BMO’s Salmon On ‘Social TV,’ The IPO Market And More

dan-salmon-programmatic-io-nycDan Salmon is an equity research analyst at BMO Capital Markets and covers media and Internet marketing. He recently released a new research report on Social TV and its impact on advertising and marketing. You can download it here (PDF – 7 MB).

AdExchanger recently discussed the new report with Salmon and asked his thoughts on the initial public offering (IPO) markets for ad and marketing technology companies.


AdExchanger: Do you think there is still a role for traditional solutions to provide a “feedback loop” in the IP-delivered TV world? — i.e. Nielsen focus groups and post-campaign surveys.

DAN SALMON: I definitely think there is a role for a feedback loop that is more than simply someone interacting with an ad on a first or second screen, like retweeting, posting about a TV show on Facebook or skipping a TrueView ad on YouTube. However, things like focus groups and post-campaign surveys are evolving and becoming more automated as well. This is what the acquisition of Vizu brought to Nielsen, for example.

From the media owners’ point of view, what are the big challenges associated with second-screen viewing? Are they now responsible for providing an experience on the second screen?

I don’t think they’re responsible for it, but they’re certainly leaping at the opportunity to do deliver it to their viewers. For the networks, Social TV viewing means the opportunity for audiences to spend more time with their content and it also means a more engaged audience. Today, the networks’ first priority is to help use second screens to improve TV tune-in to their shows and drive higher ratings (like the “See It” button that Twitter and Comcast have announced, where a Twitter user will be able to link to their Comcast account and use it to program their DVR).

But the second-screen experience also opens up new advertising opportunities, like Twitter’s Amplify product, where TV network content is repackaged, dropped onto Twitter and an ad is sold against it. Both the network and Twitter then share this ad revenue. And much of the investment in Social TV viewing is already underway through their TV Everywhere platforms, where we’re seeing more networks (like Fox) embed social sharing tools into those apps as well. So I think the opportunity outweighs the incremental cost.

Given Twitter’s enormous real-time panel, is Twitter a threat to its partner Nielsen — or even a “frienemy,” perhaps?

Twitter has acquired a couple of great analytics companies in Bluefin Labs and Trendrr. So they will certainly harvest and analyze their own data, and could deliver this to advertisers to help their planning. So too does YouTube. And the TV networks increasingly have the opportunity to do this as more viewing is done through their TV Everywhere apps.

But in partnering with Nielsen, Twitter is recognizing the importance of an independent currency in helping verify their audience and add transparency to buyers. This is particularly important for advertising that is priced on a CPM basis. And little noticed has been the fact that the CPM pricing has gained share of online ad pricing for three straight quarters, according the Interactive Advertising Bureau. That’s an incredibly important inflection point after CPC and performance-based pricing’s almost decade-long march upward, driven by the emergence of search.

Why is social TV potentially important to programmatic buyers and sellers?

TV retargeting. Twitter is already doing a little bit of this. It’s the opportunity to show a TV ad (whose purpose is typically to help branding) and then drop another ad for the same advertiser onto a second screen a few seconds later. It functionally helps drive the consumer down the marketing funnel (rather quickly) by giving them a call to action on their second screen where they could potentially click and go buy the product. It makes TV more direct-response oriented, but that is not new either. [Toll-free] 800 numbers have been embedded in direct-response television (DRTV) ads for several decades to help drive this human behavior. Social TV simply opens up a new opportunity to do so.

How will Social TV transform the TV “Upfront?” Or will it?

I don’t think it will change the Upfront a whole lot. Opportunities like Twitter Amplify will be something that is up-sold to buyers. Social TV will also likely change the dynamics around certain shows. The top 10 most-tweeted shows each week tend to be very different than the Top 10 traditionally rated shows, and ad buyers will begin to take that into account. For some brands, this will matter a lot. Others less so.

What can Yahoo do with Social TV?
Yahoo has a great Social TV companion app called IntoNow already. But I think the biggest promise will come in the content partnerships they are striking. While they may not be delivered to a TV, I expect they will have plenty of social sharing capabilities built into them. And perhaps we’ll see that content delivered over the top increasingly, too.


Given their company valuations, what is Wall Street seeing in IPOs for companies like Rocket Fuel that they weren’t seeing with Tremor Media or YuMe? They’re both ad networks, in a way, are they not?

I think the major differences can be explained in two ways. The first is that Rocket Fuel was built to be algorithmically driven from day one. So I don’t consider them an ad network in the narrow definition of the phrase, which I would consider to be something like: “a company that establishes direct partnerships with publishers and then uses an I/O-driven process to transact on behalf of advertisers or agencies.” Of course, the term “ad network” also tends to have a broad definition, too, whereby it’s more like this: “any company that connects buyers to advertising opportunities on properties it doesn’t own.” I don’t really like that definition, though.

The second difference is revenue growth. Rocket Fuel is growing revenue at over 100% right now, while companies that are integrating programmatic buying/selling into their mix of I/O-driven work tend to see revenue growth that is in the 10-40% range.

For technology companies associated with advertising, margin compression would seem inevitable given technology’s commoditization over time — even Google lists margin compression as a risk for investors. Is Wall Street more accepting of this notion today, or will it have to be at some point?

I think there are two questions buried in there. One is the more general one about new technologies eventually seeing competitors come into the market, price themselves more competitively and “commoditize” the category. That is pretty common across all new technologies. This is what is happening in smartphones and tablets today, for example. The second question though is about ad intermediaries and their gross margins, i.e. the percentage of revenue from an ad buy that they keep versus the percentage that goes through to the publisher. And yes, I do believe these will come down over time as technology becomes more commoditized and the marketplaces become more transparent. But in the meantime, many companies – like Rocket Fuel – are seeing gross margins expand, as they add more value for their clients, like helping them buy video, social and mobile inventory programmatically.

What are initial public offering categories that are resonating today as it relates to advertising and media?

There is certainly interest in the transition to programmatic buying and selling, though still some skepticism about the long-term gross margin challenge noted above. And new social media properties that have mobile behavior at their core are very interesting to investors that are considering the future of media. And data-driven analytics and marketing services tools too. There’s no shortage of disruption going on at the moment, and investors will always be interested in that.

Is “programmatic” a buzz word or real trend in your opinion? 

It’s a real trend. The manner in which a great amount of advertising is transacted is changing forever; there is no doubt about that.

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