Sep. 2013

RTB – Publishers Perspective

RTB or Real-Time Bidding is the method many publishers are using to sell their excess inventory. For publishers I use an alternate definition; RTB illustrates the price they are receiving for much of this inventory; race to the bottom.

How did we get to where CPMs are so low? What if anything can be done about it? Why should I care when I primarily represent marketers?

As publishers moved to the web, most originally chose only to try to replicate their print publications online. We helped launch a few, all with no pay wall, and with the expected results. Most ads were given away as a value added to print, few pay walls were put up or only print subscribers had full access. There was no business model.

Publishers expect positive ROIs needed to maintain the editorial quality that draws the visitors they promise advertisers. Publishers generate revenue through subscription and ad sales models. Many have added events, list rental, custom publishing and other generally more profitable services. Ad sales, the core of the industry, derives its pricing based on esteem, brand equity and ultimately the quality and quantity of its audience. When migrating to the web, or launching a new publication, vast new audiences do not miraculously appear day one. Business development / content syndication are typical tools to gain unique visitors, but frankly can water down the core target demographics that publications want to promise their advertisers. Clearly there is ambiguity in this challenging business model.

Ads were initially sold the same way as print, by reservation. A salesperson presents to media buyers at the marketer, agency or both. Space is reserved and deals are done. Early on, web ads were frequently thrown in as a value add, demonstrating and setting the table for their near lack of value, then and it is still hurting publishers today.

Let’s fast forward to the present, audiences are growing and better defined. Third party cookies identify and verify the quality of audiences, unique visitors, engagement etc. and many publications are thriving online.

The best ads on most sites are still primarily sold at top prices by sales people. Publishers referred to being sold out begins at 65% of inventory sold, and some as high as 90%. No one goes to 100% so as to be flexible to accommodate larger customers with last minute inventory requests, which is reasonable. The next levels of inventory are harder to sell even at lower prices. Below the fold on web sites is harder to sell than even in print. Similar to print where the back cover carries a premium price, and smaller ads that are not adjacent to prime content are priced lower. The same holds true on the web.

If inventory pricing is divided by placement, and number of ads. The vast majority of ads are not reserved, but the majority of dollars sold, are reserved. What happens to the rest of the inventory? In 2010-2013 much of it went to ad networks. They sell desirable demographics at scale on a wide range of brand safe sites for less than reservation prices. This concept is good for mature marketers who have identified their audience. The simple promise is to purchase “scale” amounts of less expensive inventory with the understanding that placement is less than perfect but still is nicely matched to the marketer’s prime audience target. Many networks allow site curation to insure brand safety. As an example, when we purchase via RTB or networks, none of our current clients want to be near politics or racy subjects, which is reasonably easy to provide.

When the networks can’t sell inventory, there were basically three remaining options: 1) display more white space (don’t have ads), insert GDN (Google Display Network or Adwords, both reliable sources of ads) or place the inventory off on RTB. Yes originally it was only the unsalable ads on RTB.

The industry has grown and matured and premium RTB exists. Prices are dropping based on supply and demand and not negotiated over lunch. The issue, is that the bids are dropping. In any supply and demand market, prices should drop to where demand is firm. In equities, this is called price discovery, where buyers are willing to come into the market, and make a market. If there are more buyers than sellers, well, the price goes up. In stocks it is how much you are willing to pay; based on earnings, revenue growth, debt and many other factors. In media however there are few additional factors, and inventory is perishable. Ads can’t be sold except in the future, time erodes value or makes it more precious. In politics, Election Day prices are firm and the last week is at a premium, and the same holds true for Christmas and other retail holidays.

This time erosion can cause games of chicken, and it’s typically the publisher who caves. Each cave sets a new low in benchmarking what inventory should cost, bringing with it market forces that work against publishers and at internet speeds. Additionally there is no real transparency in RTB as there is no “tape” provided by the NYSE or regulated overarching exchange.

This race to the bottom or RTB is alarming for those marketers who are pushing our publishing partners towards excellence in editorial quality, new technology and video and want strong healthy media outlets in which to place our ads.

We love to extend our budgets with targeted inexpensive inventory. After all, we are fiduciaries (morally, not legally) for our clients. The many technology middle firms between the marketer and publisher are all extracting fees that make that already attractive CPM even lower to the publisher. Something has to give.

Clearly the business model requires a shake out to award the stronger and more innovative players their market share, but ultimately, that writer, videographer, photographer and the sites that carry the ads, require enough compensation to sustain its business. We are all over user generated content, but for the foreseeable future, it is not the core of most broad (at scale) advertising campaigns.

RTB is useful, but has a long way to evolve before reaching its true promise for all participants.


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