Are you changing the way you buy media?

The old models of media buying may be changing beyond recognition, but predictions of the traditional agency’s demise appear to be an exaggeration.

Click here to read what the brand owners think
Click here to read what the media agencies think
Click here to read what the media owners think

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The way in which brands buy media could be at the brink of dramatic change. For decades, it has been built on a three-way relationship between brands, media owners and agencies, but these foundations could be starting to crumble with new platforms emerging that allow brands to buy direct.

A report by consultancy MediaSense has identified that brand owners will increasingly use platforms to buy media direct from media inventory owners, and brands are already taking a greater interest in and more control of where their media money goes. Last year, Anheuser-Busch and PepsiCo, which Kantar estimates have a combined media budget of $1.15bn, pooled their US buying. Anheuser-Busch, now part of AB InBev, has been experimenting with direct buying since the Eighties.

Marketers are already buying online inventory direct via ad exchanges owned by Google, Yahoo! and Microsoft, but this could go much further to include television and other offline media, according to Ottokar Rosenberger, UK country manager for online dating site eHarmony. “I can see a future where ad performance data flows directly between media owners and brands. Set-top boxes in every home will help that transformation,” he says (see Viewpoints:The Brand Owners, below).

Angus Lovitt, marketing director of gaming site King.com, claims that all media will soon be traded in this way. “The media channels are going to fall like dominos. Whether it be online, TV or outdoor, everything is going digital and it is all going to be bought and traded in this manner,” he says.

Viewpoints: The Brand Owners

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Ottokar Rosenberger, UK country manager, eHarmony

How we deal with data will dictate how this is going to play out. I can see a future where ad performance data flows directly between media owners and brands, and we are going to move to a model where we can take real-time bidding for ad space into mass media.

Set-top boxes in every home will lead to models that are built around performance-related pay. Some people think it might happen through agency-run trading platforms, but it might actually be direct deals between brands and media owners.

That somewhat diminishes the role of media agencies in negotiating deals. They might keep it to some extent because they are brokers, and we will need brokers. It could lead to direct relationships, with the media owner, the brand owner and the media agency all sitting in one room.

The media agency will be more concerned with the integration of media channels, and what that means for clients. The role of looking across your media mix and advising you where to put your money and how that impacts on the consumer is still an important role that media agencies have to play.

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Keith Moor, director of brand and communications, Santander

Brands now do more direct deals with media owners than they used to. This has happened because of the speed with which online media has developed. It is easier to understand the trading model with some online opportunities. For example, there are a lot more cost-per-sale deals, and therefore your exposure is limited to the value you receive when the deal is delivered. It is not as easy to do those deals in other media where you do not get as many direct effects from a promotion.

However, brands might negotiate a deal with a TV supplier for a sponsorship property, for example, but they will still do their deal for spot airtime through an agency. We do deal directly with some media owners, and they tend to be more in the online space than the offline space.

Media agencies are trying to change their model. They have been a lot more progressive than creative agencies have been because their margins were compressed more quickly. Now they make sure a proportion of their fee is buying expertise and consultancy, not just grunt. We use Carat, and they used to be known as gorillas with calculators. They do get us the rates, but now we also buy people and expertise.

In a market worth $450bn (£280bn) worldwide, about 80% of media buying is still done through an intermediary, according to consultancy MediaSense. But the role of these organisations is being transformed by developments on the internet.

Advertisers can bid for space in real time based on the cost of each impression, setting a market rate for every eyeball on an ad.

In turn, this makes the traditional process of negotiating prices obsolete and diminishes one of the crucial selling points of media agencies – securing discounted prices from media owners for their clients.

It also means payment models can be established on an ad performance basis rather than by commission, which media agencies have historically taken on clients’ spending. While current negotiating procedures remain in place, brands might not initially get as much bang for their buck as they would using the buying power of agency groups, but if advertisers start buying direct they might feel their communications are more platform-neutral.

