Commentary

Magna's Programmatic Forecast Defines Digital Ad Opportunity

The rise of programmatic buying of media and automation of processes is perhaps the most important consequence of the increasingly wide reliance by the advertising industry on the use of software and tools that we broadly characterize as “ad tech”. As applications of these technologies grow we think the gap between winners and losers could become more pronounced. This is a key reason why it matters that media owners make the right bets on how they implement advertising technologies. As if to emphasize the point, new data from Interpublic’s Magna Global forecasts that 47% of non-search-based digital media will be bought programmatically this year in the largest market, the United States, amounting to $11.1bn in total, vs. $7.6bn in 2013, or 38% of last year’s activity. Globally, programmatic trading should amount to $21bn during 2014 rising to $53bn by 2019. This represents a large subset of Magna’s estimates for total non-search digital advertising activity of $68bn in 2014 and $121bn in 2019.

Magna Global, a unit of Interpublic’s Mediabrands and sibling entity to media agencies UM and Initiative, released new data yesterday on programmatic advertising. Magna estimates $21bn in programmatic advertising in 2014 globally, vs. $14bn in 2013 and rising to $53bn by 2019. This equates to a large subset of Magna’s non-search digital advertising forecast of $68bn in 2014 and $121bn in 2019.

Expectations for 2014 were raised in the US to $11.1bn vs. a $9.8bn figure which was estimated around this time last year. In the United States Magna estimates that 47% of non-search digital advertising is being bought programmatically this year, rising to 70% by 2019. This compares with a figure of around 18% in 2011 and 38% in 2013. Importantly, only 35% of programmatic activity is expected to be real-time-driven, highlighting that programmatic media buying includes a wide range of activity at the present time (although Magna expects by 2019 that 56% will be RTB-based).

Given the rise of programmatic trading, it is becoming increasingly clear that some media owners are proving to be winners and others relative losers given the scale and quality of investment in relevant technologies in recent years. Among public companies, Google remains the dominant media technology owner in this space given its ownerships of the leading ad tech platform, assembled following the 2007 acquisition of Doubleclick. As a proportion of company-wide activities, we think that AOL is doing particularly well given its external acquisitions (of Adap.TV in particular) and ongoing internal investment which developed on a strong position in pre-programmatic-era ad networks. Twitter is also notable for its market position in programmatic buying of mobile ad inventory given its ownership of MoPub, arguably the leading pure-play exchange/supply-side platform. Yahoo has, by contrast, is proving to be an also-ran in this space. Although the company established a strong presence in the early days of programmatic media trading via its acquisition of Right Media in 2007, that entity has generally withered (Right Media’s current state is particularly contrasted with the relatively strong market position of AppNexus, which was founded by senior management members from Right Media) and the recent launch of its proprietary Yahoo Ad Manager platform has seemingly been underwhelming. Facebook has taken a restrained approach so far, as its strong overall position has meant that the company has not needed to focus much on programmatic trading of its inventory, notwithstanding FBX and the recent acquisition of LiveRail. We expect that over time – and potentially in the near future as the company builds on the re-launch of Atlas to potentially launch a DSP – Facebook’s focus on programmatic buying of media on the broader web will expand significantly.

Industry-wide and media owner-specific implications of the growing role of programmatic media buying remain important to consider. We think the increasing presence of these technologies allows marketers to express rising indifference with respect to where their media runs faster than might otherwise have been possible given marketers’ focus on buying audiences rather than adjacencies. However, many practitioners whose opinions we value highly will argue otherwise. Certainly many programmatic techniques simply offer the potential for media owners to allow advertisers to automate and apply more data to their buys (potentially improving the value that media owners might realize). Further, last week we hosted an investor meeting with a leading authority on this topic, Matt Prohaska, of Prohaska Consulting. As he characterized some of the highly strategic approaches that different media owners have taken in this sphere, we can see the possibilities that exist for media owners to find ways to apply programmatic concepts to improve value for themselves and marketers at the same time using highly data-driven and creative sales approaches which capitalize on the potential of programmatic technologies. This highlights to us that the consequences of wider use of programmatic trading present the possibility that media owners can improve their overall market position, through a combination of thoughtful investments and ongoing managerial focus.

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