The Madison Avenue-Wall Street Industrial Complex -- Part Two: Transparency
See yesterday’s RTBlog post for the overall concept of the "complex." The reason for today’s post was a comment made on the initial post by Morten Pedersen, Founder and Chairman of Glue 2020, who opined, “All true - except Wall Street offers much greater transparency than Madison Avenue. Scary really…”
As you might expect, I agree 100% with Pedersen, and have been ruminating on another idea for sometime, but don’t think I’ve ever actually written about it until now. And that is that it may be time for Madison Avenue to become as transparent as Wall Street.
Yes, I know that many in the programmatic marketplace will say that’s happening anyway, because of the free-flow of open market data that is being generated by exchanges, especially the kind of pure supply-and-demand data emanating from RTB. That’s true, but despite what we write about here at RTM Daily, it’s still just a tip of an iceberg -- a fraction of Madison Avenue’s total marketplace. And yes, it is growing rapidly. I’m not sure it will grow to half of all of Madison Avenue’s trading volume in the next couple of years the way Interpublic’s Magna unit predicts, but I do believe that over time, the vast majority of media buys will be made programmatically through exchanges of direct interfaces. And I’m hopeful that enough of the data from them will be made public so that we -- and I mean that in the royal sense of the entire industry, including the rest of the trade press we compete with -- can finally see what’s actually going on with the supply and demand of media.
That’s been my Don Quixote-like quest since I began covering media 30 years ago, and it’s exciting to see it’s finally coming to fruition, thanks to the emergence of scientific trading based on a rational market structure. The reason I’ve been so passionate about it, is I’m tired of being spun by opaque sources and contrived data all designed to create self-fulling outcomes about the media marketplace. You know, spin. Yes, Madison Avenue is incredibly good at that, but I don’t believe it’s good for Madison Avenue, or its clients. At least not anymore. Maybe in the early days when there were perhaps 50 advertisers and a dozen big agencies vying for a finite pool of prime-time avails from three TV networks that reached, well, everybody -- yeah, well, then you could have that kind of structured allocation marketplace based in which no one knew who was paying what, except for the supply-side. (You do know that the agencies and clients literally let the networks “count the house” before every upfront, by forcing them to register their budgets, right? I mean, who benefits from that?)
If that industrial behavior ever made sense, it certainly doesn’t today, for so many reasons, but mainly because there is just way too much inventory to be allocated like that, and because the relative value of that inventory is such a vast spectrum ranging across various brand and audience needs, not to mention business models, KPIs and objectives. It’s a spectrum as wide as branding to performance to commerce. It’s a spectrum as wide as, well, the world.
In the end, I suspect that the ad industry has clung on to opacity and closed market structures for a much more human reason than market logic. I think it’s because it just seems so much simpler to agencies and clients to think about their media options as narrow subsegments with rigid values based on historical pricing curves and benchmarks. I understand that, but it doesn’t make sense of far more significant reasons, and they are ones that have a greater impact on society overall. And that’s the reason I’m reacting to Pedersen’s comment on yesterday’s post. Because he’s right. And here’s why.
Advertising is more than an industry. It is part of the cultural framework for our free information society, and because of that, it needs to be regulated. And by that, I don’t mean the obvious parts that already are regulated like fraudulent ad claims, consumer disclosure rules, personal data privacy rules, youth targeting rules, and the ilk. Certainly, those things should be regulated to reasonable degrees. (And personally, I think “native” ad formats are going to become one of them, but that’s a post for another day.) No, the kind of regulation I’m talking about is the kind the government does for the financial industry: ensuring that the basic data influencing financial trading decisions are transparent and open for everyone to see. Never mind that technology like high-speed trading systems and proprietary data can enable the biggest investors to have an edge on the rest of the marketplace. That’s just free enterprise, and in theory, anyone who could muster those resources could compete with anyone else. It’s a level playing field. That’s not the case on Madison Avenue.
And here’s why it should be -- because advertising is a significant part of the economic engine that underwrites the free and open flow of information in our society. It underwrites the flow of our most immediately important information -- news -- and it underwrites the most important highly structured information we have, the entertainment and information-based content that is the basis of our culture. Everything from “60 Minutes” to Twitter. And we all know what’s happen to the economics of that. It’s become highly distorted, jeopardizing the economic viability of critical components of the media industry, including some of our most valuable news sources. A Columbia Law Review study a couple of years ago, estimated that 90% of the news content published on the Internet emanates from conventional daily newspapers. But as soon as that information gets reported and disseminated online the monetary value of that information goes to zero -- or not much above it. That’s a big long-term problem for society, and I’m not sure I know the answer to it. My point is that the reason why Madison Avenue’s media trading should become openly regulated is that the decisions made to invest in one medium vs. another have huge implications beyond brand share. They influence how we all think, feel and behave.
I’m not saying the government should, like they do in other countries, regulate how advertising budgets should be allocated across those media options. I’m just saying there should be regulations requiring the data that is the basis for those trades to be open for everyone to see. Because we are all stakeholders in the outcomes of those trades.
The truth is the government has stepped in from time to time when it saw a potential threat to the free flow of open market data on media transactions. It’s done it twice that I’m aware of. Once in the early 1960s when Congress held hearings to review some questionable practices in the TV ratings business, which back in those days WERE the media industry’s trading data. The government decided back then not to regulate the industry, but a decree from the Department of Justice required the industry to self-regulate those practices and it formed the Broadcast Rating Council, which later became the Media Rating Council, which to this day is the closest thing we have to industry structured transparency in the advertising business. But all the MRC does is audit and accredit, and with the exception of recommending some best practices, it basically just reports on whether a media ratings service or methodology does what it says it does. That’s important, for sure, but it doesn’t go far enough for today’s super fragmented, high-speed media economy. We need open market data like we never did before. We need transparency.
The second time the government stepped in also involved the TV ratings business. It was when News Corp. went to war with Nielsen over the methods it used to measure African American and Hispanic American audiences, the kind that skewed high on some of Fox’s shows. A well orchestrated and highly publicized campaign by News Corp. leveraged public interest groups to convince Congress to hold another round of hearings in 2004, which once again did not lead to regulation, but put enough pressure on Nielsen that it yielded, and modified the way it treated minority audiences in its samples and ratings -- basically creating mathematical weights to adjust for not sampling them properly.
Part of the success of News Corp.’s campaign was that it convinced the public, the government and ultimately Nielsen that the kind of media investment decisions that were based on its ratings had a powerful influence over the economics of what media content got supported and what didn’t. In this case, News Corp. successfully argued that minority audiences needed to be better represented. But what about all the other special interests? I’m not going there, per se. I’m just saying that the whole thing should be transparent, rational and open for everyone to see and make their own judgement -- and if appropriate -- trades on.