In his column titled Media Maze: An eBay Model for Media?, iMedia's media strategies editor Jim Meskauskas offers plenty of reasons why he believes an auction marketplace can't always work for media. Since I am the president of a company offering an auction marketplace for media, you might assume I'm here to offer a rebuttal. Quite to the contrary, I agree with Jim-- the auction model is not for everyone.
But to advance the debate a bit further, I'd like to offer the exception that proves the rule: remnant (last-minute, unsold) airtime. And the twist: a reverse auction model.
I'll use radio airtime as an example, since it's what I know best. There is vast unrealized revenue potential -- for advertisers and stations alike -- in traditional radio advertising. Airtime that goes unsold obviously doesn't bring in any money for the stations. And many advertisers miss out on radio's potential because they can't afford premium rates, don't want long-term contracts or they don't have the resources to negotiate with multiple stations at once.
As Jim astutely points out, whether or not the auction model will work for a particular product largely depends on a wide margin between that product's material value and its perceived value. Remnant radio airtime's material value is zero if it remains unsold-- it's a perishable product. Meanwhile, there are advertisers who otherwise can't break into radio who perceive that airtime to be valuable enough that they would be willing to forego the selection of specific stations and advance planning, in return for much lower ad rates.
Reverse auctions drive prices down
Now that we've gotten specific about the medium, what about the model? Several companies -- AdAuction among them -- experimented with the traditional auction approach only to fail because the model itself didn't meet the needs of the participants. Radio stations are justifiably nervous about their bargain remnant rates becoming public -- and what that might do to their negotiating power when it comes time to sign long-term advertising contracts -- while advertisers are not motivated to participate in an auction that bids their prices up.
A reverse auction turns the traditional approach on its ear, allowing stations to compete for advertiser dollars. Where a standard auction invites the buyers to do the bidding and the highest price wins, in a reverse auction, the sellers do the bidding and the lowest price wins. In the case of remnant radio, advertisers are the buyers and radio stations are the sellers.
Jim's cautions against the "susceptibility to the irrational exuberance and hysterical whimsy of human passions" and the "illogical attribution of value" are spot on-- which is why the reverse auction works so well. It keeps prices from being driven into the sky, as he warns, and instead tests the market in terms of how low the stations are willing to go.
These are the starting points for a potentially successfully auction marketplace. But merely slapping the reverse auction model onto any remnant airtime still is not good enough. As we researched how to design Bid4Spots, our online marketplace for remnant radio airtime, and what would make it an auction that radio stations and advertisers actually would use and value, we found a few deal-breakers for each side. Here are the factors that the unsuccessful companies did not take into account:
- There is a "perfect moment." Obviously, radio stations would prefer to sell their inventory in advance through the normal sales process. But there's always unsold airtime. By Thursday morning prior to the broadcast week, that unsold inventory is truly un-sellable-- it's too late for most advertisers to purchase the standard way. Rather than lose out on revenues, stations often are willing to cut their losses and sell it at the last minute at a discount. This is the magic moment, and it's when the auction must take place: close enough to the next broadcast week that a station manager knows for sure that he cannot sell the inventory through the regular sales channels, yet far enough away to put the spots through the traffic department.
- Radio stations want their remnant rates to remain confidential. This may seem to fly in the face of the democratic notion that auctions must offer full disclosure. But the equalizing factor here is CPM-- cost per thousand listeners. Advertisers declare a CPM ceiling up front; radio stations bid against each other to see which one will match a particular advertiser's rate. The winning rate remains confidential, safely cloaked behind the system's ranking index.
- Advertisers want more control. With typical remnant solutions, advertisers are only allowed to select the market-- no other demographics are under their control. Their spots are sold on a wide rotator basis and run at the station's discretion, they can be pre-empted, and advertisers don't know which stations ran their spots. To gain advertiser support, it's essential -- and, yes, possible -- to design a system that allows them to specify demographics, market/format, day and day part, budget and maximum allowable CPM.
Clearly there's no one-size-fits-all auction marketplace approach for all media. The internet certainly provides us with tools to simplify the processes across multiple channels like never before. But that doesn't discount the fact that every medium and its participants have unique needs that must be accounted for if any new solution is to be accepted and successful.
So the question needs to evolve from, "Will an auction marketplace work for media?" to "Can we adapt the auction model to work for this particular medium?" We've seen it succeed in radio-- with some 1,300 radio stations and several hundred advertisers participating in our reverse auctions each week. And I'm willing to bet that similar, tailored methods can successfully be applied to any unsold airtime, anywhere.
Dave Newmark is president and CEO of Bid4Spots, an online marketplace for unsold radio ad inventory; and is owner, president and CEO of Newmark Advertising, considered by both direct response and brand advertisers to be the leading agency for endorsement radio. He has been innovating in the radio advertising business for more than 26 years, making him uniquely qualified to design a system that makes radio advertising work well for advertisers, while helping stations capitalize on their inventory.
