The acceleration of programmatic media buying is part of a systemic shift that is beginning to manifest in weak operating results for some of the biggest digital publishers, according to a report sent to investors this morning by Wall Street analyst and former Madison Avenue insider Brian Wieser.
“With last week’s weak operating results at Yahoo punctuated by commentary about the effects of programmatic buying on the current operating environment for web publishers, we thought it worth briefly reviewing how ad tech and changes in advertiser preferences are causing what we characterize as a permanent decline in traditional premium display advertising,” Pivotal Research Group's Wieser writes, noting that it has been a significant factor in the softening of the online display ad business, which he characterizes as a “structurally weak business for most media owners.”
The report, which is entitled, “The Rise Of Programmatic Buying: Winners & Losers,” indicates that most publishers -- especially big media owners like Yahoo, AOL and traditional publishers like the New York Times Co. -- fall in the latter camp.
On the upside, Wieser notes that “some digital media owners are partially or fully immune from this trend.” He sites Pandora and Twitter, which seem highly differentiated from the rest of the display advertising marketplace, and suggests that certain purveyors of “native” ad formats, such as Federated Media and Pitchfork Media, may also benefit.
Other biggies, including Facebook, are likely to benefit mainly because of the “sheer scale of their inventory.
But it is Google, which Wieser believes is the player that “drives the most from these trends.”
“Google arguably benefits the most in the transition away from premium display,” he explains, noting, “Google is by now one of the world’s largest sellers of display advertising with around $4 billion of annual gross revenue from display advertising during 2012 by our estimates (not including YouTube). Google’s application of superior data allows them to provide mid- and long-tail publishers with relatively more revenue than other ad networks could for some of their
inventory while finding advertisers willing to pay relatively more for that same inventory than if it were sold to a different advertiser. This in turn allows Google to continue capturing a disproportionate share of growth in the volume of display advertising on the Web.”
The report indicates the tide will continue to shift toward programmatic buying for a variety of reasons, especially technological ones, but mainly because it gives the “upper hand” to advertisers in digital media negotiations, and because it improves workflow efficiencies for agencies who service those advertisers.
“From all of this we can identify some key components winning and losing business models,” the report concludes, citing two models in particular that should benefit media owners that can leverage them: “relative scale” and “relationships.” Those business models, Wieser predicts, will prove “durable.”
“We think the general trend is becoming increasingly clear,” Wieser asserts, adding, “The conjecture from many publishers about the health of their business may be mere bluster, but in some cases there appears to be a sense of denial about the true state of the business.”