Generating Ad Revenue Growth: Content-Based Communities-of-Common-Interest

The growth of ad network monetization for many media content owners – whether they be online or offline – revolves around a core issue: does the ad network aggregate an audience that represents a community of common interest? Is there a clear connective tissue that brings the audience under a single content-based umbrella?

The death-spiral commoditization of online display advertising is exacerbating the Internet industry’s economic concerns heading into 2009. With revenues to some online publishers and bloggers from inventory sold through ad networks dropping as low as $0.15 on a cost-per-thousand basis, more and more premium publishers are exploring alternative options. The trend is leading a number of publishers to recalibrate their projected 2009 revenues, and to develop new strategies for inventory management and pricing controls. Behavioral and contextual targeting is not the windfall many publishers expected, which experienced industry observers should have anticipated.

Years ago, then-General Motors’ marketing VP Phil Guarascio told me he had yet to validate the cost benefits of audience targeting vs. basic age/gender demographics. The auto maker’s most cost efficient advertising model was mass reach. It still is, and with media supply growing exponentially across multiple platforms, costs for mass outreach are becoming increasingly more advantageous. Even when the ad economy recovers, pricing for many media will not necessarily increase with it.

There are two solutions for media sellers:

1. Be a large reach, low cost provider (Wal-Mart Model), which is dependent on technology, processes and systems.

2. Increase the value of your inventory, optimizing value and supply, through non-traditional, premium relationships driven by media brand equity.

A short-term opportunity for online publishers to increase value is to develop or align with vertical ad sales networks built around easily described content-genres. Broadly defined demographic genres, such as “women” or “men 18-to-34,” are already battling it out on the CPM front and are highly commoditized categories.

ESPN, Forbes.com and Turner Entertainment and Sports, among other publishers, have already pulled inventory out of generic ad networks and developed in-house vertical networks. The obvious categories of news, sports, automotive, entertainment, finance, health, aging, and travel are logical content areas, and emerging ad networks in these and other similar content-based genres are emerging and outperforming their more generic competitors. In the next year, more narrowly targeted ad networks will emerge around content-categories that parallel magazine publishers and cable networks: science and science fiction, food and wine, sailing, golf, child care, for example.

Most publishers use several of the more than 350 online ad networks to sell a percentage of their available display advertising inventory. Large individual content publishers who are dependent on ad networks to re-sell their inventory are in a zero-sum arbitrage game, buying audiences through search engine marketing (at rising costs) and then selling these audiences to ad networks for very low profit margins. For advertisers, ad networks are an important and valuable addition to their media options. As witnessed by Yahoo’s agreement announced last week with the Newspaper Advertising Association, traditional media will adopt the ad network model to increase buying and selling efficiencies. Google’s newspaper, radio and television media networks will gain traction in the next few years, and additional competitors will emerge.

In the next 24- to 36-months, marketers will ramp up their investments in cheap audience-reach through ad networks. Simultaneously, they will look to associate their ad messages with more narrowly focused audiences who demonstrate an interest in specific content categories that are relevant to their brands. Although behavioral and contextual advertising will continue to grow, publishers with a clearly defined content focus will be positioned to offer extended community-based services to their readers/users/viewers. In addition to paying higher costs-per-thousand to reach audiences within well-defined and relevant content, marketers will also pay premiums for non-traditional opportunities, especially events, promotional support, trade marketing, public relations, cause related initiatives, and personalized community features.

Publishers who have been organizing their ad sales around demographic pockets will be well-served by refocusing their priorities to emphasize content-umbrellas and aligning with ad networks that specialize in content-based genres.

An IAB/Bain & Co. Digital Pricing Study that I reported on several weeks ago (available for free download at www.myersreport.com) reports that “while it’s still too early in the game to measure the full impact of ad networks on online pricing, growth in marketers’ use of ad networks will likely lead to erosion of premium CPMs if publishers maintain their current behavior.” Online display advertising sold through ad networks is generating cost-per-thousand (CPM) revenue of $0.60 to $1.10 for several major publishers vs. $10 to $20 CPM in direct-sold display advertising.

About Jack Myers: For more than two decades, Jack Myers has been the media industry’s leading analyst, researcher and advisor on relationships among marketers, agencies and media sellers, providing business development services and custom insights on relationship best practices to more than 200 marketers, agencies, media companies and industry service providers. Jack can be reached at jm@jackmyers.com.