Month: May 2022

Scattering the upfront dynamic

The key hits:

• Amid a softening scatter ad market, TV network owners may look to lock up more linear inventory in this year’s upfront negotiations.
• After TV networks pushed away linear dollars in last year’s upfront, buyers and sellers expected the result to be a tight scatter market that never materialized.
• Supply chain issues and rising inflation and interest rates have contributed to scatter advertiser demand falling short of expectations.

A softer-than-expected scatter TV ad market in the past year is putting a twist on this year’s TV advertising upfront market. TV network owners may look to lock up more of their linear TV inventory in this year’s upfront market to avoid leaving money on the table, which could have the effect of mitigating price increases and tightening up the scatter TV market in the fall, according to executives at TV networks and agencies.

“The softness in scatter has continued, which means we have lost a little bit of confidence and swagger and are a little bit more concerned about filling the respective buckets — which we only have one shot at doing this time of year,” said one TV network executive.

“The networks, I believe, are going to sell more in this upfront because they know that they got burned in the scatter marketplace. So there will be more inventory available to purchase,” said one agency executive.

By pushing away linear TV dollars in last year’s upfront, TV network owners bet on making up the money — and then some — in the scatter market. But that bet didn’t exactly pay off. Advertiser demand didn’t overwhelm the supply of traditional TV inventory available in the scatter market to the extent that buyers and sellers had anticipated, according to TV network and agency execs.

“You saw a lot of traditional network groups push money away from linear last year in the upfront, thinking it would come back in scatter. And it didn’t,” said a second agency executive.

“There is no doubt that the scatter market was lighter than anticipated. The impacts of the supply chain and related impacts created a lot of difficulty,” said a third TV network executive.

The compounding of supply chain challenges with rising inflation and interest rates has coincided with advertisers exercising their upfront cancelation options, freeing up more inventory to be sold in the still-softening scatter market. “Third-quarter [cancelation] options are probably going to be a little heavier than normal,” said a second TV network executive. 

The scatter market “took a nosedive, which then impacts your [direct-response] marketplace and impacts everything,” said the first TV network executive.

What this amounts to is a potential reset to the dynamic between buyers and sellers in this year’s upfront negotiations. “This year seems to be a reverse-course [with the TV networks effectively saying to ad buyers] ‘We’re open to taking more [linear TV ad dollars] than we did last year because the scatter marketplace didn’t materialize to the way that we all anticipated that it would last August,’” said the first agency executive.

In 2020, the upfront power balance favored advertisers and their agencies. Companies on the buy-side were grappling with the pandemic’s impact on their businesses and were wary of making year-long spending commitments with limited cancelation options, while TV networks were facing interruptions to their programming pipelines because of COVID’s impact on production. In 2021, the situation swung to a seller’s market as advertisers returned to the TV market, new advertisers entered and TV networks refilled their programming pipelines and stood up ad-supported streamers.

This year the power balance may be more neutral because TV networks feel more urgency to fill their inventory in the upfront rather than risk lower returns if the scatter market stays soft.

“That’s probably what has made it more of an even buyer-seller market than it felt like it was going to be a month ago,” said the first TV network executive.

“Waiting and hoping for a good scatter market, all it does is potentially get you fired and doesn’t make you a hero,” said the second TV network executive.

What we’ve heard

“What’s being negotiated now are big tranches of money that then need to be priced and planned at an account-by-account level. What’s agreed upon now and what comes out in the wash come fall can be two completely different things. You can close the upfront in theory in the next three weeks, and what that looks like come the detail work in October is a completely different outcome.”

— TV network executive

TV networks clear their ledgers

The soft scatter TV market hasn’t been entirely bad news for TV networks. They have been able to use the surplus of ad slots to settle their debts with advertisers by offering what are called “audience deficiency units” for past instances when the networks fell short of audience guarantees made to advertisers, according to TV network and agency executives.

“Now everyone’s ADU situation is pretty healthy,” said one TV network executive.

However, as anyone with experience running up credit card bills would be aware, the question now is to what extent the networks will remain debt-free and to what extent advertisers and their agency executives will push back against networks’ audience guarantees in this upfront cycle to avoid the liability problem’s recurrence. “It’s always something that we’re going to push on,” said an agency executive.

Numbers to know

4.6: Number of streaming services that the average U.S. household subscribed to as of April 2022, down from 5.2 streamers per household in October 2020.

38%: Percentage share of digital video impressions that aired on a connected TV screen in the first quarter of 2022, up from 31% in Q4 2021.

