LPA Report_April 20[1]

I N D U S T R Y P A P E R A P R I L 2 0 1 5

1643 MERRIMAC TRAIL, SUITE B, WILLIAMSBURG, VA 23185 [email protected] TEL: 1-757-221- 6641

©2015 BORRELL ASSOCIATES INC. ALL RIGHTS RESERVED

Tomorrow’s Media, Understood Today

BORRELL

WWW.BORRELLASSOCIATES.COM

2015-2020ProgrammaticAdvertising

LocalDigital Publishing

Cautiously EmbracesAutomatic

Buying-And-Selling

WWW.BORRELLASSOCIATES.COM

Acknowledgement

We’d like to thank Bill Ammerman from Tribune Media for conducting much of the research and analysis

contained in this report. Our survey of local ad managers was conducted on Mr. Ammerman’s behalf for his

masters’ thesis earlier this year at the University of North Carolina. His willingness to share valuable

insights makes him a true leader in the programmatic space.

Principal Authors Of �is Report

William Ammerman Vice President

of Programmatic and Data-Driven Revenue,

Tribune Media

Kip Cassino Executive Vice President

[email protected]

Colby Atwood, [email protected]

Gordon Borrell, [email protected]

Kip Cassino, Executive Vice [email protected]

Borrell Associates Leadership Team:

Table of Contents

Executive Summary.....................................................................................................................................................................................................................................................................................4

CHAPTER 1: Programmatic in Perspective......................................................................................................................................................................................................................5

CHAPTER 2: Programmatic Poised to Dominate Banner & Streaming Video.........................................................................................................................9

Fig. 2.1 By 2020, Programmatic Accounts for 85% of Targeted Banner Purchases...............................................................................................................................................................9

Fig. 2.2 Targeted Banner Ad Spending Becomes More “Local” Over Time.............................................................................................................................................................................10

Fig. 2.3 By 2020, Programmatic Accounts for 67% of Streaming Video Purchases...........................................................................................................................................................11

CHAPTER 3: Programmatic at the Local Level........................................................................................................................................................................................................13

Fig. 3.1 Percentage of Revenue from Programmatic Sales...........................................................................................................................................................................................................13

Fig. 3.2 Less than Half Employ a Full-time Programmatic Manager........................................................................................................................................................................................14

Fig. 3.3 How Staff Size is Changing Due to Programmatic............................................................................................................................................................................................................15

Fig. 3.4 Types of Programmatic Sales Employed..............................................................................................................................................................................................................................15

Fig. 3.5 Percentage of Inventory Sold via Programmatic..............................................................................................................................................................................................................16

Fig. 3.6 Concerns About Programmatic Sales.....................................................................................................................................................................................................................................16

Fig. 3.7 Perceived Advantages of Programmatic Sales...................................................................................................................................................................................................................17

Fig. 3.8 Average CPM for Programmatic Sales...................................................................................................................................................................................................................................17

Fig. 3.9 Average CPM for Programmatic Sales...................................................................................................................................................................................................................................18

Conclusions and Recommendations...................................................................................................................................................................................................................................19

About Borrell Associates ...................................................................................................................................................................................................................................................................20

3© 2015 Borrell Associates Inc. All rights reserved.

BORRELL


Programmatic advertising, 2015-2020INDUSTRY PAPER April 2015

Executive Summary

When it comes to automated buying and selling, the Internet reigns supreme. So it’s inevitable that advertising will also one day become automated. And while that day is not quite here, it’s coming rapidly.

The programmatic-advertising iceberg showed its tip last year, as 4.7% of all locally placed digital advertising was done through these automated buying-and-selling networks. This year the share will grow to 10%, which means that $5 billion of digital ad-buying at the local level will be handled by computerized bidding. In five years, most targeted banners and streaming video ads will be bought and sold via computerized bidding. We’re forecasting the dollar volume to grow tenfold in that period.

Fully realized programmatic advertising will also begin to make it harder to answer succinctly, “what is “local” advertising?” National brands will be able to pinpoint and message to specific groups of people, including tight geographies. Meanwhile, the one-of-a-kind gift boutique, only able to afford general local advertising, will be able to bring their small-town feel directly to a person sitting in the middle of Manhattan. Furthermore, that Manhattanite actually wants to see that shop’s advertising. What is local anymore?

Does this spell the death of the digital salesman? Hardly. But the role will certainly change as advertisers shift to buying specific audiences across a myriad of sites. Our survey of 154 local digital managers showed that more than two-thirds are already participating in some sort of programmatic network and have already assigned or hired someone to manage the opportunity. There’s a growing demand for full-time programmatic managers who can optimize CPMs and strike an appropriate balance between direct-sold inventory and programmatic.

This report offers a primer on programmatic advertising, details the flow of advertising dollars at the local level, and examines things at the local operations level. It points to continued strong growth as local publishers, once skeptical of the commoditization of advertising inventory, seem to have begun cautiously warming up the programmatic monster. While only 10% have a bad feeling about the potential effect of participating in programmatic networks, 46% have mixed feelings or just don’t know.


BORRELL




BORRELL



CHAPTER I Programmatic in Perspective Programmatic has evolved much faster than most publishers and marketers can keep up with. Last year, the Association of National Advertisers surveyed 153 marketers and found that 74% were “completely oblivious, aware but unclear, or in need of education” when it came to programmatic advertising. So, a primer and some perspective are in order before we delve into the numbers and forecasts.

