Read Part I of this series here.
There’s an old saying: If you take someone’s money, you have to do what they say.
The big five agency holding companies control a significant portion of the world’s media spend, and if someone on the sell side wants to make money in the ad business, chances are one or more of those agencies are going to write them a check.
On the sell side, there are millions upon millions of websites, apps, ad networks, exchanges, SSPs, video portals and other places where an advertiser can spend their ad budgets. If publisher IGN is playing hardball, an advertiser can go to GameSpot. If PopSugar is playing hardball, an advertiser can go to Yahoo! Entertainment.
So there is a massive imbalance of power on both the buy and sell sides, from money to sheer number of options of places to place ads. Advertisers know this, publishers know this, pretty much everyone knows this, which makes advertisers push for lower and lower CPMs—and publishers more likely to roll over.
Now, are there rare instances where not including a certain publisher on a buy would be akin to malpractice? Absolutely. If you’re selling financial services, you have to be on The Wall Street Journal. If you’re selling pharma, you have to be on WebMD.
But the publisher with the cajones to tell an advertiser that’s trying to lowball them on CPMs to ”screw off” are limited—especially when those doing the telling are directly incentivized (ahem, media sales people) when the sales go through.
Loss of Guarantee
The drive to push publishers to set up PMPs is to a large extent the latest iteration of all of this. In an effort to go 100% programmatic, agencies are cutting back on their traditional I/O based deals and instead asking publishers to set up “always on” PMP deals. From the publisher perspective, this goes from having guaranteed, recurring revenue that can be counted on year to year (assuming they do a good job) to the non-guaranteed revenue bucket where there’s much less certainty.
Your million-dollar advertiser might go from guaranteeing you $250,000 a quarter, down to $100,000 or less because they’re spending on a PMP. Sure, this gives agencies more flexibility in getting the best performance/return from their ad dollars, but also gives them the opportunity to make an even higher profit on their spend.
Another reason why publishers are getting pushed to set up PMPs is because of advertiser concerns about inventory quality on the open exchange. The concern was detailed in a story by one prominent publisher.
Said publisher had a banking client say that they “only wanted to buy on the open exchange” and they would never be willing to set up PMPs. That all changed when the buyer’s CEO saw one of their ads on “hotasiangirls.com” and sent an angry note (and screenshot).
The Agency Perspective
That’s not to say that everything in agency-land is all sunshine and rainbows. The agency model is constantly under threat by the same technologies that put pressure on publisher margins.
Brands see reports of agency rebates, a general lack of transparency, and less-than stellar performance and think to themselves: “We should bring this all in-house.” In fact, the dominant trend in media buying is the movement on the part of brands to bring digital media spending in-house.
One of the most most important industry trade pieces that came out in 2016 was the video of Gabe Leydon, the CEO of mobile games company Machine Zone, tearing into the agency model and saying that every dollar spend should be quantified and measured. I suspect that this video was sent to every brand’s digital CMO and probably every agency head doing digital buying as well.
The agencies are in a weird position now where their clients are also their enemies. There are two cardinal rules for running a media buying agency—make money and keep the client happy. But what if you can’t keep the client happy and make money at the same time?
There is basically no agency in the world that can properly service Gabe Leydon. To him, the agency model is irrelevant. How many other brands working to get into his company’s position?
From the outside, the agency trading desk doesn’t appear to be anything special. They almost all use the same DSPs and buying technologies that are available to any advertiser. Their most effective campaigns are based on the advertiser’s own audience data—be it through retargeting, lookalike modeling, targeting e-mail lists, or some combination thereof.
And ultimately, the expertise needed to run effective digital ad campaigns is become more and more widespread because so many knowledgeable employees leave agencies every year. Said employees leave because life at an agency is terrible, especially when their own clients hire former agency traders and planners to run the same kind of campaigns they were doing at their old agency!
A Cynical Ploy?
If I could write up an extremely cynical agency playbook, it would look something like this:
A. Make as much profit from a client’s media budget as possible while having results just positive enough to not get fired.
B. Make it look like what you’re doing is very forward thinking and cutting edge.
C. Make it look like what you’re doing is very hard.
D. Keep the client “addicted”—i.e., make it very painful for them to take their business elsewhere.
Setting up PMPs with major publishers checks off all almost of these boxes:
A. Agencies can set up “exclusive deals” with premium publishers, and upcharge the hell out of them to make tidy profits.
B. PMPs are thought to be pretty forward thinking.
C. Actually getting PMPs up and running properly can take some effort, even if the initial setup is simple.
D. If the client ever thinks of leaving, you can tell them that, “If you go, all of these publisher relationships will go too!”
It is doubtlessly true that certain PMPs actually work better than buying what’s on the open exchange. In our earlier example, if you’re Ticketmaster trying to sell country music concerts, a PMP targeting the country music fans on freemusicgroove.com will perform better than buying all of the other pages on freemusicgroove.com. The best buyers will concentrate on what brings the most return to the client when setting up PMPs.
Check out Part I here and tune back in tomorrow for Part III.