Direct Sale Fail: Display Share Slips Away As Publishers Wrestle With Programmatic

Last month’s ad spending tally from the Interactive Advertising Bureau was another “record-breaker,” as marketers lavished $17 billion on web ads between January and the end of June 2012. Display revenues in the first half totaled almost $5.6 billion, up 4 percent from $5.3 billion in the first half of 2011.

So everything should be coming up roses for publishers, right? Wrong. A look at some prominent premium leaders during Q3 — among them AOL, The New York Times, and Federated Media — reveals continued downward pressure on digital brand ad spend.

AOL. An inspection of AOL’s performance this past year shows that third party network revenues, partly associated with its flagship, have been rising consistently by double digits (18 percent growth for the third party segment in Q3). At the same time, despite a vast effort to build interest in its premium-brand focused Project Devil ad formats, and heavy investments in its owned and operated sites, particularly video, AOL still produced flat display growth and a meager 2 percent rise on its own sites, which include The Huffington Post and Techcrunch.

Federated Media. Just last week, Federated Media drew attention for its announcement that it was shifting away from direct guaranteed sales and toward programmatic buying. In a conversation with AdExchanger, CEO Deanna Brown hastened to say that FM would not be completely scuttling direct sales personnel and methods. Instead, as part of a 10% lay-off of staffers from various parts of the company (Brown would not say how many of them were sales people or offer any other specifics beyond that percent figure) FM would double down on its roots in “conversational marketing” (known elsewhere these days as “native advertising,” or “content marketing”) and on programmatic through ad network operator and supply side platform Lijit, which it acquired a little over a year ago.

“It’s not just FM that’s seeing this, but there’s softness in this churn and burn, standard, RFP-driven, direct media business,” Brown said. “It is not economically viable. We’re making a proactive decision to move our business to both the premium and programmatic sides.”

Yahoo. Yahoo, which long-held the display leader spot until it was dislodged by Google and Facebook, has been struggling for years under various CEOs who have pulled their beleaguered display sales teams in different directions. In her first earnings conference call appearance, CEO Marissa Mayer was asked where Yahoo’s future revenue enhancements would come from – search or display?

Mayer’s response was a bit muddled. But as she teased out her thoughts, we gathered that search was the primary driver, and that eventually, with more promised investment in its data stack tools such as Genome and Right Media, programmatic buying would make clear contributions to Yahoo’s revenues.

NYTCo. Many publishers remain averse to programmatic buying, feeling that they either lack the scale to benefit from exchanges or that their premium inventory would be unprotected. In assessing its 2% decline in digital advertising in Q3, NYTCo CFO James Follo pointed to the weak economy, particularly dismal real estate sales, but he also singled out the threat presented by programmatic. (Interestingly, he mentioned Google and Yahoo as avatars of programmatic buying channels.)

Follo hinted programmatic buying has affected all manner of brand dollars. So the question FM and others face is whether they can redefine premium or simply stick with the traditional, standard advertising world that appears to be shrinking.

Pivotal analyst Brian Wieser has long been one of the premium display pessimists and his views have only solidified of late.

He contends that there is a “structural weakness” due to the transfer of traditional media models to online. “Premium display remains a significant part of the strategies of the world’s largest advertisers as they find other alternatives,” Wieser told AdExchanger. “Primarily, when digital was first becoming something that larger brands were spending money on, it was largely an extension of the traditional magazine/newspaper model of advertising. It was all about adjacency and demographic based affinities. There was very little between what was happening on the web and a standard magazine buy. Over time, many, not all, advertisers got comfortable with ad networks. They went beyond just reaching demos and narrowly defined interests. And this was all a lot cheaper than buying adjacencies and premium content. Then, we’ve had the rise of social media as advertising and marketing strategy. After that, there’s not a lot of money left over.”

These days, whoever provides the technology for aggregating audiences wins. As Wieser said, it’s not about adjacency anymore. Instead, advertising buying and selling is about providing a clearer, more transparent look at the value of inventory and a particular audience in real-time. That means that even the most resistant publishers will have to find a way to package their audiences to meet real-time demands for specific kinds of consumers.

“It’s good to hear some acknowledgment made by Yahoo and AOL about programmatic buying,” Wieser said. “But what I think is not fully appreciated is that with continued deflationary conditions in the display market, it is not a good environment for investment. And that will have consequences for content companies. Ones that can rely more heavily on subscriptions will do fine — the ones that are truly exceptional — and by that token, there are not many companies that fit that bill.”

