Daily Archives: September 10th, 2008

Ad Networks and Internet Radio

Bain and IAB recently released an interesting benchmark study on the impact of ad networks on publisher revenue that highlights various trends that have significant impact on digital publishers. It focused on “seven participating publishers”, which are not identified, but are most likely website based businesses. Nonetheless, the trends discussed exist in Internet radio as well and the findings are extremely relevant. 

The primary finding of the study is that publishers (sites, stations) are using ad networks to a much greater degree than they have in the past. Makes sense – many ad networks have become easier to use, and publishers have become better at using them to sell unused and unsold inventory. In fact, this study found that the “seven” sold 30% of their inventory in ad networks in 2007 versus 5% in 2006! It’s hard to call a 30% slice of inventory remnant inventory – one could easily argue that major sites are now using ad networks as a main component of their sales strategy. How is this impacting pricing, the market, and overall demand?

The discrepancy between the cpm on inventory sold through ad networks versus publisher direct pricing was enormous – ad networks were selling the inventory for these publishers at only 6 to 11% of the cpm that publishers were selling it at themselves. Clearly, ad networks are selling at remnant prices. But they are not selling leftover inventory, they’re selling huge chunks of it. 

One of the main problems the study defined is the difficulty of strategically managing this inventory in such a way that businesses could optimize cpm between networks, or even versus their own directly sold campaigns. I know this is true for Internet radio stations as well – few if any have systems in place that allow them to effectively manage either their audio or their banner inventory to optimize revenue. Dayparts, dates and other campaign requirements further confuse this.

The study found that as pressure to generate revenue increased, publishers were likely to increase the units they had available and give more of that inventory to ad networks, basically adding remnant type avails. In turn, ad networks returned lower cpms. It’s a logical turn of events. The result is plenty of unsold inventory, not enough demand, and lots of bottom pricing. Arbitrage, a practice that some of the ad networks use to return a steady low rate to publishers and maximize their gain when they are able to raise the cpm, only adds fuel to the fire by making the net to the publishers even lower, increasing their need to generate more inventory, and so on.

There’s a great message in this study for Internet radio. As the buzz around digital audio increases, stations need to strategically manage their inventory and optimize cpm – both on a local and national level. They should carefully evaluate participation in ad networks and resist the urge to over-participate with too many or too much inventory. They should support the value of prime inventory through innovative packaging and careful control over the number of units available. While the study concludes that it is too early to draw conclusions, it notes that current behavior will definitely lead to erosion of cpms. Good advice and good reading, I’d say. You can download it here.

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