Auctions Alter Selling of TV Ad Inventory

Recent news of a $50 million pilot of an online media exchange to streamline television media buying has become a hot topic in the industry. Spearheaded by Julie Roehm, Wal-Mart’s senior vice president of marketing communications, and funded by a consortium of major advertisers, the experimental live auctioning system is to be hosted by eBay. It may make rate-card pricing for network and cable advertising obsolete.

The benefits for TV networks are clear: They obtain the best price advertisers are willing to pay, and they can sell more of their inventory at better-than-remnant prices. The advantages for advertisers are more subtle but also strong: improved value through demand-based pricing and better scheduling by ending the upfront system, which requires that advertisers bid on a season’s worth of broadcast spots in May and June.

Proponents of the media exchange say advertisers will be able to make media buys with much greater granularity than they can today, down to the individual 30- or 60-second spot, eliminating packages of ad inventory, which often contain waste. Ms. Roehm reportedly said there is no bundling in this new system because every spot has its own price. Every spot should be measured, she said.

This is an enormous improvement over the current system. But what if it went further? What if rather than buying a time slot on a show, advertisers could pay for only the viewers who match their target profile? Since every visitor and impression are unique, why pay a blended price for a mixed bag when you can pay exactly the right price for only what you need?

Whatever the medium – TV, radio or the Web – the value of any exchange is determined by the specificity of the inventory being auctioned. The more specific the item, the more the buyer can know what he is getting, and the fairer the pricing. This means auctioning advertising at the impression level.

This is already happening on the Web and, to a limited extent, on mobile devices. To match that level of targeting, television will have to go digital, with each television set having a unique IP or other identifier, with some targeting known about the person or household associated with that IP address. It isn’t there yet in television, but it is coming. Then an auction for each impression will be possible, and the value of an auction-based exchange will reach its full potential.

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