• by Neil Klar , August 30, 2007

Everyone agrees that business transactions -- be it stock trading, accounting or media buying -- need to be transparent in order to be beneficial to all concerned parties. You won't hear anyone argue (out loud) against transparency -- but the philosophy of transparent media buying does have its critics.

It's Madison Avenue's not-so-best-kept secret that the sell-side benefits from the current imbalance resulting from buyers lacking access to precise cost information. That industry leaders acknowledge the need for ROI programs and other accountability measures is proof that the industry is making gestures toward a better metric. Still, fundamental changes to an industry that have been quite profitable over the years take time.

The issue before all sides of the media table is this: What degree of transparency will best serve sellers and buyers? I would argue: the fullest possible.

Just think what it would be like if your TV advertising purchases were made the same way your customers make their purchases. They shop price for each and every unit of merchandise they buy. And they can do it by searching online, by scanning advertising in the different media they contact, by visiting different merchants and by negotiating only when necessary.

National television advertisers for the most part do not shop by unit; they negotiate vast quantities of different merchandise, attempting to leverage their money in a limited-supply and heavy-demand environment. They accept comparisons of quantity as measures of effectiveness and never know if the unit prices they have paid are the best the market had to offer. This difference between consumers and advertisers has existed because there has been no way for advertisers to compare the prices in the television marketplace.

Those responsible for investing their clients' dollars for advertising on television really need to ask whether there is another industry on earth that relies on such guesswork. The speculative nature of television media buying has created a severe imbalance for advertisers and buyers.

Media buyers persistently declare that prices are distorted for scatter market purchases by "make goods" due to improper forecasts and promised audiences. Networks, who hold most of the cards, complain that prices are distorted when programs turn into smash hits and over-deliver. Sellers claim not to know what the competitors are getting, while media buyers quote CPMs but rarely price.

In other words, neither buyer nor seller knows exactly what is being bought or sold. Nor do they really know if a fair price was paid. But they do know they're locked into a relatively inflexible system months in advance -- despite the fact that the media and advertising environment is constantly changing.

There are a number of ways to address this issue. One way is the controversial Online Media Exchange supported by eBay, essentially a platform that provides advertising "traders" with an electronic means of obtaining TV commercial package quotes. The Oxygen Network recently reported successfully selling inventory in the third quarter to Intel via this exchange, but the jury is still out on this controversial service. Whether or not an Online Media Exchange is the answer is not the issue -- and the success of the eBay exchange remains to be seen. To be beneficial, such an exchange would still require more transparent information. The issue is that media buyers and their clients have been steadily demanding a change in the way that this business is conducted.

The primary reason for the increased amplitude on the subject is that marketers have metrics for every part of their business. "Return on Investment" is a phrase that underlies every conversation between an ever-growing number of advertisers and their media agencies. Furthermore, whether marketers articulate it or not, they know transparency is a part of nearly every transaction a consumer embarks on these days.

For instance, when someone turns to the Internet to buy a car or a TV set or just about any other consumer product, that person can type the product's information into a search engine and see what retailers are actually paying and charging for it. Or, if they use eBay, they can actively compete and help determine the actual price of an item.

But if a media buyer wants to purchase time on national television -- it doesn't matter if it's spot, network, cable or syndication -- there is nowhere that person can go to see what the market is paying. It's natural that there would be some pushback from the networks, who ultimately benefit from keeping their customers guessing, and some major agencies and marketers, who might worry that their historic price advantages would be diminished on a more equal playing field. But these fears are clearly overblown.

In the end, the marketplace will regulate itself. In virtually every market, it is a combination of factors that result in an ultimate agreement. Knowing the market price is just one of those factors. Television time is a perishable commodity and its marketplace is heavily influenced by supply, demand, purchase timing and buyer/seller relationships.

The most likely result of greater transparency would be that media buyers and media sellers would be able to negotiate more efficiently. Again, the price that would be provided by transparency is only one element in the final deal, but could be counted on as a fair market indicator that lets buyers know when they're being asked to pay a premium. And just like that customer who walks into the camera store knowing the suggested retail price that everybody else is paying, depending on his negotiation with the salesperson, things can work out beneficially for both buyer and seller once the deal-making process begins and all the cards are on the table.