Transformation of the Media Investment Industry [2017]
Marketing Principle for Growth
- GROWTH: To maximize performance, identify where value is created and acquire those resources.
- GROWTH: For media investment, technology has driven a change from buying scale and relationships to scale and application of data.
The Media Investment Industry accounted for $542 billion in marketing budget globally in 2016 and is projected to grow 5.7% in 2017 (“Worldwide Ad Spending Growth Revised Downward – eMarketer.”). It has evolved considerably since the Mad Men days when Harry Crane-like figures sat in the corner of Creative agencies as second-rate employees. The role of those involved in the media industry are to distribute marketers’ advertisements to the people that they want to communicate with. The aim to reach the desired audience as efficiently and effectively as possible by purchasing media space. As the practice evolved, specialists separated from creative agencies to form agencies of their own. There are now about fifteen global media agencies and hundreds of smaller, local or regional shops. Some of the top agencies are MEC, Mediacom, OMD and Hearts & Science.
Media agencies have developed skills, tools and clout of their own to improve the performance of their media investment. Typical departments include Strategy, Planning, Buying, Digital, Analytics, Social Media, Search, Content and Innovation. Contracts between marketers and agencies are typically retainers for primary services of planning and buying (3 years is a standard length) and project-based for supplementary services. Clients expect agencies to have their finger on the pulse of consumers, understanding and acting on trends, and propose solutions that keep their clients ahead of competitors’ communications. Technology has continually and permanently impacted the industry, driven by changes in consumer behavior, opportunities to reach them and assessment of media value.
Business Model Transformation
While the media industry has evolved quickly and drastically throughout the last 50-60 years, the focus of this report is on comparing the eras before and after programmatic buying. Programmatic buying is “an automated method of buying digital advertising in which supply and demand partners make decisions on a per-impression basis and adhere to business rules as provided by the operators of each platform.” (“Fast Take On: Programmatic Media Buying – WPP.”) In short, programmatic means automated media buying. This video provides a brief overview of the evolution of digital display buying (IAB Understanding Programmatic Digital Advertising). In 2017 $64 billion of media space will be purchased programmatically, over half of all digital spending globally. Just ten years ago, programmatic was relatively non-existent (“Programmatic Ads to Grow 31% in 2017, ahead of All Other Channels.”). Yet this doesn’t even capture the full impact. Programmatic TV buying, not even mentioned in the definition from WPP in 2014, is set to rise over 100% for the third year in a row in 2018 to $4.43 billion, accounting for 6% of all TV investment in the US (“Programmatic TV Ad Spending to More Than Double This Year – eMarketer.”). In the future, it is likely that the majority of all media in all channels will be purchased programmatically.
Programmatic buying was originally seen as a way to improve the efficiency of media buying, allowing marketers to purchase remnant inventory in bulk as discounted rates, with minimal manpower required. As it has developed, media available programmatically has expanded and the real benefit is in applying data to the inventory to understand the value that each individual impression has. Beyond the benefit to marketers, it has fundamentally changed the structure of the media investment industry.
The Old Media Investment Model – Buying Scale and Relationships
Before programmatic buying, media purchases were done primarily through relationships. A marketer, usually a brand manager or media specialist, would brief the media agency on the objectives and budget of the coming year or campaign. A media planner would translate these goals into an actionable brief for a media buyer to purchase the correct inventory. The media buyer would aggregate needs of all clients and contact media suppliers (TV networks, Magazines, Websites, Radio Networks, etc.) to inform them of the clients’ needs. Media suppliers would then provide a proposal with the recommended investment and inventory.
Media agency value was generated through scale. By managing larger budgets, they could negotiate for lower rates with suppliers. This drove the industry to consolidate into agency holding groups such as GroupM. Contractual obligations to not work with direct competitors pushed agency holding groups to launch new agencies so they could work with advertisers in the same category without conflicts. Holding companies that were able to manage a significant portion of overall media spend (GroupM accounts for almost 1/3 of all ads placed globally) could use this visibility to understand and actually influence market prices. Success was measured by delivering the lowest CPM (cost per thousand impressions). Clients received benefits by working with a large media agency that had skilled negotiators. Agencies were compensated through commission on billings and rebates from suppliers, both driven by scale and relationships.
Technology solutions during this period were created to streamline operations. Agencies typically built their own system to aggregate media inventory. Media buyers were the primary users of these tools, with IT playing a supporting role to ensure they continued to function. Addition tools were built to standardize the creation of media plans, briefs and invoices. In line with the overall industry, the goal of technology was to improve efficiency.
