In a move that could revolutionize the way tens of billions of dollars in ad revenue flows into the television industry, nine prominent advertisers have joined forces to create and test an online marketplace for buying advertising time.
The proposal is still in its early stages. Participating advertisers -- including Toyota Motor, Wal-Mart Stores, Microsoft, Hewlett-Packard and Home Depot -- have made few approaches to broadcast or cable networks, whose participation is critical to making any online system work. But already, some TV executives have made their opposition clear.
If implemented, an Internet auction site for TV ad time could accelerate the recent shift in bargaining power to advertisers and possibly drive down average prices. The idea comes after several years in which advertisers have scaled back their reliance on TV ads in favor of ads on Web sites and other media.
The advertiser group plans to unveil details of its proposal publicly today. It has enlisted eBay to build an auction site -- dubbed e-Media Exchange -- that would sell national ad time available on a yet-to-be determined cable network in a test tentatively set for January. The nine advertisers, who have put up a combined $50 million for the test, are looking to attract additional advertisers and plan to launch an information Web site today, called admarketpilot.com1.
People involved say the new system would help level the playing field of big spenders and little guys and make the ad-sales market transparent. The current system, which has been in place for decades, is anything but.
TV ad time currently is bought and sold in arduous negotiations between network executives and those at media-buying firms, most of which are owned by big Madison Avenue holding companies. Representatives of the two sides spend countless hours haggling over the phone and via email. Networks keep advertisers in the dark about demand, leaving media buyers to pick up scraps of information as they bargain. Prices are often based on what an advertiser has paid in the past, rather than purely on demand.
"The current system has been in place for so many years, and nothing new or innovative has taken place. Meanwhile, other industries are changing by leaps and bounds," says Ann Bybee, advertising manager for Toyota's Lexus brand.
A big factor in advertisers' frustration is that the networks control the timing. Most prime-time ad inventory is sold several months ahead of availability, in a negotiating period called the upfront market. Upfront bargaining for the fall season begins in May. But the networks also sell some ad time closer to a program's air date in what is known as the scatter market, when prices are often either much higher or much lower than they were in the upfront, depending on demand for time in a particular show.
Some big advertisers are getting more vocal about their discontent. Earlier this year, Johnson & Johnson decided it wouldn't participate in the upfront market, telling networks it preferred to buy ad time on its own timetable. The new system would help advertisers do that. As it is currently envisioned, advertisers would post media plans on the auction site and invite bids from networks and media outlets.
Some of Madison Avenue's big media-buying firms are uneasy about the implications of such a system. Much of these units' business rests on their ability to pool clients' ad dollars and use the resulting leverage to negotiate better rates from the networks. An open-auction system could make it difficult to amass that kind of clout.
And not every advertiser is behind the eMedia test, media buyers say. Some marketers believe an open-auction system that puts everyone on an even footing wouldn't be good for the market's biggest spenders: Companies that buy hundreds of millions of dollars a year in ad time are very happy with the leverage their size provides, media buyers say.
A handful of media buyers are participating in the eMedia project, either because they see some role for online buying -- or because their clients want them to.
Bill Cella, chairman and chief executive of Interpublic Group's Magna Global media-buying firm and a participant in the consortium, says an online auction site might fill some limited need. "No one is saying this will be for all TV buying, but there are some media buys we make where this makes sense," Mr. Cella says. The system could be used to buy time during late night or early morning -- time slots that aren't usually in as much demand as prime time.
The eMedia proposal stems from a suggestion that a former Chrysler marketing chief, Julie Roehm, made during a 2004 speech at a media-industry conference, in which she said an automated trading system akin to the Nasdaq Stock Market could replace the upfront market rituals. Ms. Roehm is now a senior vice president of marketing communications at Wal-Mart. A spokeswoman for the retailer declined to comment.
The group has had preliminary talks with Discovery Networks, a unit of Discovery Communications Inc., and plans to talk to others in coming weeks. Joe Abruzzese, president of ad sales at Discovery Networks U.S., has joined the consortium's advisory board to find out if there is a viable solution, a spokeswoman for the cable network says.
The consortium is pushing ahead with the test following signals from Google that it intends to expand its search-engine advertising into selling time and space in traditional media such as radio and magazines. The eMedia group considered working with Google, according to people close to the process, but decided it was too much of a threat.
"We believe we can deliver value across a broad range of media types and channels, while this discussion was limited in scope," a Google spokesman said in a written statement. "We look forward to continuing to work with our advertisers and agency partners on these efforts."
Some TV executives already are signaling their wariness -- as well as possible areas for compromise. "We are not going to hand over control to eBay. It will commoditize commercial time," said one major cable-network executive. This executive and many others refused to comment publicly, unwilling to offend the advertisers behind the plan. Still, the executive acknowledged an online system "could work for less desirable day parts."
Roger Adams, senior vice president of marketing at Home Depot, says traditional negotiations are likely to remain the norm for popular shows, because they often involve elements such as product placement. "It will be a two-tier upfront," he predicts.
Suzanne Vranica, The Wall Street Journal. August 4, 2006
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