Optimizing Networks -- Bill Harvey

Networks selling their ad inventory have traditionally taken an adversarial stance to buyers in the sense that the focus has been on who wins the CPM negotiation.

When Apollo reintroduced TV program selection to reach purchasers, Irwin Gotlieb said, “The networks always trump preference with pricing.” Meaning that if the buyer tips his/her hand that they want a specific program, perhaps because it has a lower-than-average eCPM against the brand’s category purchasers, the networks will up-price the CPM on that program to neutralize the program’s advantage to the buyer.

This of course is diametrically opposed to the idea of an Optimizing Network. An Optimizing Network (ON) is one that sets out to offer and provide the optimal schedule to each buyer for each brand campaign. The Traditional Network (TN) is playing the game of maximizing its own shareholder value without regard to the buyer’s or the client’s shareholder value. The TN has every right to do this, since everybody has been playing that same game, so what’s wrong with it?

In fact, the TN is making sure it has no remnant inventory that has to be sold cheaply or given away. Remnant inventory is the problem that the TN is trying to solve by creating block-booked packages where you have to take some stuff you don’t want in order to get the stuff you do want. On the other hand, the ON just wants you to get the stuff you should want based on the numbers.

How can the ON deal with the remnant problem? The best practices answer is to find the brands that the remnant is good for. Every spot is good for somebody. Reports can be run that identify who to offer the spot to.

Why should a TN consider converting to be an ON? The only possible reason would be for greater business success. If one can sell out at the highest CPMs by being an ON, with higher CPMs and sell-through than one can get by being a TN, then convert. Otherwise don’t. It’s as simple as that.

What evidence is there that a network can make more money by being an ON? The proof is most easily seen with addressable commercials. The original idea I had for addressable commercials is the win/win of it. The buyer gets the lowest possible eCPM which in aggregate adds up to the highest CPM from the network’s point of view. This is illustrated in the actual data example reported by my company Next Century Media in the days of yore (the 90s).

As shown in that table (based on Scarborough data put through the NCM Optimark system as a simulation of what set-top box data would later confirm in all the Comcast and Cablevision implementations in the current era), each advertiser reduces his/her eCPM while the seller gets $4,171.43 for a spot that previously had brought only $1,776.00.

The same thing can be done with less leverage in non-addressable commercials by using the program’s skew toward the target as the mathematical driver of the equation, along with cost and any sex/age viewer presence desired. Although non-addressable leverage is less it can still account for up to 25-35% ROI increases (your “mileage” may vary) as proven by TRA studies with major clients co-presenting at ARF conferences. The ROI increases with addressables will be even higher, of course.

The idea of the ON is that the better the job done for the buyer side, the more successful the network will be in the long run: A win/win confluence of interest — buyer and seller as partners, both on the same side of the table. This lens is also helpful in thinking up the most creative brand integrations in programs. Cast presenter commercials are going to be making a big comeback as we enter the age of Optimizing Networks, and as more and more TNs convert each year from now on.

Practically all of the ONs we see nowadays are in digital or mobile and all of the agency trading desks fit in this category. In television, Simulmedia is the leading Optimizing Network. Simulmedia started out optimizing for tune-in advertising because the conversion rate on that form of advertising can be read directly by seeing the proportion of those reached by any given tune-in spot airing who then watched the next telecast of the promoted program. Simulmedia data sees that such conversion rates can go as high as 80% for TV tune-in spots. Dave Morgan, who had done similar work in digital at TACODA, notes that the conversion rates on TV tune-in spots are literally ten times higher than the conversion rates for tune-in display ads in digital. The big news is that Simulmedia will now be guaranteeing delivery on purchaser targets armed with TRA and now Nielsen data.

One day all ad sellers will be partners to the buyers, incentivized by bounties paid for ROI success on top of eCPM rates to the sellers, in parallel with bonuses to the agencies involved in the ROI success. Everybody will be on the same side of the table, benefitted by ad success for the brand. This will all be made possible by automation and measurement systems for tracking offline plus online sales and other relevant effects with accurate validated attribution to the ads and vehicles that performed best.

The negotiating stance adopted each morning upon awakening by agencies and ad media sellers will gradually fade into irrelevancy as they will realize they can make more money by helping to benefit the brand.

Bill Harvey is a well-known media researcher and inventor who co-founded TRA, Inc. and is itsStrategic Advisor. His nonprofit Human Effectiveness Institute runs his weekly blog on consciousness optimization. Bill can be contacted at bill@billharveyconsulting.com

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