New Media Investment Business Model – Scale and Application of Data
Programmatic buying has shifted the value of media agencies from buying scale and relationships to scale and application of data. The media buying process begins the same way with the marketer briefing an agency on their needs. However, that’s where the similarity ends. Instead of a single planner interpreting the brief for a buying, it is now a collection of a digitally-proficient planner, analyst and data-proficient buyer who come together to analyze the brief.
The buyer then goes to a Demand Side Platform (DSP) to create a new campaign with the audience segments they want to reach and the goals for the campaign. The DSP connects with Supply Side Platforms (SSPs) in which media suppliers have listed their inventory. Data is stored in a Data Management Platform (DMP), which connects DSPs and SSPs and determines the value of individual impressions. The largest advertisers have decided to build their own DMPs, while most use ones created by agencies or third party ad tech companies. Xaxis Turbine is one of the largest and most profitable of the agency DMPs. Third party providers such as Salesforce offers a DMP solution that uses their cloud. Analytics are built directly into the buying systems, allowing near real-time analysis and optimization. Success of the media buy can be measured on metrics that are more directly connected to performance such as response or ROI, rather than just efficient delivery.
Agencies have diversified their compensation sources as commissions have shrunk from 15% to 1-3% on media billings. An additional revenue stream comes from linking their compensation to sales, which has strengthened the relationships with clients. An entirely new practice is extending vertically in the media supply chain. Armed with market intelligence through data, agencies have begun purchasing inventory and reselling to clients, cutting out middle men. Margins can be 20-90% (figures are not released publicly) on resold inventory, which has been a massive influx of funds into agencies. Unfortunately, clients are weary of conflicts of interest.
Technology has gone from efficiency-driving support tools to value-generating intelligent systems that are at the core of media investment. IT teams have become more central to the agency business and grown with the addition of more people and new roles such as Product Developers. Instead of aggregating inventory scale, new systems like Turbine provide value by having extensive knowledge of single impressions. Rather than specializing in a single media channel, the best systems are integrating multiple media channels to provide a holistic view of the target audience. Buying systems and analytic dashboard can be easily accessed through mobile devices at any time.
The effects and drivers of media agency value change
Campaign Planning and Implementation has Evolved
Campaigns used to be planned and implemented like movie launches – a brief teaser, mass launch and then sustaining period. The goal was creating a great TV commercial and then reaching the most people possible at the lowest cost. Media inventory was purchased in advance, as much as a year ahead for the most in demand units. Reporting was received days, weeks or even a month after the commercial aired. Analytics were done on delivery.
Now, campaigns are planned more like startup businesses. There are long-term and short-term goals. A test-and-learn mindset, facilitated by real-time buying and near real-time analytics, fuel campaigns that launch, are optimized and continue to grow. Insight is gained on performance rather than just delivery.
Furthermore, companies are using technology to gain insight, create and distribute increasingly individual experiences. Drug Free Kids Canada launched “The Call that Comes After” which allowed parents to send a timely and personalized text to their children at the same time as they watch the campaign’s YouTube video. The custom synchronization was made possible through a combination of “IBM’s Marketing Cloud, Oracle Marketing Cloud, SMS, YouTube and an on-demand video rendering engine” (“FCB/SIX Tackles Teen High Driving with ‘The Call That Comes After’ for Drug Free Kids Canada.”)
Agency Competition has Increased and Diversified
Previously, competition in media investment came from other media agencies, full service communications agencies or select marketers managing it in-house. All media investment services were centralized with a single entity.
The effects of technology have disaggregated media services and allowed new competitors to enter. Competition comes from Agencies, AdTech firms that build DSPs, SSPs and DMPs and Digital Media companies (Google, Facebook) offering their own platforms. Clients also choose to bring some services in-house like programmatic or social media, while assigning other parts externally. The fastest-growing media agency, Hearts & Science, was founded in April 2016 centered on Omnicom’s Data Management Platform. It already boasts the top two advertisers in the world, P&G and AT&T as clients on retainer, demonstrating the power of technology and data at the core of the business.
Media has Become Available to More Companies
Pre-programmatic media was an industry built for large marketers. Clients benefitted by purchasing in higher volumes and shifting their business to big agencies. They were rewarded with efficiency and added value services. Smaller customers would receive higher costs and less services. The smallest marketers like startups count not afford mass media as agencies were set up to work with large clients and startups lacked scale or relationships to negotiate with media suppliers directly for manageable costs.