Simply put, programmatic advertising refers to the mechanization of the advertising marketplace. Think of it like eBay bidding. You find an item you want (in this case, an audience of likely consumers), and you place a bid. You upload your ad, set the budget and time parameters, and your chosen audience begins seeing it as they browse the web or visit their favorite sites. Like eBay, it doesn’t matter whether it comes from a well-known retailer or some guy in a garage in Idaho - as long as you get what you want.

Programmatic refers to both the buying and selling of inventory. It lives mostly in the world of digital media, but TV and radio are also beginning to see some action from programmatic buying. Inevitably, computerized ad-buying will spread to newspapers, magazines and yellow pages as well.

On the next page is a diagram created by Turn, an advertising technology company, that outlines the “path” of a programmatic ad. Keep in mind, the long list of actions on the right happen in less than half a second.

The promise of programmatic emerged three decades ago with the appearance of bulletin boards like America Online and Prodigy. As the Internet took hold, the possibility grew that a vast network of interconnected computers could someday automate the placement of ads. At first, ad placement was direct, with advertisers communicating their placements to website publishers using traditional technologies such as email and telephones.

Gradually, ad-serving technologies made it easier to schedule flights of banners across multiple websites. This led to the creation of ad networks that specialized in aggregating the supply of online ads from multiple website publishers and selling it to advertisers at scale.

On either side of this supply and demand market, companies built software platforms that enabled the transactions. The supply side platforms (SSPs) worked on behalf of publishers to help them monetize their inventory. The demand side platforms (DSPs) worked on behalf of advertisers to help them cost-effectively reach the right audiences. Together, SSPs and DSPs brought new automated efficiencies to the online advertising industry and competed alongside traders and ad networks in the ad exchanges for the opportunity to buy and sell ads programmatically.

The rise of programmatic isn’t due only to the SSPs and DSPs, however. It’s a triumvirate that includes some very powerful data-tracking companies. By analyzing log files of users’ web browsing histories, these companies can ostensibly create a marketing holy grail: the ability to determine what they’re likely to buy soon.

One data provider, Acxiom, has developed a massive database of consumer behaviors. For about 96% of American households, Acxiom’s databases contain, “the names of their family members, their current and past addresses, how often they pay their credit card bills, whether they own a dog or a cat (and what breed it is), whether they are right-handed or left-handed, what kinds of medication they use (based on pharmacy records). . . . The list of data points is about 1,500 items long.”1

To understand programmatic advertising one must realize that the ads are being delivered individually, one at a time, to consumers based on data that targets them as members of ideal audience.

1 Pariser, E. (2011). The Filter Bubble: How the New Personalized Web is Changing What We Read and How We Think. New York: The Penguin Press.


BORRELL



THE LIFE OF AN AD

1. UNIFY advertiser’s CRM, campaign, and website (first party) data with technographic, behavioral, contextual, and demographic (third party) data in a data management platform (DMP).

2. BUILD audience segments in DMP based on business need.

3. CREATE an advertising plan to reach target audience segment.

4. BUDGET for digital ad campaign and develop media plan.

5. DESIGN ad for multiple media formats (video, display, social, mobile) and devices.

6. ADVERTISE using a demand-side platform (DSP), the technology for buying media.

7. OPTIMIZE campaign performance and analyze results.

8. INFORM future plans by consolidating campaign data back into DMP.

“UserABC” clicks on a URL and the publisher’s content begins to load in browser.

Publisher asks its ad server if an ad is available. If no ad, server asks Ad Exchange.

Ad Exchange federates ad request to multiple demandside platforms (DSPs), the technology for buying media.

0.04 second

0.08 second

Ad Exchange sends each DSP UserABC's anonymous profile,website category, and page ad safety information.

Each DSP overlays advertiser targeting and budget rules, and applies third-party data.

Each DSP algorithm evaluates and computes optimal bid for advertiser.

Each DSP responds to Ad Exchange.

Ad Exchange runs a second-price auction and selects winning bid from DSP responses.

Ad Exchange sends price and ad from winning bid to publisher’s ad server.

Publisher’s ad server tells browser which ad to display.

Advertiser’s ad server sends winning ad to browser.

Browser displays web page including winning ad, and signals to winning DSP the ad was viewed.

While a marketer can spend weeks building the perfect ad campaign strategy, it takes only a fraction of a second to buy and deliver the ad.

BUILDING A DIGITALAD CAMPAIGN

BUYING ADVERTISINGIN REAL TIME

0.10 second

0.12 second

0.13 second

0.14 second

0.18 second

0.19 second

0.23 second

0.31 second

0.36 second

0.125 second

© 2013 Turn Inc., All rights reserved.turn.com

0

.36

SECOND

SECOND


BORRELL



These advanced targeting capabilities moved exchanges beyond remnant inventory clearance, and into the premium advertising business.

To understand programmatic advertising, one must realize that the ads are being delivered individually, one at a time, to consumers based on data that targets them as members of ideal audiences. Two people, sitting next to each other and visiting

the same website, might see two totally different ads, based on different cookie profiles. For example, a consumer who visits websites about golf might be a good prospect for ads from a golf ball manufacturer. At the same moment, another visitor to the same page might see an ad for a Ford F-150 based on a cookie profile that suggests the person has been looking for a new pickup truck. The market resolves these programmatic buying and selling decisions in less than 200 milliseconds. (That beats the blink of an eye by about 100 milliseconds.)

