Over the last few months, the subject of principal media (PM), or principal-based buying, has entered the ad tech zeitgeist.
Principal media is the process where media agencies purchase media in advance, in bulk, and then resell it to their clients, often at a price that is higher than they paid but lower than what it would cost to buy in the open market.
In theory, PM is rooted in sound, common business practices seen in many other market-based industries. And it can deliver incremental value for buyers, sellers and the intermediaries that support them.
But an ANA report from last May highlighted alleged harms from PM agreements caused by conflicts of interest that go undetected due to a lack of transparency and auditability. Critics believe agencies are artificially boosting their margins in PM deals.
Margin concerns aside, where PM has gone wrong is that buyers have commoditized it due to an overreliance on vanity metrics in contractual agreements.
Vanity metrics don’t account for media value
The ANA and others believe the harms from PM are rooted in the opacity of the contracts and buyers’ unwillingness or inability to audit what they received.
However, some advertisers aren’t so worried about whether agencies are inflating their margins as long as the inventory performs. “I don’t know, nor should I care, what the supermarket’s margin on a banana is,” or so the line of thinking goes.
But unlike bananas, media is a highly differentiated good that varies widely in value and quality. By relying on vanity metrics to ensure the principal’s contractual obligations have been met, agencies are devaluing certain types of media and overvaluing others.
Many of those vanity metrics, such as viewability and completed video views, have been gamed by a system that incentivizes quantity over quality. This has created a lemon market dynamic, where the quality (and thus value) of the commodity agencies are buying continues to drop, even outpacing the prices they pay, which have also been trending downward.
To use another food-based analogy, consider a commodity like beef. Like digital media, beef has a wide range of quality grades (from “prime” to “canner”). Producers and processors pay for their beef to be graded to ensure that buyers value it appropriately.
Most digital media, however, is traded with bare-minimum quality controls, e.g., standard viewability or completed video views. That’d be like going to a supermarket that has every quality grade of beef available in the fridge, but they’re all simply labeled “Salmonella-Free.” Consumers might buy it, but only at rock-bottom prices.
Media hygiene metrics like viewability, at best, indicate to buyers whether they should pay for that product at all, not how much they should pay.
A question of quality
The solution for this inefficiency in PM and the broader market is not to get rid of PM. PM is just a contractual relationship between a buyer and their agent that often provides value for buyers.
The better solution is for buyers to begin setting media quality requirements in those contracts with their agents, ones that can be measured, verified and updated over time. This will lead to more effective media spend for marketers, shrinking the surface area by which an agency can gain at the expense of their client.
This approach will ultimately prove advantageous for agencies that will compete on giving their clients the best value and performance, even when that performance is hard to directly and deterministically measure. Additionally, it will shift spend to higher-quality media and away from some of the low-quality supply (e.g., MFA) that buyers are desperate to avoid but struggling to remove from their media plans.
In a world of scarcity – where user identifiers and high-quality media are hard to come by – it is inevitable that we pivot away from the undifferentiated commoditization that has underpinned so much media buying and measurement over the last two decades.
Media quality has never been the focus during what many industry pundits refer to as the “precision” or “outcomes” era of programmatic. Still, we must ensure that true media quality metrics underpin the advertising landscape.
Focusing on media quality instead of vanity metrics not only helps buyers avoid the problematic inventory that keeps them up at night; it can also help them drive better outcomes.
That prioritization of quality can and should apply to principal media as well.
“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.
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