The economy seems to dominate every discussion these days, not to mention almost every aspect of the media business. That said, advertising dollars continue to gravitate to interactive, away from print media and television. Fortunately, online advertising as a whole is not contracting, despite reports on the glut of display inventory on the web. Display is still growing in scale, perhaps not at the same rate as three years ago, and perhaps flattening when expressed in terms of revenue.
To sum up today's situation, let's just say that display's growth is lopsided -- a fact pointed out by numerous media publications recently. Its scale is growing more quickly than its value.
Online Spin columnist Cory Treffiletti observed Feb. 18 that display inventory discounting is a result of advertiser pressure and desire to pay for display based on performance (clicks and conversions) instead of CPM. Publishers are sending more advertising inventory to exchanges and networks, and optimizing display creative units, but what if the consumption of these units remains static? Wouldn't the oversupply logically drive down the value, and therefore the value of the entire inventory set?
Optimizing existing display, making the creative "better," does not solve the problem of sheer numbers. However, I agree with Treffiletti on this point, "Display can be priced at a premium if you ensure the media buyers cannot go around your direct sales team and buy the same inventory from a network! Your premium pricing can be maintained if you feel your audience is of quality and you are developing meaningful packages of inventory that deliver unique value to the marketer."
Exchanges and networks exist where stratification between premium and mass (or less valuable) inventory is not clear. If you own quality content and quality audience, why rely on these automated sales channels?
Another way of asserting audience quality is for publishers to stand by their rate card. Sound impossible in this economic climate? I acknowledge that discounting inventory -- including premium inventory -- has become de rigueur for all publishers. In our current economy, media buyers are shopping around and demanding more -- for less. This has led to media buyers' believing that the first offer is never the last, best offer. This dance has led to publishers betting against themselves, and it promises to continue depressing the display advertising market.
So how DO publishers establish a rate card?
I'm all for the market dictating price, but with so much inventory, transparency in pricing -- how we get to a number -- is actually a good thing. Every publisher worth anything has an established rate card; rate cards represent the publisher's perceived value of given inventory. Rate cards are valued based on CPM. CPM is valued based on varying site characteristics like audience, the profile of the consumers visiting the site (context and targeting attributes like registration, behavioral, and commerce). Given the multitude of moving parts that make up the value of discrete inventory, it is not surprising that media buyers would leverage one of these elements to argue for a lower price.
Assign value to your rate card that you can justify
Publishers evaluate CPM and the rate card price at time of sale. Here is where it gets tricky. Media buyer A can be sold the same CPM as media buyer B, with the exact same rate card package components, yet A will pay more than B. If publishers did a rate card audit of their sales they would probably uncover some obvious patterns and clear anomalies. For example, when we focus on those inventory packages that have the highest sell-through and consider their average price, generally we see these products discounted as often and in a similar fashion to other less desirable products.
If volume remained the same, why would a publisher discount its most popular inventory, rather than its least desirable product? Shouldn't the publisher stand by the quality of his audience? When buyer A and B buy the exact same package for substantially different prices, without any justification, why wouldn't they shop around? I would argue that it is these kinds of inconsistencies that create instability within the display market and put the publisher credibility at risk.
Standing by a rate card value is easier than you think
The problem with stabilizing pricing and maximizing display advertising revenue lies in establishing rate cards with defendable data analysis -- and publishers sticking to their guns. The right rate card analysis can support pricing continuity, and can give media buyers a reason not to question whether they are getting the best value, they will have evidence.
The theoretical maximum value (TMV) of inventory is based on the highest price value of each impression. The TMV is theoretical because it assumes 100 percent sell-through and that every impression is sold at its highest targeted value. We know this kind of efficiency is not possible. However, knowing a unit's TMV gives publishers a real baseline value on which to set -- and justify -- a given rate card price.
Inventory that is offered at 20 percent below TMV is inventory that has a real value. That real number provides leverage when establishing, evaluating, or negotiating revenue targets and sales contracts. Basing inventory on TMV would provide more stability to display pricing, and publishers would experience better yield from their inventory. This creates a target price to always be driving toward giving you a clear metric to measure the value of a specific deal, monitor the success of your sales people and evaluate if you are improving inventory yield month over month, quarter over quarter.
With a glut of inventory on the market, selecting the correct price point for hundreds of products, contending with distribution, training and managing sales teams -- publishers face real multi-dimensional challenges. In a scary economic climate, we are all worried about maximizing dollars and yield. Transparency may seem like a counterintuitive tactic. But establishing a rate setting process based on real values, and providing media buyers with transparency into rate card pricing structures may actually make publishers' lives easier.
When you know the real value of your inventory, and media buyers can buy in confidence without shopping around for better deals, everyone wins.
Larry Allen is president of Yieldex.