By allowing programmatic to deliver value in the form of better targeting, the industry has begun to migrate from thinking of it as a method for clearing unsold remnant. One promise is that it can introduce a level playing field across the buying and selling landscape in which price is more fluid and objectively determined.

In 2013, the Interactive Advertising Bureau developed a classification system to help demystify the techniques involved in programmatic buying and selling. The result was a paper authored by Jeffrey Goldstein of Yahoo! that groups programmatic into four types of transactions:

n Automated Guaranteed - similar to a traditional direct sale, with the exception that the RFP, campaign trafficking and fulfillment are all handled through an automated technology platform. The inventory is reserved at a fixed rate for a specific advertiser.

o Unreserved Fixed Rate - similar to the Automated Guaranteed in that the rate is fixed between a publisher and advertiser, but the inventory is unreserved and available through the exchange.

p Invitation-Only Auction - leverages an auction model rather than a fixed rate, but the inventory is only available to a predetermined list of bidders. Also known as a private exchange or private marketplace, Invitation-Only Auctions allow publishers more control over the ads and advertisers they accept on their sites.

q Open Auction - an auction model in which the publisher’s inventory is made widely available to all bidders in an open marketplace. Open Auctions were the first type of programmatic transaction to enable Real-Time Bidding (RTB).

Threat to Publishers

For publishers and their direct sales teams, programmatic has presented a threat. Initially, many offered their remnant inventory through ad exchanges in hopes of wringing a few extra dollars from unused ad space. For many, the unexpected consequence was that their existing pool of direct advertisers figured out that they could buy ads on the same websites for a fraction of the cost if they bought those ads through remnant auctions.

“A lot of publishers have existing direct sales forces in place - many of whom are worried about becoming obsolete, losing their jobs to machines,” the IAB said in a paper on building programmatic sales capabilities. “How publishers build their programmatic sales capability, compensate sales people, and set budgets is important not only for them but to the ecosystem as a whole.” 2

Many publishers see programmatic as a double-edged sword. On one hand, they can’t afford to pass up the revenues available in the programmatic markets to fill their unsold inventory. On the other hand, they don’t want to risk undermining their premium direct business by giving their existing customers a back door to buying their websites at discount rates. One solution many publishers are willing to test is Invitation-Only Auctions (also known as private exchanges), whereby the publisher

The market resolves these programmatic buying and selling decisions in less than 200 milliseconds.

2 IAB, “Building a Programmatic Sales Capability,” 2014. www.iab.net/media/file/IABDigitalSimplifiedProgrammaticSalesCapability.pdf


BORRELL



can control which advertisers are able to bid on their inventory. Invitation-Only Auctions allow the publisher to assemble a white list of hundreds and even thousands of active bidders from programmatic auctions and expose remnant inventory to them for pur-chase, while blocking existing premium customers from bidding on, or even seeing the inventory available through programmatic.

One school of thought is that the technology stack automating ad operations will make it easier to manage the transactional aspects of ad sales through pro-grammatic, freeing the sales team to focus on strategic opportunities and cre-ative initiatives rather than ad operations. The sales team will then be able to focus on higher-value creative strategies that differentiate them from their com-petition. The team that embraces programmatic gets out from under the bur-den of transactional operations and emerges as a creative asset for the publisher.

Advantages and Disadvantages

Unlike auctions that position blocks of ads in aggregate prior to the flight dates, real-time bidding produces entirely new opportunities for control over the marketing process. Programmatic RTB provides the marketer with access to real-time analytics that can be correlated more accurately with brand-related events in the news and social media.

This data-driven media buying allows campaign optimization decisions that are more responsive to market conditions. It also opens the door for marketing automation systems to optimize ad campaigns against real-time data gathered through brand research. This allows savvy marketers to jump on shifts in the marketplace very fast. Remember everyone talking about how smart Oreo was for their perfectly timed tweet “You can still dunk in the dark” during the blackout of the Super Bowl? Imagine that responsiveness to market conditions on a much broader scale.

Other advantages of RTB are efficiency and reliability. “Using exchanges and other ad tech, [marketers] can access a huge range of inventory across a wide range of sites and cherry-pick only the impressions they deem most valuable to them,” explained Digiday columnist Jack Marshall. “That cuts down the number of impressions wasted on the wrong users but also minimizes the need for costly and unreliable human ad buyers.”3

There are significant drawbacks to programmatic. One fear from the publisher’s perspective is that programmatic will drive down CPMs as premium dollars flee in favor of lower costs on the exchanges. Marketers fear losing control of where their advertising will run. This also may impact premium publishers who feel that their content is undervalued in a programmatic landscape that places a premium on audiences rather than content. Also, in an open auction environment there is nothing to prevent an ad from running in a context that the advertiser might not consider “brand safe.”

Another factor that impacts both marketers and publishers alike is the fear that programmatic advertising reduces the accuracy of delivery and introduces the opportunity for mistakes in ad placements, incorrect geo-targeting, poor audience targeting, and potential fraud. Nagging fears that the ads aren’t being delivered properly, due to software bugs, limitations of technology, and human error are common among marketers.