Even if automated auctions do take over the offline media buying process, reducing the importance of negotiations, there is still likely to be an important role for agencies in planning and evaluating campaigns

Mark Creighton, chief operating officer of media agency Mindshare, which is part of WPP-owned Group M, notes that real-time bidding is already taking place for offline media. “There is evidence that it is starting to impact on local and regional TV and radio in the US. That airtime is being bought in an automated fashion in auctions,” he says.

The UK is expected to follow suit in the coming year, and media auditor Ebiquity – formerly Billetts – has already seen media agencies recommend to clients that all of their media be bought in this way, according to head of digital practice Federica Aperio.

And while the big agency groups are starting to set up trading desks to buy media for clients through automated auctions, brands can cut out the middleman and bid themselves.

Some of the larger US advertisers already recognise this, claims Aperio. “There are already examples in the US where brands have taken it on themselves to create and manage their own trading technology. This puts the advertiser firmly in control and closes the gap between the buyer and seller.”

Many brand owners have been using online channels to buy media direct from media owners for some time. Even the smallest company or sole trader can easily run a Google AdWords account to buy paid search advertising, or purchase display ads through Facebook’s self-service platform.

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Food for thought: PepsiCo pooled its US budget with Anheuser-Busch

Santander director of brand and communications Keith Moor says financial services brands often buy media direct online, especially when they appear on comparison websites. Moor says that where Santander has placed advertising directly with media owners, it is generally in the online arena (see Viewpoints:The Brand Owners, above).

Lovitt at King.com has taken all buying of online display advertising in house, and says that online gaming is another sector where buying media direct is common practice because media agencies create an extra layer of complexity.

Auctions make the buying power previously used as a negotiating tool by media agencies virtually irrelevant, says King. “Agencies cannot get us the best prices any more because we are part of an auction model. The new paradigm is about being smarter, not being bigger.”

Not all marketers forecast such a fundamental shake-up. Lovefilm chief marketing officer Simon Morris believes that until automated buying tops the agenda in offline media, there remain barriers to brands going direct to media owners. “For the foreseeable future, buying power is going to be important, certainly in TV,” he says.

Media agencies have traditionally held their strongest cards at the negotiating table

Media agencies have traditionally held their strongest cards at the negotiating table. Through agency and umbrella deals, where they buy from a media owner on behalf of many or all of their clients at once, agencies can get lower prices than would be attainable by an individual brand.

But this can mean some platforms are recommended to clients because the agencies have to spend a certain amount with a media owner to get the discount, and as a result their advice is not always in the client’s best interests. One senior marketer told Marketing Week that she was surprised when her agency recommended Channel 4 and ITV because she had explicitly said that her budget would not stretch that far.

Santander’s Moor says that with TV there is always a trade-off between quality and price. “If I want to access better-quality programmes and cut out some of the crap, I am going to take a hit on price.”

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Refreshing change: Anheuser-Busch, now part of Stella owner AB InBev, has been experimenting with direct buying since the Eighties

Procter & Gamble has previously negotiated its TV deals in house though the actual buying has generally been done by agencies. In 2009, P&G took its media negotiations in China away from its local agency Starcom Guangzhou.

But perhaps the most prominent brand to have circumvented agencies entirely in its offline media buying is brewer Anheuser-Busch. The tie-up with PepsiCo last year met with scepticism and resistance from media agencies and owners alike, not least because their combined spend was less than 1% of the US market and they had much less buying power than a large media agency network.

Even if automated auctions do take over the offline media buying process, reducing the importance of negotiations, there is still likely to be an important role for agencies in planning and evaluating campaigns. Omnicom MediaGroup chief trading and accountability officer Johan Boserup says: “Any advertiser can buy raw media exposure from a media owner. But optimising the buy towards the key performance indicators of their business is very difficult without the data and expertise of the specialist media agencies.”

Aligning media buying with business objectives is crucial, given that automated bidding means media will be bought according to cost models more directly tied to the business impacts of campaigns. To increase their revenues and profits, as opposed to business volume, brands will need to understand the value of the customers that their media activity delivers. This should involve measuring the impact of individual media owners’ inventory, not just the wider categories into which it falls.

