partner capable of providing you with a variety of services, and consolidate your marketing to that one agency. Using separate agencies to plan and execute your manual and programmatic buys is inefficient, and unless information is shared freely across agencies (it probably will not be), the effectiveness of both operations will be hindered. Consolidation also allows for better reporting and recognition of opportunities across channels.

As for the future of programmatic buying? It’s only anticipated to grow. EMarketer predicts total programmatic buying spend to exceed $20B in 2016. When it comes to digital marketing, there is no “one size fits all.” While programmatic buying is typically more expensive than other traditional tactics, there’s no doubt the method offers significant ROI in the form of operational speed and efficiency and increased scale and targeting. Like any other agency sourcing engagement, do your due diligence when looking for the right partner for your programmatic buying requirements. Beyond assessing agency scale, technology and data analytics, and skillsets, take steps to establish a strategic client-agency relationship. This begins with strong contract language that drives further value from your programmatic efforts and continues with fostering ongoing communication and transparency with your agency.

Peter Portanova is a marketing category enthusiast and Project Analyst for Source One Management Services. He is an expert at developing RFPs and executing strategic sourcing strategies for clients in a wide array of industries, specializing in navigating the complexities of the Marketing spend category. Click to learn more about Source One’s Marketing Category expertise.

Programmatic: Promising, but is the Benefit to Advertisers Real?

19 Oct

cautionIn 1997 rock legend David Bowie told his fans at a Madison Square Garden concert; “I don’t know where I’m going from here, but I promise it won’t be boring.” While his comments were a reflection on life after his 50th birthday, they could just as easily be used to describe the future of programmatic media buying.

Put yourself in an advertiser’s position and consider your reaction when your media agency approaches you with this enticing proposition;

Through our proprietary programmatic buying platform we have the ability to deliver quality, targeted inventory to precise segments of your target audience at a time and in an environment when they’re most receptive to your message and at rates that are a fraction of market pricing.” 

For many advertisers, the response to this enticing offer has been “sign us up.”

The programmatic revolution began with digital media, evolved to print and OOH and is now being implemented in the television marketplace. Many industry pundits consider programmatic to be one of the advertising industry’s most prominent developments. This algorithmic based method of connecting media sellers and buyers to conduct inventory transactions in an automated, real-time manner clearly holds much promise.

Benefits to advertisers are said to include; rate efficiencies, advanced targeting, message personalization and enhanced access to premium content. For media sellers the benefits allegedly include the ability to move less desirable remnant inventory and optimize CPMs across their inventory portfolio. Ad tech firms, such as demand side platforms, sell side platforms and ad exchanges, which here-to-for never existed earn transactional fees on programmatic activity and or licensing fees from organizations that utilize their technology tools. Agencies are able to leverage their clients’ “Big Data,” do more with fewer people and when programmatic buys are executed through their trading desk operations, there is incremental revenue to be gained from media arbitrage (buying low, selling high).

Assuming that each stakeholder realized the aforementioned benefits ascribed to this approach, programmatic buying, irrespective of the issues experienced to date in the digital media market, certainly holds the potential to be a win, win scenario for all of the players.

Unfortunately, the underlying technology behind programmatic buying is not fully understood by many in the industry. To be fair, programmatic digital media buying is a highly nuanced and complex process. It greatly impacts digital display ad spending in general and mobile in particular. It can involve real-time-bidding (RTB) or programmatic direct, where advertisers can still secure inventory guarantees, it can be applied in an open exchange or private marketplace and can include traditional banners or non-standard rich media and video.

Given that programmatic buying is still in its infancy, one might logically assert that a greater level of refinement is required to support programmatic buying’s current share of digital media spending, prior to even considering expansion of programmatic buying to other media. Supporting this perspective are some of the challenges which the industry is grappling with to improve the programmatic experience for digital media:

  • Reducing the level of non-human traffic and fraud
  • Minimizing the % of ad spend accruing to “facilitators” or middle-men
  • Serving up environmentally relevant programmatic creative across devices
  • Improving advertiser transparency

We agree that programmatic media buying holds much potential. However, the industry’s experience to date suggests that advertisers have born the bulk of the risk involved with this emerging technology and its application in the digital market.