Privacy is also a hot topic. Programmatic advertising thrives in an environment that maximizes access to personal information about an individual’s online and offline behaviors, including their credit history, purchase history, financial status, and other signals in the data that might indicate purchase intentions. Publishers face some risk by enabling the collection and distribu-tion of private information about their audiences.

Reporting standards are yet another problem that adds to the challenges facing programmatic. Brand advertisers have grown discontent with reports that contain only clicks and impression counts. They are seeking more standardized brand metrics such as purchase intent and brand awareness. Unfortunately, the digital media industry has lagged in establishing a set of unified brand standards and that is holding back a considerable amount of brand spending.

“A lot of publishers have existing direct sale forces in place ― many of whom are worried about becoming obsolete, losing their jobs to machines.”

3 “WTF is real-time bidding?” Jack Marshall, Digiday, Feb. 2014


BORRELL



CHAPTER II Programmatic Poised to Dominate Banner & Streaming Video Last year programmatic buying at the local level was a veritable drop in the bucket. At just 4.7% of all locally spent digital advertising, local site operators might rightfully ask, who cares?

Things are changing quickly. This year we expect programmatic buying to account for 10% of all digital advertising, or $5 billion. Our forecast calls for the share to expand nearly tenfold over the next five years at a Compound Annual Growth Rate of 93.5%. At that rate, the level of local advertising flowing through programmatic networks would reach $47 billion by 2019 and surpass national programmatic spending. If that scenario holds true, 61% of local digital advertising and 97% of national digital advertising would be purchased via programmatic networks.

The rapid conversion of automated buying is causing another very interesting phenomenon: Local or geographically-targeted advertising is about to overtake national. That is, out-of-market advertisers are taking advantage of the ability to easily restrict ad placement to a region or specific local market. That’s excellent news for local site operators who’ve had a difficult time getting anything from national ad networks other than low-CPM remnant ads.

Could this be a harbinger for a new marketing world where broadly placed national adverting (think Super Bowl and prime time TV programming) no longer exists? As audience databases explode with information that can define not only demographics but also pinpoint where they’re sitting, standing or riding at that very moment, the answer is, probably not. Broad-appeal brand advertisers such as McDonald’s, Coca-Cola and United Airlines will still want to make everyone feel good about their brands regardless of geography. But programmatic buying will certainly affect widespread erosion of nationwide deals.

While automated buying programs may account for 61% of all digital advertising in a few years, it will have a more profound effect on two formats: banner advertising and video advertising.

Targeted Banners

Figure 2.1 illustrates how programmatic buying already accounts for half of all targeted display advertising, up from 24% just two years ago. By 2020, the forecast is for 85% to be sold via programmatic. In other words, only 15% of local and national target-ed banners will be sold via traditional sales reps in five years if this forecast holds true. The rest will be invoiced through networks.

Figure 2.1: By 2020, Programmatic accounts For 85% oF targeted Banner Purchases

$140.00$120.00$100.00

$80.00$60.00$40.00$20.00

$0

Targeted Banner Advertising

2013 2014 2015f 2016f 2017f 2018f 2019f 2020f

85%

15%76%24%

TOTAL Sold via Programmatic Direct Sold

© Borrell 2015 All Estimates and Forecasts in $ Billions


BORRELL



Year 2013 2014 2015P 2016F 2017F 2018F 2019F 2020F

National $18.63 $26.48 $33.04 $38.92 $43.47 $45.95 $45.59 $46.28

Local $7.42 $17.14 $30.65 $46.37 $61.62 $72.68 $76.81 $79.18

Total $26.05 $43.63 $63.69 $85.29 $105.09 $118.63 $122.40 $125.46

% National 71.5% 60.7% 51.9% 45.6% 41.4% 38.7% 37.2% 36.9%

% Local 28.5% 39.3% 48.1% 54.4% 58.6% 61.3% 62.8% 63.1%

As noted earlier, programmatic buying has also begun changing the face of what we’ve known as local advertising. Two years ago, the ratio between locally purchased banners and national was 1 to 2.5. That is, for every $1 spent on targeted banners by businesses inside a market (or “local” advertisers), $2.50 was spent by national advertisers - or those who didn’t have a store in the market they were buying. Largely due to the influence of programmatic, this is about to flip.

Figure 2.2 forecasts that the lines will cross in 2016, when locally generated digital display ad spending will be greater than national. This disparity will grow for the rest of the decade. By 2020, the ratio of locally generated digital display to national will reach 1.7 to 1.

Figure 2.2: targeted Banner ad sPending Becomes more “LocaL” over time $ in Billions

© Borrell 2015

What could cause this change? Several factors are at play:

• Programmatic becomes “do-able” at the local level. Sophisticated programmatic and targeting software and expertise, once available only to bigger national players, becomes available to local media. Local retailers em-brace programmatic buying as a means of reaching specific, high-value audiences.

• Local CPMs rise. As the demand rises, CPMs follow.

• National CPMs decline. The attractiveness of a massive, untargeted nationwide campaign declines as national advertisers spend less overall to reach specific audiences. Lower demand forces CPMs down.