Now, the cost of entry has been reduced significantly. Marketers can access individual impressions that are backed with massive data sets, such as through Facebook’s Ad Platform and Google’s AdWords. Instead of scale, marketers achieve value by understanding what drives performance in their business and accessing the correct tools and inventory to purchase media space. In this setup, scale helps to gain access to more complex tools and more experienced humans to work with them, but is not mandatory.
Data Privacy Regulation is in a State of Flux
Marketers using personal data is not new, just check your mail for the latest credit card offer. The entire Direct Mail channel is built on customer databases and models to predict conversions. The internet, however, has multiplied the amount of data exponentially. It has also made data usage more apparent. When a person is served a banner ad for the exact product they were looking at on Amazon within 1 minute of leaving the page, tracking becomes obvious. The questions of who owns this data and what rights people, internet providers and internet companies have are still undecided.
Data protection and the potential fines from violations are top concerns for technology, media and telecommunications executives globally (“Data Protection Is Top Concern for Media, IT and Communications Firms | The Actuary.”). The media industry has stated their case to self-regulate, however, they are opposed to requiring people to opt-in to sharing data as it would significantly limit the amount of data. The Internet Advertising Bureau (iab) has been leading the industry with their guidelines for advertisers, data collectors and individuals (“Privacy Policy.”). Unfortunately for the media industry, that hasn’t persuaded US or European governments to stand by idly.
On April 3, 2017, President Trump signed a resolution that repealed laws that President Obama enacted to protect people’s data. The law specified that the Internet Provider would have to ask permission before sharing data on web browsing history, geolocation and app usage (Fiegerman, “President Trump Just Signed off on Killing Your Internet Privacy Protections.”). Now that burden is removed and responsibility shifts back to individuals to protect or share their data if they want or even care. Internet providers and companies are free to collect, use and sell data for marketing purposes. That is good for the media industry, potentially good for people to receive more targeted ads, but potentially an invasion into people’s privacy if marketers are not responsible.
The Role of Tech in Media Investment
At MEC, the evolving media landscape had both positive and negative effects. On a day-to-day basis, we received a more prominent role as compared to non-media agencies with many of our clients. The balance of power shifted from communications agencies’ ideas leading media agencies decisions to data-driven companies leading communications through insights and analytics.
As a result, agency leadership skills have changed. Digital and data leaders are becoming overall agency leads. The Global CEO of MEC Charles Courtier moved on to another role in 2016 and was replaced with Tim Castree, who was previously Managing Director at Videology, an AdTech firm. When the role to lead the North American business of GroupM, the world’s largest media holding company, became available, the CEOs of its four founding member media agencies were past up in favor of Brian Lesser, at that time the CEO of Xaxis, the programmatic buying unit of GroupM. These appointments demonstrate a clear shift in agency priorities to ensure they lead with data and technology.
Personally, I decided to leave MEC in September 2016 and begin my own consulting practice for small businesses and startups. The decentralization of media inventory presents a great opportunity for my clients and me as a consultant. I can access media marketplaces and data sets which were previously unavailable. There is also a plethora of technologies which can automate basic and even advanced activities to save time and resources. In the past, only agencies which invested millions of dollars in creation of their own tools would be able to facilitate automation. Now, I can access tools customized to planning, insights, content creation, analytics and many other areas for low monthly subscription costs. These are easily available in the cloud, eliminating the need for me to have an IT team or even deep knowledge in technology development.
However, with opportunity comes responsibility. Media is integrated with IT more than ever before. To best understand, implement and generate value from the technologies that are available, it is greatly beneficial for media professionals to understand technology development. Being able to do simple coding in JavaScript or at least communicate precisely what is needed to web developers is becoming a requirement for the highest skilled marketers. This combination of media and information technology was popularized in the book Growth Hacker Marketing and has only grown since then. A follow up, Hacking Growth is due out in May 2017, which will further systematize and provide best practice examples of the integration of these previously siloed disciplines. Marketing and IT will continue to integrate and rely on each other for connections with consumers, analytical insights, automation and overall value creation.
Looking Further Ahead from 2017
With a foundation of programmatic buying, real-time analytics feedback loops and 24/7 access to campaigns via mobile devices, marketers are eager to enhance their ability to communicate with current and potential customers. Lines of what is part of media responsibility has blurred. New technologies have opened new channels. The Internet of Things are comprised of connected devices, which have the potential to distribute brand messages and allow people to engage with or purchase from brands in ways that were previously unavailable. The Amazon Dot, Nest climate control and Alexa are just a few of the examples of these devices.