So when the talk turns to the expansion of programmatic to other media segments one has to wonder if advertisers are ready to embark upon another investment spend scenario in media segments with much steeper learning curves and higher degrees of risk.

Relative to the digital market sector, television, OOH and print are much more complex when it comes to the variety of non-digital assets, lack of uniform inventory management processes and disparate mainframe environments. Throw in the fact that there are multiple ad tech providers already offering a variety of non-standard platforms/ technologies in an attempt to solve for these considerations and the near-term prospects appear quite challenging.

In a recent article in MediaPost, Joe Mandese shared insights on some of the pioneering work being conducted in programmatic/ addressable TV by Mitch Oscar, Programmatic TV Strategist for US International Media (USIM) and his peers. During the interview, Mr. Oscar shared results from one client’s programmatic TV ad buys, which suggested they had generated “improved results and efficiencies” relative to conventional TV buys.

Compelling to be sure, however, one must pause to consider the observation that the data shared by Mr. Oscar indicated that the “mix of networks and dayparts were all over the place and it was difficult to find meaningful patterns from it.”  Further, when USIM asked the programmatic TV suppliers to document what actually ran, “it generated a report with 163,866 lines of code covering 3,563 pages, something most traditional TV buyers and advertisers might not consider practical to evaluate.”

Hopefully advertisers, agencies and media property owners take a more measured approach to expanding programmatic buying to other media segments to avoid some of the pitfalls currently being experienced in digital media. Perhaps we can all benefit from the words of St. Jerome, the Catholic priest, historian and theologian, who once intoned:

“The scars of others should teach us caution.”

 

Is Legacy Thinking Impeding Your Progress?

7 May

ana agency financial management conferenceEmerging media, rapidly expanding technologies, a changing tax and regulatory environment, talent shortages and a global paradigm shift where marketing is being “outsourced” to the end user. These were just some of the topics addressed by Marketers and Agencies alike at the ANA’s annual “Agency Financial Management” conference in Naples, Florida in early May.

While there may be significant issues to be faced in the near future, the marketing industry remains a significant component of the global economy whose rate of growth outstrips that of most developed countries GDP growth.  That said there are changes required of the industry’s stakeholders to better prepare their organizations’ to successfully navigate a complex landscape fraught with both risks and opportunity.

This dynamic will require a fresh approach by clients and agencies alike along with a willingness to shed the bonds of legacy thinking, which has retarded industry progress on a number of key fronts in recent years.

One of the themes to emerge from the conference is that marketing is difficult, expensive and challenging.  When combined with talent, resource and education restraints being faced by many marketing organizations there is a belief that marketers are leaving dollars on the table.  Contributing factors range from digital media value erosion to a lack of transparency into certain aspects of the supply chain such as trading desks to the absence of industry governance on the issue of cross platform audience delivery measurement.

Underlying these challenges is the fact that client-side marketers, procurement professionals and marketing service agencies are still working on evolving their relationships and gaining better alignment on how best to optimize the advertisers’ return on marketing investment (ROMI).  Central to the success of this collaborative effort is the need to build trust and mutual respect among these stakeholders.

Interestingly, marketers expressed a strong, almost universal need for the introduction of uniform controls, competitive fee structures, tighter statements of work and the use of agency performance incentives to assist in positively driving change.  One aspect of boosting ROMI is the elimination of “waste.”  Based upon our experience in the area of agency financial management consulting, we have found that an excellent starting point for marketers in this area is to clarify the roles and responsibilities of their agency partners, minimizing redundancies and identifying those agencies that are considered strategic partners versus those that provide project-based support.  This provides a solid starting point for determining  “where” to begin in terms of initiating change and inviting those select partners to be part of the process.