• National programmatic banners become “value-added” in bigger cross-media deals. Programmatic buying is making inroads in other media, including broadcast TV, cable, magazines and radio. That will make cross-branding packages attractive to national advertisers. The digital part of these deals will be deeply discounted to sweeten those high-priced buys.

As national programmatic undergoes this struggle, local site operators stand to benefit most. There are two reasons: First, pro-grammatic makes national advertising readily accessible to a local site, and at higher rates (because it’s targeted) than national remnant ads; second, programmatic has the potential to entice smaller local businesses to buy more inventory outside of the market. Consider these examples:

• A Tucson dress shop that sells Southwestern fashions is now a candidate for “national” advertising because it can display its banners to potential shoppers hundreds or thousands of miles away. The shop can target anyone who’s searched for “Southwestern fashions,” who’s selected “Tucson” as a destination on a travel or hotel site, or who might have visited www.southwestindian.com or www.etsy.com/market/southwestern_dress.

• Businesses in seasonal markets have long tried to reach out-of-market travelers before they made vacation plans. The General Palmer Hotel in Durango, CO., can now find potential guests in South Bend, IN., and The Lobster House in Cape May, NJ., can reach potential diners in Wilkes-Barre, PA. Local media companies participating in programmatic networks will be the prime sellers of that type of out-of-market advertising service. Their competitors will be out-of-market digital agencies with existing relationships in vertical categories, like Yelp (restaurants), Officite (medical practices), HomeAway Inc. (vacation rentals), and Blizzard Internet (hotels and B&Bs).

www.southwestindian.com

www.etsy.com/market/southwestern_dress


BORRELL



• Virginia Diner in Wakefield, VA., which has an adjoining shop that sells peanuts, can now hit specific targets outside the market. It can display ads to anyone who’s visited other gourmet gift sites, school fundraising sites, or has a profile that lists “Boy Scouts” or “Girl Scouts,” since Virginia Diner has an active fundraising program for scouts.

All of these examples also show how, in the very near future, the concept of “local advertising” can start to mean different things. Programmatic can deliver on relationship marketing’s promises of getting in front of the right person at the right time, regardless of localization.

In a way, it’s the rebirth of contextual advertising. But while it’s been available for more than a decade via Google, Yahoo! and Bing, programmatic targeting offers a broader dimension. Instead of tied to a search term or what type of words are on a page, programmatic networks key off the viewer’s individual profile and can deliver a far greater variety of banner sizes.

Streaming Video

There’s more to programmatic than digital display, and there’s more to it than what’s happening in the digital arena. By the end of this decade, the programmatic force will dramatically affect how ads on broadcast television, cable and radio are sold.

Video advertising will be disrupted most. Today, video accounts (including streaming video) for nearly $1 of every $3 spent on advertising - roughly the same as print. It remains a favored format by the car industry, political candidates, brewers, jewelers and the fast-food industry. The ease with which TV spots can be converted to shortened digital video ads is similar to the way large databases of print classified ads could be easily transferred to searchable website listings. So the scene is set for video screen transfer, which in fact has slowly been occurring. Here’s an interesting fact: The amount spent on streaming video advertising last year was more than half as much as advertisers spent on all TV advertising.4

Programmatic will be the catalyst that transforms digital video into a multimedia giant - and in the process, follows the transition of broadcast television and cable entertainment from the big, single-purpose screens on our walls to all manner of digital devices throughout our homes, vehicles, pockets, backpacks and on roadside billboards, elevators and gas pumps. Our forecasts for programmatic video reflect the shape of this marriage to come.

While programmatic networks are creating a whole other shockwave within analog media, for this report we are only ad-dressing programmatic advertising as it pertains to the digital space.

Figure 2.3 plots current forecasts for the growth of digital video ad spending and its programmatic component. We’re forecasting that, by 2020, two-thirds of streaming video advertising will be purchased through programmatic networks.

Figure 2.3: By 2020, Programmatic accounts For 67% oF streaming video Purchases

4 Advertisers spent $37.6 billion on broadcast TV and cable advertising in 2014 and $20.5 billion on video-streaming commercials.

$45$40$35$30$25$20$15$10

$5$0

Streaming Video Advertising

96%

4%2013 2014 2015f 2016f 2017f 2018f 2019f 2020f

TOTAL Sold via Programmatic Direct Sold

67%

33%

© Borrell 2015 All Estimates and Forecasts in $ Billions


BORRELL



What fuels the trend in Figure 2.3 is the same phenomenon that deconstructed the newspaper industry: the up-sell strat-egy that gave advertisers steeply discounted (or free) banners if they’d continue buying print display ads.

In simple terms, up-sell assumes that two lookalike products can be sold: the core product responsible for the majority of revenue and a new product that may cannibalize it. Using the up-sell strategy, companies will offer the newer product at a deep discount, hoping to ensure purchase of the core product. With regard to video, the new product is programmatic sales of lookalike streaming video commercials to broadcast customers. “Buy a campaign of 30-second spots on local sports for 13 weeks and we’ll give you 5,000 pre-roll spots aired to sports enthusiasts in our local digital network for half-price.”

The up-sell is popular with current sales staffs. It’s easy for them to sell and helps them meet quarterly sales goals. It feels good to station executives because the core product is being protected and, ostensibly, attaining value because of the digital tie-in.

