• by Nate Carter , Op-Ed Contributor, October 14, 2015

“It’s cheaper.” If I pulled out a hair for each time I heard someone say programmatic media always saves money, I’d be bald. While programmatic digital media can often save marketers huge dollars, as the definition of “programmatic” expands into television and other media forms, savings is not always the case. To understand why, think of one word: Inventory.

Much of the “cost-saving” mindset stems from the genesis of the programmatic real-time marketplace. As ad networks and demand-side platforms opened up direct channels to Web publishers they exposed a well-known fact: banner advertising supply far outstripped demand. This was a dual function of the sheer volume and velocity of content consumption as well as the massive scaling of content creation via social media, blogs and other channels. The net result of this was a market correction as buyers secured inventory on publishers at a small fraction of published rate cards. It created the rise of audience targeting at scale.

TV is very different, however, so the shift to programmatic systems for buying ads will not generate the same savings as digital. Consider all of the Web sites and mobile apps that exist today. One million? One hundred million? Now consider all the TV channels available to the average home. One hundred? 200? While “linear television” -- or TV viewed on a certain channel at a specific time -- has expanded since the 1970s, the amount of media inventory there is still worlds smaller than the vast, nearly infinite space online.

Because TV channels are already finite, linear television has no relevant excess supply. Therefore, there can be no market correction through the expression of excess supply. For programmatic buyers to clear their buy, they must be paying on-par or higher rates than their counterparts who are buying via e-mail or phone.

This point also represents another challenge for programmatic buyers of television. Going programmatic increases the layers of the buy process. In a traditional television buying sense, the TV buyer contacts the station being bought, negotiates a buy and the order is placed. The only loss of the purchasing power of the dollar occurs at the point where the advertiser pays their buying agency or the added expense of building a team in-house. However, for a buy to occur programmatically. layers of fees are added. The DSP will charge a fee on the transaction; the supply-side platform will charge a fee and any data segmentation costs will also need to be accounted for. The net result is a degradation of the advertiser’s purchasing power by 10% to 30%, depending on the buying clout of the advertiser and the negotiating chops of their agency.

This is another factor to be considered when going programmatic with television buys. With programmatic advertising, the advertisers sacrifice a potential loss of buying power. When an advertiser negotiates directly with a network or station they can leverage the fullness of their budget in order to bring down overall costs. The broadcaster has the incentive of budging on rates, or looking for value-added opportunities and efficiencies. A programmatic buy evaluated on a spot level will generally have to clear at a higher price than a spot purchased as part of a negotiated overall buy.

In aggregate, programmatic TV buys degrade the purchasing power of the advertiser dollar. Does this mean that programmatic television is destined to fail? Hardly. Instead it will be tasked with generating an incremental lift in efficiency that will cover the lost purchasing power, in orderto  justify the cost increase for the advertiser. The primary way that advertisers and agencies will be able to accomplish this is through the leveraging of first party to enable effective 1:1 advertising.

Look for enterprising advertisers with client databases to continue to press cable networks to enable addressable television. Also keep an eye on so-called “Smart TV platforms,” which can match television ads to individual data. Google and Apple now both enable advertisers to onboard CRM databases in order to drive ad targeting.

Look for programmatic television to continue to make noise. It is early rumblings of a seismic shift that will take place in the industry in the coming years. However, don’t plan on rolling out your TV strategy in the way you have accelerated digital. Digital display matured in an environment of retargeting and arbitrage.  

TV will mature in an environment of overspending, testing and first party data. It will offer huge windfalls for advertisers who do it properly while companies who dabble may find it costly and ineffective. The future is coming. Just don’t look in the rear view mirror to figure out how we will get there.