Buy Side Or Sell Side? For TV, Is It All Just Optimization?

richastley-updated2On TV And Video” is a column exploring opportunities and challenges in programmatic TV and video.

Today’s column is written by Rich Astley, UK and Ireland managing director at Videology.

I’ve read many articles in the last few months debating whether programmatic technology companies can fairly represent the interests of both buyers and sellers. It’s an interesting debate and a meaningful one in the digital world, where inventory is often traded in open marketplaces and intermediaries are seeking optimization advantages for one side or the other.

But the world of TV is different. That world collectively worked out, a long time ago, that the ecosystem needs to cooperate between buyers and sellers on established rules and regulations.

A unified technology stack is not only the norm in TV, but it also creates an advantage for both buyers and sellers.

The Economics Of TV Are Different

Television is a unique ecosystem. The large majority of inventory, typically more than 80% in most markets, is sold on a fixed-price, fixed-volume basis where rates are agreed upon ahead of delivery, usually as part of large trading commitments. These commitments benefit both parties and will continue to exist as long as TV inventory is scarce, which year-on-year reach and frequency figures show will continue to be the case.

So what’s this got to do with the debate?

Technology companies are rarely, if ever, involved in commercial pricing discussions. There is no “bidding” for TV inventory, which means technology companies have no algorithmic advantage at any scale. Trading is still hand-to hand combat as it has always been. This is fundamentally different than the digital landscape, including some of the less premium sources of digital video, where programmatic transactions mean not just machine-to-machine delivery, but also price optimization.

Based on auction theory, markets with abundant inventory create competitive tension between buyer and seller optimization. TV doesn’t play by these rules.

Underdelivery Isn’t An Option In TV

When commercial trading parameters are already defined between buyer and seller, the situation becomes about fulfilment. Managing thousands of campaigns with fixed-price, fixed-volume constraints, multiple KPIs and multiple audiences is complicated math. In the high-stakes world of television, saying, “Sorry, your campaign underdelivered,” simply isn’t an option.

TV requires that every ad impression decision reflects not just what’s right for that single creative at that point in time, but across a portfolio of campaigns over time. The process is called optimal allocation and it’s a fundamental difference in the way optimization and yield are managed in the world of television.

To do this right, two key, underlying principles are table stakes. First, it requires as close to a “native” understanding of supply and demand inputs as possible. Put another way: garbage in, garbage out. If the supply you are “listening” to is cycled through several intermediaries, you’re likely seeing a subset of the truth. If the demand profile you are delivering against is secondhand information, then it becomes nearly impossible to fulfil your commitment in a supply-constrained world.

Second, the output of this is forecasting. Forecasting is a nice-to-have in the digital world, but it’s an imperative in TV. Legacy TV systems have always had forecasting and allocation at the heart of what they do because it makes the critical difference between actually delivering what you can sell (or buy) or falling short of expectations. And again, accurate forecasting requires quality inputs from both the seller and the buyer. It’s in both of their best interests to work with a solution that bridges the two worlds.

Regulation And Compliance

To add to the complexity of TV delivery, most markets have complex regulation standards to adhere to. In the UK, for example, a breach of compliance might be delivering an alcohol advertisement during a break for “Peppa Pig,” a popular kids’ show. The repercussions for any such breach are severe, making it essential that technologies partners are able to comply with these standards.

As it stands, some standards, such as Clearcast, are defined by the industry and some are defined by the broadcaster or platform operator, creating an industry clash. This means there is no one source of truth for compliance. For programmatic to succeed in television you need perfect compliance information to flow through both ways between seller and buyer. The ad must be compliant and it must be placed within appropriate content. This is complex stuff, especially when it happens in real time – and point solutions frequently fail in this area.

Buyers Who Sell And Sellers Who Buy

The profile of the buyer and seller has changed dramatically in the last decade. We see agencies using supply optimization technology and media companies using demand-side platforms as advertisers, but also for audience extension, where third-party inventory is purchased to extend reach against their native audiences.

The appropriate role of a media technology company is to create client value though efficiency or optimization, regardless of their profile or interests. Each technology user needs to be able to manage their own business rules, trading requirements and transparency settings and those needs should be executed on a foundation of trust and proof in delivery.

The Promise Of Programmatic

Programmatic technology continues to be hailed as a revolution in television, but honestly it’s more of an evolution.

For many of the reasons mentioned previously, automation is difficult and will continue to be difficult as legacy systems gradually become more interoperable in the ecosystem. Programmatic TV investment will only accelerate if it’s a win-win for buyers and sellers. Media owners and platform operators should be able to improve yield and increase CPMs through the application of data to create niche audiences. Advertisers should be able to more cost effectively reach their target audiences on an effective CPM basis.

Those are the basic principles for success. Delivering on that promise will require the continued collaboration and negotiation of buyers and sellers, using agreed-upon technology standards that maximize the opportunity. If you look at linear television today, think about the number of systems that already span the worlds of buyers and sellers, starting with the most basic data sets with which TV is traded. The principles of TV trading have been negotiated over decades, and so far have worked pretty well for those involved – just look at year-over-year revenue increases in most major TV markets, despite declining reach.

The question we should be asking ourselves isn’t about “buy-side vs. sell-side” technology. The question should be, to quote John F. Kennedy, how do we ensure a rising tide lifts all boats?

Follow Videology (@VideologyGroup) and AdExchanger (@adexchanger) on Twitter.

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