The major problem with the up-sell strategy is that the core product is never really protected. Share of market continues to drop as advertisers realize the value of the new product and realize that the bundle costs more than the individual product.


BORRELL



CHAPTER III Programmatic at the Local Level To determine how local publishers are handling the programmatic opportunity, we invited 154 ad managers to participate in a 17-question survey. The survey ran from December 2014 through early January.

There were 154 starts and 102 completions. Respondents represented a broad cross-section of online publishing, with 44% being local broadcasters, 37% newspapers, and the rest yellow pages and pureplay Internet companies.

Combined, the companies represented accounted for annual digital ad revenue of nearly $500 million, with an average of $5.6 million per publisher. Of those reporting digital revenue, 54% had $1 million or less and 19% reported $10 million or more.

More than two-thirds (68.6%) of local publishers surveyed said they participate in some form of programmatic selling. About one-fourth (26.5%) of those who aren’t currently participating said they don’t intend to use programmatic in the next 12 months. However, among the smaller publishers (those with less than $1 million in total revenue), 45% don’t participate in programmatic. That percentage fell to 13% non-participation for publishers making $1 million to $10 million, and 6% for publishers over $10 million.

We found interesting results when we asked what percentage of digital revenues currently came from programmatic. About one-fourth of the respondents are getting more than 30% of their revenues from programmatic networks.

Figure 3.1: Percentage oF revenue From Programmatic saLes

Approximately what percentage of your online advertising inventory is currently being sold through programmatic sales?

Source: Borrell Associates 2015 Survey of Ad Managers. N=89

© Borrell 2015

The median share of digital revenue coming from programmatic sources was reported at 5.0%. Slightly less than one-third (31.3%) said none of their digital revenue comes from programmatic. If the non-zero responses are eliminated, the average percentage of revenue generated by those employing programmatic sales is 18.1%.

Don’tParticipate

31%Up to 10%

21%

Between 11% and 30%

25%

Between 31% and 50%

15% More than half

8%


BORRELL



Publishers with more than $10 million in total revenue say that programmatic sales account for 16.3% of total revenue, on average. Mid-size publishers reported 14.4%, and small publishers reported 10.7%. Interestingly, the higher the revenue of a publisher, the more programmatic is part of their mix.

Only half of the respondents said they expected the percentage to increase. Given the fast rise of programmatic, that’s somewhat surprising. But remember, we asked about “share” of digital revenues. It could be that direct sales are growing as well. One-third expected programmatic’s share to remain the same, and 6% said they thought it would decrease. The rest didn’t know.

More than half of the respondents (55%) said they have no full-time programmatic employees, indicating that the majority of publishers assign the task to a manager with other responsibilities. Forty-two percent had between 1 and 5 employees, and 2% reported having six or more employees dedicated to managing programmatic sales.

Figure 3.2: Less than haLF emPLoy a FuLL-time Programmatic manager

How many ad operations employees do you have dedicated to programmatic advertising full-time?


© Borrell 2015

Among those publishers who indicated that they employed people dedicated to programmatic, the average was 2.6 people.

Not surprisingly, publishers with digital revenues above $10 million are more likely to have a dedicated manager assigned to programmatic sales, compared with those with between $1 million and $10 million and those with $1 million or less.

We also asked who within the organization managed programmatic activities. For those without a full-time designee, responsibility fell to either an existing sales manager or to someone handling ad ops. Publishers in the $10+ million revenue tier are much more likely to have a senior executive (VP of sales, GSM or DOS) running programmatic compared with smaller digital publishers.

A fear that sales staffs have - fueled by some pundits who’ve predicted that automated buying will make sales reps obsolete - is that staffs will shrink. So far, that’s not been the case. Only 1% of respondents said their sales staff had declined due to programmatic activity. Nearly 18% said the staff size had actually increased.

55.3%

16.5%11.8%

14.1%

2.4%

None 1 2 3 to 5 6+

Number of Fulltime Employees


BORRELL



Have you changed the number of employees you have dedicated to ad operations due to programmatic sales?

Answer OptionsResponse

CountResponse Percent

We have increased the number of employees dedicated to ad operations as a result of programmatic sales.

15 17.6%

We have decreased the number of employees dedicated to ad operations as a result of programmatic sales.

1 1.2%

We have made no change to the number of employees dedi-cated to ad operations as a result of programmatic sales.

59 69.4%

Don't know 10 11.8%

TOTALS 85 100.0%

Figure 3.3: how staFF size is changing due to Programmatic


© Borrell 2015

Among publishers who indicated that they currently engage in programmatic sales, 42.2% said they participate in open auctions. The number of respondents who expect to use “invitation-only auctions” (also known as private marketplaces) in 2015 increased almost 10 points, from 20.6% to 30.4%. The percentage of respondents who expect to use “automated guaranteed” in 2015 increased 8 points, from 24.5% to 32.4%. The number of respondents deploying unreserved fixed-rate auctions was projected to remain unchanged at 27.5%.

Figure 3.4: tyPes oF Programmatic saLes emPLoyed

What types of programmatic sales does your organization currently employ?