4.4 million: Number of streaming subscribers that Lionsgate added in Q1 2022 across its streaming portfolio, which includes Starz.

What we’ve covered

Disney taps executives to bolster audience-based advertising as a base of its business:

• Disney has hired as its svp of addressable sales Jamie Power, who previously served as chief data officer and head of platform at advanced TV advertising company Cadent.
• The company has also promoted Dana McGraw to be svp of audience modeling and data science and broadened svp of data enablement and category strategy Danielle Brown’s purview to include measurement and analytics.

Read more about Disney’s audience-based ad business here.

Industry arbiter Ebiquity eyes growth amid TV measurement woes:

• The management firm sees an opportunity to expand its business to also serving as a measurement provider.
• Add Ebiquity to the list of companies looking to capitalize on Nielsen potentially losing its dominant position as the industry’s de facto measurement provider.

Read more about Ubiquity’s measurement ambitions here.

What we’re reading

Netflix warms up its ad sales pitch:
Netflix may not have officially started to shill ads, but the streamer has begun to take a temperature check of what ad buyers want from the service and teased some details of its plans, such as avoiding mid-roll ads, according to Insider.

Disney kick-starts the upfront deal-making:
As was the case last year, Disney has raced to start securing upfront commitments in this year’s market and has reached agreements with at least one media agency, according to Variety.

Paramount sticks to a solo route (for now):
After Discovery and WarnerMedia announced their plan to merge last year, a big question was whether the pairing would push Paramount and NBCUniversal to combine. A group of bankers even put the possibility to Paramount’s board this past January, but the media conglomerate has decided to keep to itself for now, according to The New York Times.

NFL preps its own streaming service:
The NFL plans to launch its own streaming service in July that will let people stream local market games for $5 per month, according to Sports Business Journal.

All this is not to say that more paid time off is the single answer to employee burnout and the way to win the talent wars. Across the industry, and in corporate America at large, research has shown employees often take fewer vacation days in an environment with unlimited vacation, as there is often no guidance around how many days they should take off, according to Fast Company.

Increasing PTO started as an effort to give employees an opportunity to recharge in late 2021 at the peak of the spread of the Omicron variant of Covid-19. Over the last year, and in the middle of what’s being called the war for talent, agencies have been pulling out all the stops to not only attract employees but to keep them. Digiday caught up with Batuhan to talk about keeping staff energized during a pandemic, work-life balance and Tinuiti’s future of work.

This interview has been lightly edited for clarity.

At a time when so many agencies are working to see more of their staff in the office, you’re offering more days off. Why?

We empower our employees to get the work done. It’s not about the time at your desk. It’s not about the login at the computer, it’s about getting the work done. We have a very achievement-oriented culture — meaning our employees work longer hours because they want to get the work done. We say you work eight hours a day. Sometimes you work 10 hours. Sometimes you work less. It’s really that culture of [time and work management] ownership. It is also easier to take the time off when everyone else is off, because you’re not getting somebody’s email and feeling bad that someone else is covering for you. That’s why a lot of employees don’t take the PTO. They feel bad about the other people having to take the work. But when they know that everyone else is off, you can really unplug.

How do these efforts fit into greater conversations about the talent wars and Great Resignation?

Attracting and retaining talent is definitely part of our people strategy as a company. We are intentional about how we are focusing on our people and our culture. This is just one of the areas that we really are focusing on, because people first is something that’s easy to say, but it’s hard to do. We’ve really worked hard since the inception of the company to put the people first before everything else — before clients, before profit, before anything in tough times and in good times. For example, [when the pandemic hit] we did not furlough anyone. We didn’t lay anyone off. We focused on, how do we become more strategic? Because we know that if we are committed to our employees, they will be committed back to us.

Seventy days off is nearly 20% of the year. That’s a lot. How are you talking to clients about it?

We talk about our culture of ownership and growing happiness, and what that means to them in return. Because again, our performance with our clients is measured by the employee happiness that fuels their growth in their business. They know that our employees are going to focus, make sure and they will be working very hard. And it’s measured on the performance and not the hours that they’re here. It’s also knowing that even though the team’s out, if we need to get something done, it will get done. We started communication with them two months ago. It’s about change management through them too, so that they know and they really appreciated that.

Was there any pushback from clients?

There are a lot of questions, but we’ve addressed them as they come in. It’s inquiries and questions from clients just to make sure that they understand how it’s going to work.

What can other agencies learn from your approach?

When you say you are focused on your people first, actually mean it and put actions to it. Don’t just let it be lip service. Some companies now are trying to force their people back into the office when people don’t want to come back to the office. If you really care about your people, listen to your people. Autonomy, flexibility — these are the things that a lot of our employees today care about.