On the “good news” front it was clear from the results of a recent survey conducted by the ANA and presented at the conference, that the trend toward an increased level of collaboration between marketing, finance and procurement is taking seed.  Further, as evidenced by findings from a separate survey conducted by the 4A’s, the agency community has clearly begun to accept procurement’s role in the agency sourcing and contract negotiation process.

There is one area however, which has the potential to seriously disrupt marketers’ efforts to optimize their ROMI… transparency, or more specifically, the lack of transparency that permeates the industry.  This was reflected in the results of survey data from the ANA, WFA, ISBA and ACA where “transparency” was identified by advertisers as one of, if not their top concern.  The lack of clarity and in some instances, honesty surrounding issues such as data integrity, audience delivery, trading desks, reporting and financial reconciliations creates financial risks for advertisers and undermines attempts to improve trust levels between clients, agencies and media sellers.  As Mike Thyen, Director of Global Procurement for emerging markets at Eli Lilly and Company so aptly stated:

“Where there is mystery, there’s margin.”

Examples of the potential for financial leakage related to a lack of transparency included the results from the aforementioned WFA study, cited by ANA President and CEO Bob Liodice, which found that for every dollar invested by advertisers in digital media, only fifty-five cents on the dollar flowed through to the publisher.  Inherent in this single example is the lack of transparency surrounding programmatic media buying, agency trading desks and the lack of auditable outcomes in terms of audience delivery, media rates paid and trading desk margins.

Changing times require firms to evolve and innovate in order to remain relevant with their customers and to improve their operations.  When it comes to marketing, the rate and rapidity of technology driven change is such that viewing today’s opportunities through an “old school” prism is certain to create risks and limit marketers’ ability to fully leverage their investment.   Keeping an open mind, forging strong relationships between marketing and procurement, implementing controls and reporting to enhance transparency and investing in one’s agency partnerships represent key actions to be considered to successfully face the changes which are underway.

Agencies as Media Owners

17 Mar

agencies as media owners

Over the course of the last several decades media owners and media agencies pursued aggressive growth strategies largely fueled by merger and acquisition activity to consolidate their power and achieve a “leg up” in their respective negotiating positions.  So it comes as no surprise to anyone in the industry when you step back and assess the size and leverage of today’s top three agency networks; Publicis/ Ominicom, WPP and Interpublic Group.   

What complicates matters for advertisers is the emergence of the agency as “media owner” model ushered in by the rapid growth of programmatic buying and digital media arbitrage.  The essential question is clear:

“Doesn’t a media agency have a conflict of interest when it has a fiduciary obligation to secure the best available inventory at the most advantageous rates for an advertiser if they also resell media (as part of their recommended inventory) which they have purchased directly from publishers to achieve a financial gain?”

This is a dilemma complicated by the lack of transparency inherent with programmatic buying, which already limits advertiser transparency into the caliber of the inventory secured on their behalf and or the CPMs paid for those exposures.  

There are a number of dimensions that need to be addressed in the context of a traditional client-agency relationship in the wake of this phenomenon:

  1. How will an advertiser shape its media agency network and assign roles and responsibilities to protect its self-interests of objectivity, competitive pricing and an optimal return on its media investment?
  2. What media components might an advertiser bring in-house?
  3. In the ongoing dialog regarding “Big Data,” can advertisers realistically view their media agencies that are also media owners, as impartial partners, to be entrusted with sensitive, highly confidential data?
  4. How should media agency remuneration systems evolve to reign in the percentage of their gross media investment which is currently ending up in an agency’s pocket (i.e. fees, commissions, rebates, margin spreads, etc…)?

There is no standard, there are no guidelines… this is a “new chapter” in client-agency relations which is unfolding before our very eyes. 