Source: Borrell Associates 2015 Survey of Ad Managers. N=151 for “Current” and N= 166 for “Future”

© Borrell 2015

Current Future

Open Auction

43 44

25

3331

21

28 2832

27

2 3

Automated

Guaranteed

Invitation-Only

Auction Unreserved

Fixed RateNo

ProgrammaticOther


BORRELL



Shifting focus from revenue to inventory, most respondents (52.8%) indicated that programmatic sales consume 10% or less of their total inventory. Looking just at those respondents who indicated that they employ programmatic sales, the median answer was that 25% of total inventory goes to programmatic. A smaller group of publishers (22.5%) indicated that more than 30% of their inventory was sold programmatically.

Figure 3.5: Percentage oF inventory soLd via Programmatic

51% +

41% to 50%

31% to 40%

21% to 30%

11% to 20%

1% to 10%

NoneNumber of Responses

7

7

6

11

11

19

28


© Borrell 2015

As noted in Chapter 1, publishers do indeed have concerns. Our survey identified the key ones as commoditization and depressed CPMs, lack of staff expertise, and an undermining of advertiser relationships. In Figure 3.6 it’s interesting to note that none of the concerns were shared by a majority of respondents.

Figure 3.6: concerns aBout Programmatic saLes

Which of the following are concerns that you have about programmatic sales? (Select all that apply.)

Commoditizing productLack of experience

Undermining direct relationshipsConcern that CPMs will drop

Uncertainty about sales modelFraud

Lack of transparencyPrivacy concerns

Other

34%

33%

30%

28%

26%

23%

18%

17%

18%


© Borrell 2015

When we asked respondents what the key advantage of programmatic might be, increased revenue topped the list. More access to quality advertisers came in second. One survey participant wrote, “We're being bought by agencies that would have never purchased our sites, and it's allowing us to take less business from the bottom-feeding ad networks.”


BORRELL



Figure 3.7: Perceived advantages oF Programmatic saLes

What is the primary advantage you hope to achieve through programmatic sales?

Increased overall revenue

Greater access to quality advertisers

Streamlined ad operations

Better value for customers

Cost savings

Other 11%

32%

12%

13%

19%

12%


© Borrell 2015

Because increased overall revenue was the top choice, it is worth noting that the average programmatic CPM reported by respondents was a relatively low $4.88 - less than half of what a local “direct” CPM might be. To make matters worse, 58.6% indicated that their average programmatic CPM was $3.00 or less.

Figure 3.8: average cPm For Programmatic saLes

What is the average CPM (cost per thousand) you are receiving for ads sold programmatically?

> $10

$7 to 10

$3 to 6

$2

$1 8

4

10

20

5

Number of Responses

Average CPM: $3.88


© Borrell 2015

Overall, publishers skewed toward a positive view of programmatic’s impact on their revenue. Nearly 44% responded that programmatic was having a positive impact, compared with 10% who felt it had a negative effect. Ambivalence and uncertainty are major factors in attitudes toward impact. More than 46% either don’t know what that impact is, or they believe the impact is a mixture of positive and negative.


BORRELL



Figure 3.9: average cPm For Programmatic saLes

Overall, what impact do you think programmatic advertising is having on your online revenue?

26.3%

20.0%

26.3%

17.5%

6.3%

3.8%

Bad

Good

Very positive

Somewhat positive

Mixed

Somewhat negative

Very negative

Don’t know


© Borrell 2015

Conclusions & Recommendations

Publishers’ skepticism or reticence won’t halt the growth of programmatic advertising. The automated process of bidding for banner and video ads makes sense because it reduces costs and creates greater market efficiencies. In the end, we think it opens up fantastic opportunities for local publishers. In fact, handled well, we think it could be a very good thing.

At an average local CPM of $3.88 for programmatic buys, nobody’s going to get rich just yet. But it’s a far cry from the less-than-a-dollar CPM many have been accepting for remnant inventory. CPMs are bound to increase as ad technology gets more sophisticated at reaching specific targets. Also, programmatic buying opens the door to a treasure trove of “national” advertising to which local publishers never had as much access.

So it’s a good thing. And, may be a very good thing for those who learn how to manage the networks well. To prepare for a successful transition, here’s what we recommend:

• If you haven’t already jumped into the programmatic game, do it. It’s the best way to get educated on the topic. Speak with current ad-tech vendors or participate in webinars or conferences.

• Invest in audience management and ad-serving software for your own sites. The greater targeting you can offer advertisers to your own traffic, the higher CPM you’ll command.

• Educate account executives. They’re likely to already be hearing about programmatic either in the trades or from advertisers themselves. They need to know the company’s position. They also need to know the company’s commit-ment to the core strengths of account executives as relationship-builders who add value to the partnership through their knowledge and creativity. Technology should be viewed as a tool that eliminates the tedium and headaches of ad operations, while freeing the sellers to work toward their strengths in retaining premium customers.

• Establish a clear policy about when programmatic buys will be accepted, and revisit that policy every quarter using the latest data. In some cases, publishers may decide that the risks of undercutting direct local sales is too great and would yield a net loss of revenue. In other cases, the publisher may already be experiencing a downturn in direct local sales and may be eager to sell more inventory through programmatic channels.

• Be wary of upselling programmatic. If done properly, programmatic advertising can be very powerful in its own right. The dangers of upselling something now that will be explosive in the near future can only lead to trouble - and less revenue.

