Why media owners are turning to private marketplaces

Hulu’s recently announced tie-up with Facebook and Oracle to offer automated ad trading capabilities via a private marketplace (PMP’s) is indicative of a wider trend in the industry, as media owners seek to prevent the commoditisation of their inventory.

Hulu announced this week that it is to offer selected advertisers the opportunity to buy premium video inventory using enhanced targeting capabilities from the peak Fall Season onwards, after the online video-streaming service struck-up partnerships with IT giant Oracle, and Facebook-owned video advertising platform LiveRail.

The announcement, dubbed “the next evolution in its sales process”, means advertisers will be able to buy premium inventory across a number of screens, using Oracle’s data management platform (DMP), to improve targeting capabilities by matching first and third-party data sets.

Hulu will sell its inventory to selected advertisers using a private marketplace - typically this is where a media owner invites its highest-spending advertisers to have first option on its higher quality inventory – which is powered by LiveRail‘s Video Private Exchange (VPX).

This technology lets advertisers adjust their ad targeting during a campaign based on the insights gleaned from the DMP, as well as performance of the campaign so far, in order to improve engagement with audiences.

For its part, Hulu maintains this technology will help maintain its relationship with viewers, as it means it will be better able to serve viewers with ads that are more relevant to their tastes (quite importantly, ads on Hulu are unskippable).

Industry sources noted to The Drum that this marks a distinct departure from Hulu’s initial subscription strategy, with some expecting similar moves from rival online video-sharing sites, such as Netflix, and Amazon Prime.

The fact that Hulu is opting to monetise its inventory in an automated fashion using a private marketplace model – as opposed to an open ad exchange using real-time bidding (RTB) where the having more potential buyers should theoretically drive a higher price – is notable as it moves towards phasing out direct sales.

The direct sales model is where media owners do a direct deal with advertisers – often in person - over specific media placements via insertion orders, commonly referred to as IO’s.

Media owners have been historically wary of using automated, or programmatic, means of selling media for fear of cannibalising revenue generated by their direct sales business. The ‘buy-side’ side of the industry was initially more eager to embrace automated trading using RTB compared to media owners, which resulted in automated trading being widely regarded as a means of driving down the cost of media.

However, ad tech companies have been eager to placate these fears among media owners by proposing technologies that can help automate direct sales – commonly referred to as ‘programmatic direct’ – something they claim can maintain, if not improve media prices, plus increase efficiencies.

Programmatic direct – PMP’s are encompassed in this catch-all term - lets media owners set prices for guaranteed audience impressions, meaning buyers can discover and buy inventory that will be seen by audiences they want to sell to. This method is reported to return CPMs that can be up to 10-times that of the revenue returned in more openly trade environment using an RTB auction.

This was highlighted earlier this year when AppNexus purchased Yieldex – a company that offers advertisers an inventory management tool that lets media buyers directly book campaigns in guaranteed deals – in a deal rumoured to be worth $100m.

This deal came just months after Rubicon Project’s dual purchase of programmatic direct outfits iSocket and Shiny Ads for a rumoured sum total of $30m

Speaking with The Drum, Jay Stevens, Rubicon Project’s general manager, international, said: “The smart publishers are using PMP’s as a means of further monetising their direct sales business. Plus using PMPs to monetise video inventory, you’re going to get higher CPM’s.”

Increasingly, PMP’s are a popular means of trading with research from SpotXchange, an SSP that is majority-owned by Europe’s largest broadcaster RTL, recently revealing that PMP’s account for over 40 per cent of the impressions managed on its platform during the first half of the year. This equated to a growth rate of 112 per cent from a year earlier.

Specifically, advertising spend on mobile video through SpotXchange’s platform grew 800 per cent year on year in Q2/2015, according to Mike Shehan, chief executive of SpotXchange.

He added: “Brand advertisers are now wholeheartedly embracing mobile, which has traditionally been used for direct response goals, such as performance-based or cost-per-acquisition marketing,” he explained.

The drive towards programmatic direct trading was further underlined recently by a study from research firm eMarketer, which highlighted how media budgets spent in such an environment is increasing, while the growth rate of RTB spend is slowing (see chart.)

Get The Drum Newsletter

Build your marketing knowledge by choosing from daily news bulletins or a weekly special.