So it was with great interest that I read a recent article on the More About Advertising website entitled; “Five ways for clients to find out what’s really going on as media agencies become media owners.”  The author, Andy Pearch, Director of MediaSense suggests that “the old media audit to pitch model has been broken by these developments” and that advertisers “legacy supplier management techniques need to evolve.”  The primary reason for this, in the author’s eyes, is that media agencies have become “market makers” where they, not the traditional media owner, sets the price of the media. 

In light of the growing leverage which agencies are able to exert on the media process, Mr. Pearch suggests that advertisers will have to learn how to “negotiate with their own agencies for a better market position.”  On the topic of transparency Pearch feels that “it is naïve to hope that the most dominant agencies will cede competitive advantage and margin by becoming sufficiently transparent.”

Two of his more intriguing recommendations include the need for advertisers to “take a tougher line on cases of non-transparent practice” and failure to comply with contract terms.  Additionally, Pearch suggests that advertisers both re-think their dependency on a single-supplier media agency model and, for larger organizations with the appropriate depth of resources, “consider setting up their own trading desks.”

We live in an interesting and dynamic time for the advertising industry with technology ushering in an era of rapid change that will continue to impact both consumer media consumption patterns and an advertiser’s ability to deliver their message in an appropriate, targeted manner.  It is our belief that during this time of sea change, advertiser transparency and control should not be sacrificed in the ongoing pursuit of cheaper CPMs.  The challenges identified here are not likely to be limited to digital media as the trading desks potentially expand their media coverage and agencies seek to extend media arbitrage opportunities.  In the words of Hippocrates:

“Extreme remedies are very appropriate for extreme diseases.”

 

 

What is the Future of Agency Trading Desks?

17 Apr

crystal ballIt was recently reported in Adweek that IPG was re-organizing its trading desk operation, Cadreon.  Representatives from IPG cited the costs and conflicts across its agency brands and offices stemming from having a centralized, autonomous trading desk with its own P&L.

This is a timely issue as publishers, agencies and advertisers brace for a pronounced increase in the role of programmatic buying.  Internal squabbles aside, the reason why some agencies aren’t totally on board with holding company trading desks comes down to one item… their own bottom line.  While agency holding companies could easily address this dilemma via a revenue sharing model between their entities that is not the seminal issue with trading desks.

The primary consideration in our opinion should be focused on an agency’s role in serving the advertiser and whether or not that obligation can be fulfilled when they’re acting as a re-seller of media where the original inventory cost is not disclosed.  Secondly, while the agencies and the ad networks have figured out how to make money moving digital inventory, publishers and advertisers are now evaluating the financial impact of programmatic buying and assessing alternatives which drive both efficiencies and performance for their respective organizations.

What are the financial implications?  The aforementioned Adweek article cited “agency insiders” who indicated that trading desks generated “high profit margins” in the “40% to 50% range” (hence the internal conflict).  Easy to see why advertisers would forgo the arbitrage model and opt for having their media AOR handle the digital media buying, on a fully-disclosed basis, within the context of their letter of agreement and the remuneration program that has been established.  Throw in the desire for advertisers to understand more about the quality of their digital ad placements and the environment is ripe for change.

Does this spell the end for trading desks?  Not at all.  Change and refinement are to be expected for a business model that only came into being within the last several years.  The technological capabilities that trading desks possess to manage reams of client data to effectively match advertisers with relevant inventory/audiences on a real-time basis is incredibly valuable.  This is particularly compelling as a higher percentage of an advertiser’s budget is shifted to digital media and programmatic buying.  Having said that, most advertisers are simply not willing to accept the level of opacity and the resultant hidden learning’s, which reside within their agency’s trading desk operation.

While media has evolved through the decades, the formula that has governed the media marketplace should remain constant; publishers sell inventory and advertisers buy inventory through their ad agency partners… not from them.  In the words of the noted American author Wendell Berry:

“The past is our definition.  We may strive, with good reason, to escape it, or to escape what is bad in it, but we will escape it only by adding something better to it.”

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