Digiday caught up with Goel to probe further into his outlook for the remainder of the year, disintermediation, ad tech in a post-privacy world, and more.

This conversation has been edited and condensed for clarity.

On how the ad market will weather the economic storm this year and the subsequent fallout on PubMatic

He’s trying to maintain some degree of perspective. Yes, the economy is on the skits but its downturn is largely driven by supply issues that should eventually resolve themselves. Moreover, the largest advertisers have yet to give him cause for concern. A cursory look at the latest earnings updates from the likes of Coca-Cola, L’Oreal and Unilever explains why. In the main, they anticipate significant revenue growth this year. Normally, when this happens the money tends to flow through advertising given its managed at relatively fixed percentage levels of those newly swelled revenues. Granted, growth in a world of high inflation is never as strong as it would be in a world with low inflation, but it’s still growth by any measure — especially when compared with the inflated levels of spending throughout 2021. 

“We’re agile and nimble in our thinking and the way we operate around the situation in a couple of ways,” said Goel. First, is the fact the business has a “high degree of profitability” he continued, which allows the business to think long-term about where the opportunities may be once the economy improves rather than getting too wrapped up in trying to stay afloat amid the turmoil. The second point revolves around the state of the company’s infrastructure. “We own our infrastructure, from the hardware and software to the network, which allows us to innovate as well as create efficiencies in how we operate and for our customers,” said Goel. 

On the current climate and PubMatic’s sizable cash reserves will tempt it onto the acquisition trail

Goel is open to getting his checkbook out, but he’s never been one to cut a deal for the sake of it. 

“We have a high bar as to what we acquire because we have strong organic innovation,” he explained. “We’ve proven over the years our ability to innovate internally, whether it’s OpenWrap [prebid wrapper], Identity Hub [ID management tool], or our CTV product.”

It’s hard to argue with his logic. Every acquisition is more complicated than it seems. Bedding new technology and services into a business upend unforeseen challenges, and just as the development of a product can create issues that engineers hadn’t anticipated, getting a business up and running after an acquisition can take longer than expected. That said, Goel’s loathe to never say never.

“We’re constantly evaluating M&A opportunities,” he continued. “I suspect more of those opportunities will come along in the future.” 

Chances are those opportunities arise sooner, not later. The private funding markets are drying up and valuations are coming down across many companies that aren’t necessarily profitable. Should an opportunity present itself then PubMatic can move fast. The company is sitting on a $175 million cash pile with no debt.

On the role of supply-side platforms like PubMatic — and whether they’re ripe for being disintermediated

Unsurprisingly, Goel’s bullish. And for good reason. The part of the market SSPs specialize in is more important than ever. More advertisers are moving more of the activation of their programmatic advertising to the sell side of the ecosystem because that’s where the sustainable data is. That creates opportunities on both sides of the market in so far as there are opportunities to help publishers sell and scale their data to advertisers as well as help advertisers access it all in privacy-safe ways. In many ways, it’s a return to the one-to-one publisher SSP relationship that preceded header bidding.

“It’s a shift we’re participating in with our suite of technologies but also in terms of where we innovate on our business model by creating value from our software for our customers,” said Goel. 

It’s a point aimed at the ad tech vendor’s recent deal, whereby it licensed its SSP technology to GroupM. Agencies — and to some extent advertisers — are just as much a part of the business now as publishers. Still, don’t expect PubMatic to start licensing its technology to every media agency group. 

“All of those businesses are still in the process of figuring out how to drive growth in the digital environment,” said Goel. “The answer for one group will be different to another given where its specialities are.”

On what ads on Netflix means for ad tech

Put simply, more money. At least that’s the hope. Ad dollars have lagged the broader shift from linear to CTV for some time. Not because advertisers don’t want to spend money there. On the contrary, they do. But there are a myriad of issues, from fraud and undisclosed reselling to fragmentation and steep prices. Ultimately, advertisers want more places to buy quality CTV inventory. Enter Netflix. It’s the rising tide that could lift all boats in the space, said Goel. Translation: if Netflix can get the experience right and nail down the infrastructure needed to facilitate that at scale, across multiple markets then it could create a slipstream for ad ad dollars to come into CTV. That said, doing all this is easier said than done.

“As more media businesses like Netflix move toward more programmatic models it will create more value for both sides of the market,” said Goel. “Buyers will increase their return on investment on the back of more relevant ad experiences in those environments while publishers will increase their revenue.”