To generate more revenue, premium publishers will have to find a way to corner their market, whether it’s in breaking news or finance or sports or fashion. Wieser believes that the SSPs — the Rubicon Projects and PubMatics of the world — will be able to help to a certain extent. But ultimately, he believes the number of premium publishers will naturally shrink.

“The industry will position itself for better long term growth if there is more consolidation. If you look at AOL, Yahoo and Microsoft’s MSN and put them together, it makes for a single, more efficient place that can provide greater value to first party data,” he said. “I’m not saying that’s actively happening or that it’s necessarily going to. But if you can create a one-stop, you can recreate those inflationary pressures on ad dollars that existed in the traditional model, because the mass reach that those three possess is still very valuable.”

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  1. Premium publishers should realize and increase their inventory value by direct sales rather than third party business as most of RTB and SSP is. Third party sales and technology can bring additional value from advertising budgets you never could reach with direct sales, but as a premium publisher with a strong and attractive brand you can make much more profit short term and long term by staying connected to your direct customers. There is a huge opportunity to use advanced technology to make this direct sales using all the up-sides of programmatic and real-time optimization by using a powerful private ad exchange solutions. And I mean first party private ad exchanges, not the pseudo private configurations you can see in third party SSPs or exchanges.

  2. Everyday I meet publishers that believe that it has to be either black or white until I describe to them that there actually is a middle way in between Premium and Programmatic Sales – by describing The Private Ad Exchange alternative.

    Here the premium publishers can keep the inventory for exclusive sale and thereby uphold the eCPM since you do not have to mix it (and therefore deluting value) with crappy inventory through 3rd party providers. At the same time the publisher is given the possibility to keep direct relations with its advertisers and of course cut away layers of middelmen in the process – meaning the TCOS [Total Cost Of Sales] is very transparant and can be maneuver and control those costs just as for premium direct sales.

  3. 10% from FMP is accurate if their total strength was 500+

  4. I think the real issue is publishers being more transparent and realistic with pricing. If they would price better, they would sell a heck of a lot more inventory at the mid-tier rates ($3 – $10 CPMs) directly to their advertisers. Then, instead of having 15% sold direct at the $10+ CPM and running the rest through programmatic at sub-$2 CPMs, they would fill that wide gap in the middle with meaningful revenue.

    Advertisers buying at the $3 – $10 CPM range don’t need a lot of hand-holding and will buy that inventory self-serve. It doesn’t cost the publisher a penny to traffic that, because self-serve platforms are, well, self-serve on both sides.

  5. Maybe its me, but this all sounds like so much double talk. I’m actually in the business but whenever I read these types of articles on line, I get the sense that everybody knows that buzzwords, but not what they’re actuall talking about.

  6. Publishers should define unique placements, ad packages and audiences that can only be purchased direct. Flooding all inventory types into the exchanges is an antiquated way to manage a publishing business and the net effect for the industry is this troubling trend on the direct, guaranteed revenues. And private exchanges are better but selling targeted, cherry picked audiences for lower CPMs than guaranteed placement buys can not fix the larger problem at hand. We’ve also seen under investment in the guaranteed, direct media trading technology in our space. With the flood of capital into the non guaranteed space the efficiencies of media trading have been improved in the lower (revenue) value sector. Sellers, and most definitely buyers, are finding operational value in this tech so it’s no surprise we see it climbing in share of ad spend. Think of all the media agencies that trade every day with Yahoo! $100s of millions of dollars transacted every year with the same agencies and yet every single order, no matter how straight forward a campaign, goes through numerous, time consuming manual processes touching many business and operational systems for tasks such as rate negotiation, sales approvals, tag creation, trafficking and testing. Those are some of the pre live tasks but there are also post live operations and costs including buyer and seller change orders, for example. Many times one slight mistake on an order and processing has to start all over again. This is what threatened our industry and the lion share of our display ad revenues – upwards of 30% sales and operational cost to trade guaranteed media. We have to fix that and protect the guaranteed revenues.

  7. The reason this is happening is because publishers are behind – they need a strategy for how to put technology into their direct / premium sales. It shouldn’t be about “well we have manual premium and technical remnant” – use tech to make your direct better, and your business will do better.