Holding Cos. as Media Owners: Is It Good for Anyone?

Sure, we applaud the recent moves that holding companies have made toward becoming more innovative and more engaged in the shift toward digital media and marketing. Their recent acquisitions and investments in technology companies are strong signals that they are putting their money where their mouths are and are serious about staying relevant in the technology-powered digital landscape of the future.

That being said, it is possible to get too enamored of the latest technology and have the new tools and capabilities blind you from seeing that you have crossed a line from being an agent to being a seller. When a holding company owns and operates a media property, such as an online ad network, and then suggests that its agency subsidiaries purchase media from this media property, they have gone too far.

Yes, recent ad network and ad-exchange technologies make it easy for just about anyone to start an online ad network. And yes, the media companies are sick and tired of giving aggregators a dollar just to have them pocket half of the money as margin. But in the U.S., clients expect their agencies to work entirely on their behalf in negotiating media deals, not to make money on both ends of the transaction. Given this expectation, it would seem to be difficult for a holding company to make any owned-and-operated media property investment pay out. Once clients understand their agency’s holding company is double-dipping, there are bound to be some tough questions to answer: How can you guarantee your network isn’t getting preferential treatment? Is the performance of my campaign being sacrificed for your network’s margin?

The first attempts by the holding companies to aggregate online media have been limited to the traditional-network model. They have established a consolidated network buying organization to handle online network buys across their agencies.
 
Using this version 1.0 approach, the holding companies set up a network of networks. In practice, this means that:

1. The consolidated-network buying organization shoves networks and performance buys through a traditional ad network management infrastructure.

2. They manually manage a global frequency cap by instructing the participating networks to turn up and down their individual frequency caps.

3. They then rank the networks by CPA performance. Their media optimization consists of demands that CPMs be cut by those networks not meeting the CPA goal.

The benefit of this model is that it is simple and straightforward.

Unfortunately, this approach is not good for anyone except the holding companies, who improve their bottom line. It’s not good for clients, for the networks who participate, or for the holding companies’ subsidiary agencies using the service. The problem is that price is the only optimization lever available in this approach. The traditional ad-network infrastructure they’re using to manage the network of networks doesn’t allow them to see to the level of the individual sites they are running on, thereby capturing audience-level data for the client’s campaign. This short-term focus of network performance disregards intelligence or insight that can be passed along to planners or their clients.  In effect, this approach blinds every party involved:  the networks, the clients and the agencies placing the buys.

Advocates of this approach might argue that as long as they’re delivering the client CPA performance, they’re doing all they need to do. Maybe that is the case, but only in the short run. But without intelligence and insight, agency planners will quickly lose their ability to add value to their clients or to their agency. At the same time, clients will become frustrated with being held hostage to a system that is opaque to the drivers of performance for their businesses.

Now don’t get me wrong. I believe the holding companies need to continue to innovate and leverage technology to improve their services and the advertising solutions that they offer their clients. I just believe this first approach — wherein holding companies own and operate ad networks — is a false start. The conflict of interests it causes is too glaring, and the data and insights sacrificed are too valuable.

The holding companies need to find an approach that empowers their media buying agencies, allowing them to add more value to the media planning and buying process. They need to invest in technologies that allow them to offer more data, targeting and analysis. They need visibility and transparency into the sites they are running on and the prices they are paying for media. This new approach would ensure that agencies could honestly report back to their clients that they are getting the best possible rates available in the market for the most productive media.

John Nardone is chairman and CEO of [x+1]. He can be reached at jnardone@xplusone.com.