“E-Media Marketplace: A Big Idea Whose Time Has Come” by Arthur Anderson, Mediaweek

Published June 12, 2006

The possibility of an online auction trading exchange matching buyers and sellers of media inventory is here.  Championed by the Association of National Advertisers and backed by Wal-Mart and other big media spenders, this is good news indeed. It is even better news that senior media agency executives are involved in this supportive dialogue.

It would be even better news if media sellers also got on board by engaging in supportive dialogue with their advertiser customers and the their media agency intermediaries. After all, is not the customer (media user) king?

This is a big idea whose time has come, and the ANA is to be complemented in moving it along. It is now a much more substantive organization that can look at the merit of ideas, even if a particular individual member may not support it due to its particular point of view. The beauty of a good idea is that it is universal. After all, it’s not who’s right, but what’s right.

I was a pioneer in the 1970’s in launching the first full-service discount stock brokerage firm. The New York Stock Exchange (NYSE) yelled bloody murder, necessitating a rule by the Securities and Exchange Commission, which enjoined the NYSE from trying to prevent an idea whose time had come. Instrumental to making the discount stock brokerage idea work was the then-new NASDAQ electronic marketplace, which traded NYSE-listed stocks between non-members of the exchange.

Every big idea has a compelling difference. The compelling difference for discount stock brokerage was that stock buys and sells had a transaction cost unrelated to the NYSE’s fixed commission cost.  The true transaction cost was related to processing (computer) costs and not to the value or amount of the transaction itself. Whereas the NYSE charged a minimum (monopoly) commission based on price and volume, a discount stock brokerage charged a price per transaction, regardless of the number of shares or price. The only variable, given an efficient market, was the cost of overnight capital, or the carry cost. The transactional cost of the buy/sell was unbundled from the value or amount of the transaction.

The compelling difference of an online media marketplace is that the negotiating cost of the transaction is not the salary of the people to negotiate and approve the transaction, plus related overhead and process costs, but rather the execution (computer) cost, the intellectual capital that goes into deciding what to pay and when, and the carry cost if any. I believe that this will simplify and revolutionize media buying and selling, and in due course everyone, once adjusted to the new scenario, will prosper: media owners, sellers, buyers and intermediaries.

In today’s environment, the cost of entry is low if there are enough players (advertisers) and media sellers to get a pilot off the ground. As envisioned by Wal-Mart’s Julie Roehm and her task force, $50 million in media inventory to begin with is loose change when the names also include Hewlett-Packard, Mars, Microsoft, Philips, and Lexus. These companies alone spend billions in measured media every year. When others join in, $50 million is a blip on the media-spending screen.  It would appear that the TV networks are not part of the initial planning, but I suspect they will be when they see new profit opportunities for themselves inherent in this effort.

Moving forward, expect the following scenarios:

  • Large media agencies and holding companies may develop new, large revenue streams from “media trading” for their own account (as disclosed principals, not agents, to their clients). It enables the holding companies to use their knowledge in a way that increases their profit margins and adds liquidity to the media market. Who knows, maybe agencies will work for clients without any profit margin because the trading opportunities are so attractive. The analogy here would be the trading departments of the better known investment banking firms such as Goldman Sachs.
  • Risk-oriented private equity firms and hedge funds enter the space to take risk, use their own capital and make money. Goldman Sachs has more loss days in its trading operations than profit days, but when all is netted out, the firm makes tremendous annualized profits from its trading operations.
  • There will be derivative instruments, much like the new one for hedging and speculating on the housing market on the Chicago Mercantile Exchange. I can see aficionados of “American Idol” seeing the power of this programming early on and putting their investment dollars to work where their hearts and their business savvy are.

Let the media exchange begin, and let many advertisers collaborate in this effort.

Arthur A. Anderson is a managing principal of Morgan Anderson Consulting, New York, marketing communications management consultants. He can be reached at aanderson@morgananderson.com.

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