If brands are to achieve this, the only alternative to taking agency advice is to invest in the necessary expertise and technology to understand ad performance data. King.com’s Lovitt has done this by poaching talent from media agencies, but says the scope for brands to do it across the board is limited by the number of specialists in the field.

Yahoo! senior director of direct response Nick Hugh says Capital One is another brand known for doing much of its media buying and planning itself, but only because the financial services provider has spent a lot of money establishing a complex data analytics division (see Viewpoints: The Media Owners, below).

In a market worth $450bn (£280bn) worldwide, about 80% of media buying is still done through an intermediary, according to consultancy MediaSense. But the role of these organisations is being transformed by developments on the internet.

Lovefilm’s Morris says, however, that brands’ more immediate priorities may make them reluctant to overhaul their internal organisation. Most marketers are more likely to focus on the next month’s sales figures than on what shape their teams and reporting structures might have in one or two years’ time, he says.

Agency networks will continue to have the advantage in this respect, says Hugh at Yahoo! “The big agencies have economies of scale from a learning, data and technology perspective. They have more data to drive return for clients.”

Group M chief executive Irwin Gotlieb agrees that data will remain a selling point for media agencies. “The more we do in this space the more data we have access to. We have a diverse portfolio of clients, which means we have the scale of trading, the scale of operations, the broad insight and can efficiently acquire the technologies that are necessary.” (see Viewpoints: The Media Owners, below)

Andy Pearch, director of the MediaSense consultancy, sees the agency role as making sense of the information coming from either end of the supply chain. “Ultimately brands must own and take responsibility for their performance data, media owners will increasingly mine and sell their consumers’ data, while the agencies sit in between, managing and optimising these data sets,” he says.

Viewpoints: The Media Owners

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Ian Clark, former director of special projects, News International

In the past, media owners were not focused enough on their clients’ sales, but there are more digital opportunities alongside newspapers, magazines and TV where they can offer portfolio sales. It is easier for them to do that with the depth of knowledge they have of their own ad inventory than it would be for an agency.

Clients are not as knowledgeable alone as they could be with an agency riding shotgun alongside them. They are often spread too thinly to provide enough time to go through all the performance data, and to ensure they set out the right key performance indicators and follow them up. That is where the agency can help. This is not a one-size-fits-all model. Clients with a strong sense of what they are after and how they can measure that are most likely to take advantage of that relationship.

Agencies need to maintain media-neutrality and I think it is only a positive thing when they can connect up with media owners and understand more about what that media owner could specifically do for them and their clients. Increasingly, media agencies are engaging with media owners at an earlier stage than they ever would have done previously and getting to them at the planning phase.

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Nick Hugh, senior director of direct response (EMEA), Yahoo!

Yahoo! bought the Right Media Exchange, an open platform designed to enable buying and selling of online ads in real-time auctions, four years ago. The big five agency holding groups have all created their own trading desks to buy in this way.
The vast majority of display advertising in Europe is bought through agencies.

There are one or two advertisers who like to go direct, for example Capital One, but that is because behind the scenes they have an incredibly advanced analytics team. In the US, where the market is 12 to 18 months ahead, some brands are certainly going direct to the media owners because they have the technology and they have hired the people.

Yahoo!’s intention is to be at the centre of the ecosystem, both from the user and advertiser perspective. The content we provide through our websites is important to the user side and tools like the Right Media Exchange are important to the advertiser side. We will always own the ad performance data on our own sites ourselves. From the agency side, they have their advertisers’ data. It is those two combined that drives value for the advertiser.

The possession of data collated from numerous clients and media platforms, and the skills and technology for analysing it, could also allow media agencies to develop an emerging role as brokers of ad inventory. Understanding how brands can best target their desired audiences, agencies will be able to buy space from media owners and resell it at a premium to the advertiser that considers the specific opportunity most valuable.

