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Why You Can Auction a TV Spot (Part 1) August 14, 2006

Posted by Bill in Online Advertising.
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Last week I discussed the new e-Media Exchange, an automated ad auction exchange, created by a blue-chip group of advertisers with technology managed by eBay. The Exchange will sell cable and broadcast TV, radio, and print ads through automated auction; the advertisers see auctions ad buys as more accountable than the current, human-managed upfront. The advertiser list includes Toyota, Wal-Mart, Microsoft, Hewlett-Packard, and Home Depot. The Exchange will certainly go down as a major landmark in advertising history. The TV networks, meanwhile, are not happy.
An article in last week’s Wall Street Journal nicely covered the networks’ displeasure. Members of the TV world put forth a number of arguments why they think the system won’t work; over the next few weeks, I’d like to dissect those arguments to explain why I disagree. This week, I’d like to focus on just one point that the networks made: since networks don’t just sell individual ad slots–rather, they sell media packages that are customized to the advertiser–the auction model doesn’t work for them.
The networks’ argument goes something as follows. Traditional network placements aren’t just about TV spots. They also include “product placement, mobile extensions, sponsorships, and branded vignettes;” and so each advertiser isn’t just buying a TV placement, but a custom-tailored media package. In the words of Bill Abbott, senior vice president of ad sales for Hallmark Channel, network media isn’t a commodity “in which you can package everything together and put a price tag on it.” Since each advertiser is buying a custom-tailored package, it doesn’t make sense to sell it by auction.
To understand why that thinking is wrong, you need to realize that the same argument could be made about search. Search marketing, after all, isn’t just a system of purchasing keywords. It’s a system of purchasing many different keywords, across many different engines, and many different kinds of engines and networks. Each advertiser must decide which unique combination of keywords, engines, and syndication and contextual networks will bring the most value, out of all the possible advertising choices.
Meanwhile, each search campaign needs to custom-tailor that unique combination, because every campaign will react to the same ad buy differently. Some businesses, for instance, will fare better on shopping engines than others; some businesses will fare better in contextual networks than others; and some will perform better in Google than in Yahoo, or vice versa. In terms of the package itself, that’s easily as complex as a traditional network buy–if not more so, as advertisers must fashion a single campaign out of thousands upon thousands of possibilities. Even within an individual engine–which, to be fair, is a far closer analogy to an individual TV network–advertisers still need to create their custom-tailored package. They need to combine the right mix of branded keywords, generic keywords, low-hanging and high-hanging fruit terms; primary engine and/or syndication and contextual partners–the list could go on, and the possible packages an advertiser could buy within an engine are nearly endless.
And so, at least in terms of customized packaging, there’s a strong similarity between search engines and traditional ad networks. And yet, search engines sell ads through real-time auctions, while traditional network packages sell through human-managed upfronts.
Why? Because the search engines took the opposite solution to the same problem. While traditional networks have said, “We’re selling you a package, you can’t auction off a package,” the search engines have decided to sell each individual component of that package–the keyword–one item at a time. And while you can’t auction a custom-tailored package, you most certainly can auction off the itemized components that make up that package.
Of course, the TV networks could do the same thing. If the concept of bundled offerings is what’s standing in the way of their embracing the e-Media Exchange, they could certainly unbundle their offerings. And given the success of search, and the creation of the e-Media Exchange itself, it’s fair to say that the advertisers would want them to. And yet the networks don’t seem to want to take that step.
Over the next few weeks, I’ll discuss further why that might be, and why it’s in everyone’s best interest–the advertisers’ and the networks’ alike–for the networks to embrace the e-Media Exchange, rather than pushing back against it.

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