Online Publishers Turning to Video, Marketing Enhancements and Consumer Insights to Offset Ad Network Pricing Impact, Says New IAB/Bain Report

Online ad networks need to evaluate creating differentiated offerings that better leverage premium online publishers' audiences and environment, while enhancing performance for advertisers, suggests a new study released this week by the Interactive Advertising Bureau and Bain & Company.

The IAB/Bain Digital Pricing Study reports that video advertising is generating costs-per-thousand averaging two-to-three times higher than publishers' average direct display advertising costs and twenty-to-thirty times higher than display advertising sold through ad networks. Average ad network inventory generates CPMs to publishers of $0.60 to $1.10; directly sold display advertising is generating CPMs in the $10 to $20 range; and video advertising is generating costs-per-thousand averaging $40 to $50. For additional coverage on this study, click here. The full report can be downloaded at no cost at www.myersreport.com.

"Demand for video advertising is very high, with a 90 percent sell-out for the small amount of available inventory." commented John Frelinghuysen, a partner in Bain & Company's Global Media Practice, in an exclusive interview with JackMyers Media Business Report. Video inventory is a "sweetener" for attracting increased online spending from large marketers, Frelinghuysen believes, but there will continue to be a limited amount of available video advertising availabilities.

"It's clear," Frelinghuysen says, "that online video is a choice medium for marketers and they are increasingly talking about video advertising rather than TV or online display advertising. There is untapped demand at higher priced CPMS. There are dollars searching for video inventory and, just as importantly, there is direct response, a captive audience, lean forward, targeting and metrics that can support higher CPMs than TV. But advertisers just don't have enough opportunities to deploy video in online."

In addition to video advertising, Frelinghuysen says there is increasing competition among brand publishers to differentiate their value from ad networks by offering marketers enhanced services and capabilities in addition to their branded environment. "They are offering better research, less clutter, more sponsorships, more direct marketing tie-ins, more marketing services attached to inventory. It's happening across all media," he adds. "Publishers will have concerns with their premium content being mixed together with non-professional content, which pushes ad pricing to the lowest common denominator and results in an inability to fully value their [branded] content."

One of biggest implications of the IAB/Bain Study, Frelinghuysen advises, is that "ad networks create a level playing field across professionally created sites, blog sites, and mixed environments and provide them all at one low cost-per-thousand." Ad networks feature that they include premium branded content among their sites, but they are not able to create a "monetization flow" back to those premium publishers, advises Frelinghuysen. Premium publishers, without some other way to value their inventory in a premium environment, will find it difficult to differentiate their value from non-premium inventory. "Brand marketer dollars will still want to flow to the most relevant branded environments, but as the value proposition for lower cost buying becomes more attractive, marketers may reduce the number of branded sites they are buying and move more of their online spending to ad networks."

This raises the priority among branded publishers who are seeking to maintain higher ad prices to support their premium selling process by packaging consumer insights and other capabilities. In an over-supplied media environment, there are clearly increased opportunities for intermediaries who provide audience aggregation, lower costs-per-thousand and more efficient buying solutions for agencies. As marketers come under tough economic conditions and have more metrics available to them on online audiences, they are more open to the proposition of an aggregated collection of inventory at low prices. But there are commensurate opportunities for branded media to develop enhanced capabilities that help justify higher CPMs and greater planning and buying costs. "Publishers need to offer consumer insights and marketing communications capabilities beyond their own inventory," acknowledges Frelinghuysen. "At the other end of the spectrum are ad networks, which are not solutions providers at that level but offer price, targeting and buying efficiencies. They are a growing part of the mix."

In addition to the IAB survey, which included a cross-section of seven online publishers, Bain & Company recently completed interviews on media allocation with more than 200 marketing executives. Based on these interviews, Frelinghuysen points to a growing need for online publishers to hire category managers who can be the preferred destination for marketers and agencies who want to reach certain consumers and target audiences.

Frelinghuysen believes online publishers will also require improved inventory optimization and management tools, as well as inventory management teams. "Senior sales management is often disconnected from the process of evaluating the amount of ad network inventory being made available, comparative pricing, etc." The IAB/Bain study "revealed significant publisher challenges in managing pricing and yield, including a lack of longitudinal sales data to measure trends -- overall, by account and by channel. There are limited staff resources and tools in place to optimize CPMs and inventory yield, and several participants lacked data on ad network volume and pricing. "At companies [in the study] where a pricing strategist was in place, they could provide pricing data by channel and client. At other publishers, it required custom work using multiple systems and calculations. More careful planning and tools will be required as more money comes into the online advertising market," Frelinghuysen warns.

This is the first of several waves of Digital Pricing research planned by the IAB and Bain. The IAB/Bain Digital Pricing Study is available for free download at www.myersreport.com. Bain & Company's John Frelinghuysen can be contacted at john.frelinghuysen@bain.com.

About Bain & Company, Inc. Bain & Company, a leading global business consulting firm, serves clients on issues of strategy, operations, technology, organization and mergers and acquisitions. The firm was founded in 1973 on the principle that Bain consultants must measure their success by their clients' financial results. Bain clients have outperformed the stock market 4 to 1. With 37 offices in 24 countries, Bain has worked with over 3,600 major multinational, private equity and other corporations across every economic sector. For more information visit: www.bain.com.