But media owners are also becoming more powerful. Companies such as Yahoo!, Google and Microsoft now own content-driven sites and the ad networks through which online ads are traded. As such, they are equipped with their own ad inventory, as well as the audience data and auction technology that allow them to price and sell ad space from other media owners.

Lovefilm’s Morris says, however, that brands’ more immediate priorities may make them reluctant to overhaul their internal organisation

While brands and media owners will only have access to data on their own ads and platforms, the boundaries between the three sides of the triangle are blurring.

Media owners, with a unique understanding of their own audiences across an ever more diverse portfolio of platforms, are well placed to provide package deals direct to brands. Brands, meanwhile, are moving more into content creation and are acquiring knowledge of how audiences consume media, while loyalty card schemes mean they can assess the impact of media activity on individual consumers’ purchasing habits.

Agency groups, too, have taken steps to increase their ownership of content. WPP recently acquired a minority stake in youth media brand Vice Media, while Interpublic has held a stake in Facebook since 2006, which is now believed to be worth $200m to $300m, and it committed to help sell the ad space – but not exclusively to its own clients. However, when Microsoft started selling Facebook’s banner ads in 2006, the deal became effectively redundant.

As agency groups become more involved with media platforms, they will need to avoid the appearance of feathering their own nests. Pearch says: “There have always been conflicts of interest where an intermediary acts as buying agent.
Technology is bringing about massive opportunities for brands, but these advances also mean brands will need to ensure media agencies provide neutrality in planning, transparency in trading and control of brands’ data.”

If media agencies’ expertise is to be trusted, brands must be confident that their choice of media is only being determined by their business objectives, or marketers will be quick to take control of their own media buying.

Viewpoints: The media agencies

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Irwin Gotlieb, chief executive, Group M

The idea that evolution will bring us a scenario where brands buy their own media directly from media owners is very silly. I do not have a single client that I am aware of that is looking to go into that business. It takes massive investment in talent, technology, systems and analytics. But it is not just the investment, clients are not in that business. I’m not about to start manufacturing snack food products [as a client might].

Today we have to trade in our traditional area of expertise in paid media but also earned and owned media. Earned is everything from the social sphere where we need to listen to the conversations and participate in them as appropriate. Owned media is content that we create that portrays the brand attributes that we want to promote. But on the paid media side the models are shifting quite dramatically as well. Now we can define our audiences and targets much more precisely and that will become more pronounced because we will have actual purchase patterns, behaviour patterns and therefore patterns of intent.

Brands have access to limited amounts of data and certainly not the media consumption side of it. Nobody has access to all the data, but the challenge over the next few years is for someone like us to join the various data streams and form them together alongside the right analytics, with the appropriate targeting and de-duplication work across the audiences.

As we refine our target definitions, the ability to segment the market and the need to customise the message increases. That greater segmentation and the communication’s design almost goes hand in hand with the target definition. The media agency will be a larger part of developing the creative briefs, just because of the analytics and insights it brings.

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Mike Cooper, global chief executive, PHD Worldwide

Technology has a habit of fundamentally reorganising industries. In the next 12 months, we are likely to see the emergence of real-time bidding for auctioned ad space, in the closed environment of ad exchanges. These will encourage more risk-averse media owners and more premium inventory into the real-time bidding system, which should lead to rich media, video and mobile being traded through exchanges. On top of this, Google is now starting to feed YouTube video inventory into its real-time exchange.

An increasing amount of media spend is going to be traded in a bid-based, more automated way, which means that a greater percentage of the media pie will become easier for advertisers to buy direct. Some clients will inevitably be tempted to try. However, with this there will be a greater need for understanding and integrating all of these channels.

Media agencies bring a more quantitative mindset to the party and also they can bring in an understanding of what opportunities exist in the form of channels, technologies and potential partnerships. Not to have media agency or media planning input in the planning stage would be a little odd.

To capture the indirect effects of marketing investment will in most cases require econometric modelling, factoring in all paid-for and owned investments and the resulting earned effects. Reporting right through to financial contribution is the ultimate measure.

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