Ad Industry Tests Open Market Database For Network TV Ad Buys, Some Big Shops Resist

Reuters tried it and failed. Enron was developing it before it collapsed. Even Dow Jones explored it, but couldn't figure out how to make it work. Now a well-known ad industry insider appears to be succeeding where the Wall Street giants failed and has created a Madison Avenue equivalent of a financial market database.

The system, which is being beta tested by several major advertisers and agencies and is scheduled to be fully operational by the end of the first quarter of 2004, is unlike anything the ad industry has seen before. It reports the actual costs of ads bought on the major TV networks, pulled directly from various financial management systems - Donovan, Datatech and Encoda - used by advertisers and agencies to process and manage their own advertising buys.

The data is so accurate and comprehensive that it is believed to be better than the networks' own advertising sales databases. While each network may have accurate information on the rates and volume of their own advertising inventory, they must guess at the market performance of their competitors. As such, the new service, NetCosts, could dramatically alter the balance of power in the network advertising marketplace from the broadcast networks to Madison Avenue.



While such a database might seem the ultimate panacea for the ad industry, which has long had to struggle with inferior network ad market intelligence, a number of major ad agencies have been loath to sign up for fear that the data might ultimately be used to hold them more accountable for cost and quality of their TV advertising buys. As a result, NetCosts has had to go directly to marketers to gain access to the data.

"We didn't want to go directly through clients. We're only doing this because we have no choice," says Neil Klar, president-CEO of Tarrytown, NY-based SQAD, which created the NetCosts service. Klar says agency fears are unwarranted, because SQAD will not license the data to management consultants or auditing firms that are used by marketers to check up on their agencies.

Even so, the data would be available to the marketers themselves to gauge their agencies' media buying performance and those marketers could turn the data over to consultants and auditors to use in reviewing their agencies.

In fact, Mike Lotito, managing partner of Media IQ, a strategic media auditing firm, claims to already have gotten access to NetCosts data through one of the marketers it works for. What's interesting about that, is that Media IQ also has been building a comparable network TV ad costs database using methods similar to NetCosts' - getting directly from marketers. And just like NetCosts, Media IQ is pulling the data directly from the financial advertising management systems used by agencies to process advertising buys for their clients.

But unlike SQAD, which syndicates its data, Media IQ has not plans to make its advertising costs database public. The data us being collected solely to be used in Media IQ's audits of agency media buying performance.

SQAD, meanwhile, is licensing the NetCosts data exclusively to one auditor - though it doesn't like to call itself an auditor. Media Performance Monitor America (MPMA), which is jointly owned by SQAD, consultant Erwin Ephron and Billetts, the U.K.-based firm that helped popularize media auditing in Europe.

The principals maintain that MPMA isn't like conventional U.S. auditors, but is hired by marketers to work collegially with their agencies to improve the performance of their advertising buys.

That's a similar approach being used by Media IQ, which also positions itself as being much more strategic that traditional financial auditors, or ad verification services that seek to make sure agencies got what they ordered and that they paid the right price for it.

And just as MPMA has aligned itself with SQAD to have a greater presence in the marketplace, Media IQ has formed an alliance with Morgan Anderson Consultants, one of the top advertising management consultants specializing in reviews of media services.

Meanwhile, Media IQ's Lotito says the firm has built a network TV advertising cost database based on more than $1 billion in network buys covering 100,000 units from six major national advertisers. While that's a fraction of the total network marketplace, Lotito said the base of clients is representative enough to be projectable and that Media IQ plans to grow that base over time.

The NetCosts database currently is based on $5 billion in network ad buys and SQAD has total commitments covering $6.5 billion. The company plans to have data based on $10.2 billion, which would be 40 percent of the total network TV ad marketplace, by the time it goes live at the end of the first quarter of 2004.

"We're not going to change the nature of the marketplace overnight," says Larry Fried, chief revenue officer-national TV and head of the NetCosts project at SQAD. "What this is going to do, is allow marketers to understand what their relationship with their vendors is and give them the opportunity to go back and make it better."

Fried says that, over time, the impact of the data could be profound, creating an open and much more efficient marketplace for advertisers. Fried should know. As a top sales executive at ABC for most of his career, he saw how the networks collected and manipulated market intelligence to their advantage. He also saw how agencies fell into very simplistic patterns that gave the networks maximum leverage in negotiations.

For example, he said most agencies negotiate CPM (cost per thousand), whereas network sales executives work to maximize yield for individual units. By focusing on CPM, he says agencies have no idea what the real value of network inventory is. Only the networks do.

As a result, he says agencies tend to negotiate network ad deals - especially during the upfront - on a "percentage increase or decrease" basis, meaning the agency simply is looking to beat the market average increase or decrease by a certain percent.

"Everybody thinks they've beaten the market," says Fried. "You've got 70% of the market saying they're beating the market by X percent. People tell their clients that they paid plus 12% and the market went up 14%. The problem is, they don't really know if the market went up 14%."

By using real price data in the NetCosts database, Fried says that for the first time agencies will have as good, of not better market intelligence as the networks.

NetCosts currently includes seven elements: a network sales pacing report that shows how many ad dollars each network is taking in; a CPM Rating Trend Report that shows both the cost and the estimated ratings of each network by daypart; a Market Analysis Report that shows how well the networks are doing in both upfront and scatter market sales so that buyers can find advantageous positions and times to leverage a network; a Time Period & Programming Report that provides detailed ad costs by individual programs; an Event Analysis that does the same by genres and types of programming; a Schedule Analysis that can approximate the cost of speculative network ad schedules based on the actual data of comparable ones; and a Forecasting Report that can be used to project future market changes.

The structure of these reports indicate that SQAD has truly designed NetCosts to be a media buyer's tool, but the service likely will continue to be met by resistance from network sales organizations, as well as some big media buying agencies.

Advertisers and smaller agencies, however, are sure to embrace the service because of its potential for equalizing network market dynamics. At that rate, it might be difficult for the networks and major ad shops to resist for too long, especially since SQAD's marketing and pricing strategy provides a half price discount for any agencies signing up before the service goes live. The rates are based on a percentage of the agency's network ad billings.

Eventually, SQAD plans to expand NetCosts to include cable networks and syndicated TV. The company has also been exploring advertising cost databases for other media.

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