• Use programmatic as a strategic competitive advantage. The technology stack that automates ad operations will make it easier to manage the transactional aspects of sales. This frees the sales team to focus on higher-value creative strategies that differentiate them from their competition. The team that embraces programmatic gets out from under the burden of transactional operations and emerges as a creative asset for the publisher.


BORRELL



As a data-driven company, we are experts in local advertising.

We are the leaders in tracking and forecasting local ad spending

across any market in the U.S., Canada or the U.K., down to the county

or province level. We help clients gauge the levels of advertising

and marketing expenditures in their markets by any type of business.

We help media companies increase their market share and marketers

adjust their budgets by providing detailed ad-spending data,

fact-based consultation and training.

Methodology & Model

Our unique and disruptive methodology of tracking advertising was first developed in 1990 as a holistic way to gauge spending in tra-ditional media. Since the late 1990s it has continuously progressed to include deep levels of data that monitor online advertising. Now used by more than 7,000 companies, our ad-spending estimates are derived from a blend of bottom-up and top-down data, as well as a continuous flow of our own market surveying.

Unlike most other companies, our approach starts at the bottom with local business expenditures, instead of at the top — media compa-nies receipts. This is based on our belief that the media world has become so complex and fragmented that it’s impossible to deliver an accurate assessment via only the traditional top-down approach of tallying receipts of the largest media companies.

Our model is designed with a powerful and unwavering local focus. This model of collecting expenditure and receipt data enables us to measure ad spending that is generated and spent in any given market, directed to a market from elsewhere, and generated in a market but spent elsewhere. For more detail on our methodology, visit www.adspending.com.

Company ProfileCompany Profile

BORRELL

Tomorrow's Media Understood Today

Market Data

Our market data is remarkably deep, offering ad-spending assessments across each of the 12 media types (newspapers, online, TV, radio, direct mail, etc.) and for any of 100 busi-ness categories (furniture stores, car dealers, hospitals, telecommunications, etc.). It now includes mobile and promotions data and offers backcasts and forecasts up to five years. Under the umbrella of our Local Ad Spending Report (LA$R™) data set, our data subscrip-tion product — The Compass — offers an interactive tool that media managers, analysts and sales professionals use to manipulate the data to uncover enlightening facts.

The richest data surrounds the levels of spending on digital media. For instance, The Com-pass offers guidance on how much a mid-size auto dealer in Albuquerque might spend on search engine advertising, search engine optimization, or online video ads. We are continuously improving the offerings to meet our clients’ needs and offer monthly user group webinars with Compass subscribers. For a preview or to schedule a test drive, visit www.adspending.com.

Industry Papers and Subscriptions

We release a variety of analysis-rich industry papers and memorenda throughout the year. These papers are typically published every 30 days and include dozens of charts and tables, as well as appendices packed with market-level data. They cover topical issues in both online and mobile advertising, often in the framework of how those trends affect traditional media. Annual reports include:

SMB Spending on Digital Marketing Real Estate Advertising Outlook Automotive Advertising Outlook Local Advertising Forecasts Benchmarking Local Online Media SMB Social Media & Mobile Advertising Outlook Recruitment Advertising Outlook

Interactive Revenue-Acceleration Program (IRAP)

Our Interactive Revenue Acceleration Program is offered exclusively to Compass subscribers. It puts media companies on the fast track to driving significant growth in their digital sales efforts. This turn-key program brings a Borrell expert to the client’s market to offer a higher level of training on using the data, as well as seminars to educate local advertisers about the benefits of digital marketing. Clients routinely see an ROI of 300% or more from this program.

Local Advertiser & Consumer Surveys

Our local market survey programs deliver powerful insights. Ongoing SMB surveys are offered in waves (standardized questions); other surveys can be customized to fit a client’s needs. How well do you know your local market? How are advertisers thinking about their radio, newspaper or yellow pages budgets today? What are they planning to do with interactive marketing in the coming year? How are consumers thinking about your website or mobile app? Where do they go to get local news, or information on local shopping? All these questions and more can be answered with our surveys.

An Annual Subscription is the best way to stay informed on the most important industry trends. Subscribers receive:

At least 12 industry papers per year Access to all archived papers Access to interactive webinars with lead analysts discussing report findings

Downloadable PowerPoint with all report charts and tables

Client memoranda as issued on pertinent topics

Revenue Survey Since 2001, we've been collecting data on interactive revenues and expenses from local media companies. The data encompasses more than 6,000 companies, giving us an accurate picture of online advertising sales across the U.S. and Canada. We conduct private bench-marking reports for local media companies and compile an annual summary of the data in our "Benchmarking Local Online Media" report each spring. The data allows us to study the best-practice companies and how they're able to achive as much as 10 times the average market share.

Conference & Company Presentations

Our annual Local Online Advertising Conference is a first-class event. Held each spring in New York, the event brings together the largest group of local interactive media executives of any conference. The speaker list represents a Who’s Who among local media. Eighty per-cent of the attendees are company executives, most of whom are in charge of interactive strategies. In addition, we speak at nearly 100 company meetings and conferences each year. Excellent presentation skills are a core competency at Borrell.

WebinarsWe host or participate in dozens of webinars throughout the year. Our topic list is extensive. We develop custom presentations specifi-cally for companies, trade associations or other groups. We do not conduct sponsored webinars.

Documents

LPA Report_April 20[1]