Is it Time for the Digital Advertising Industry to Adopt a More Financially Sophisticated Model for its Transactions? That is the primary question explored by the latest original research from The 614 Group as the independent group surveyed and met with 60 key executives at the nation’s top media buying and selling organizations including ESPN, Fox, Thomson Reuters, and many others.
Ultimately, the research concludes – yes. The biggest questions the new quantitative and qualitative gap analysis points to are how and when. If the opinions and plans of those surveyed are indicative, pressure for a new model will only intensify as today’s digital environment and programmatic options remain lacking.
By end of year, the latest eMarketer research predicts U.S. media advertising spending to reach $207 billion, of which digital advertising will make up 36.8%. Nevertheless, according to research respondents, the direct transactions between advertisers, agencies, and publishers do not offer the appropriate level of sophistication to support prolonged sustainability.
The problem is twofold: the ad industry has no classification standards – a major issue for buyers and sellers. This lack of classification standards in turn creates inefficiencies in the inventory discovery and sales process.
According to the CFO of a leading media agency holding company, “The curse of the whole online media system right now is its massive volatility. Buyers need a lot of guarantees that what we buy today is what we’ll have tomorrow. And these guarantees must be guarded with so many conditions and waivers that basically we’re killing the future.“
Today, while 88% of publishers offer “guaranteed contracts,” 100% have out clauses and 50% said cancellations make it difficult to forecast inventory and revenue. In short, according to buyers, guaranteed contracts come with no guarantees.
Publishers are equally disgruntled. In fact, nearly one third of survey respondents spend over $100,000 a year to resolve discrepancies, and many research roundtable participants report costs that are significantly higher. Eliminating this function would allow publishers to focus resources on more productive activities
The good news is both the buy-side and the sell-side are open to new structures. Survey respondents responded positively to the concept of a “guaranteed-revenue contract,” with 64% finding the concept appealing.
Addressing these and the other gaps and needs expressed by respondents, the research also examines changes required by all parties to move to a more sophisticated financial model and benefits that can be gained by the increased financial rigor involved, as well as challenges that must be resolved in order to implement more sophisticated models.
“In the course of our research it became apparent that new financial models for transactions will emerge, and the industry will wholeheartedly adopt newer models for transactions,” said Rob Rasko, founder and CEO of The 614 Group. “Considering how far we have come in the automation of the media transaction, it’s hard to believe that the financial side of how companies do business is stuck in the past.
Publishers and buyers can not properly forecast spend and are subject to antiquated payment practices due to a lack of more sophisticated instruments which could add financial leverage and predictability to the media sector. The Evolution is coming and ideas like blockchain and smart contracts sit on the forefront of making these concepts a reality.”. .”
Within the full report, the following key findings are developed in depth:
- Guaranteed contracts come with no guarantees:
- 88% of publishers offer “guaranteed contracts,” yet 100% have out clauses
- Nearly 50% said cancellations make it difficult to forecast inventory and revenue
- Reconciliation of discrepancies is still a costly endeavor:
- 33% of publishers spend over $100,000 a year to resolve discrepancies
- Both buy and sell-side are open to new financing structures:
- 64% of publishers are interested in Guaranteed Revenue Contracts (contracts for inventory which are sold via a secondary market, similar to stock markets)
- 57% said it would make it easier to forecast inventory and command higher prices
With the threat of cancellations eliminated, publisher teams can focus on more strategic client goals
- Higher degree of automation is possible:
- 50% said it’s largely feasible to automate premium direct deals
- Publishers want specific sales controls:
- 74% cited a need for creative control over the ads as well as the ability to screen the ads for fraud.
About The 614 Group
The 614 Group is a results-driven digital advertising infrastructure consultancy, providing strategic and tactical services to our media clients. Our unparalleled experience, network and talent generate the ideal blend of visionary and executional support services which are completely customised to each individual client’s capabilities and goals.
Through our original content, live events and research we empower our core publisher market, as well as the industry-at-large with cutting edge education and resources. With over 30 consultants across three top global markets, we seamlessly manage both strategic and operational elements of an engagement.
Our philosophy of building long-term partnerships with our clients drives us to evolve our offerings in tandem with a constantly innovating marketplace, ensuring client growth within the digital advertising ecosystem and beyond.