• by David Kaplan , March 24, 2005

Each year when the nation's largest advertisers gather in New York to discuss the current and future state of the TV advertising business they bemoan the state of the network upfront buying process and call for its change. On Wednesday, one of the biggest marketers made a pitch to transform it into something that looks more like one of Wall Street's stock exchanges - specifically Nasdaq - to create an open exchange that is "fair" and "transparent" to buyers and sellers of TV alike. "The supply-and-demand balance in the TV market is distorted by the selling of 80 percent of the future year's programming three to five months in advance," asserted , Julie Roehm, director of communications at DaimlerChrysler, during a presentation in which she proposed her solution to attendees at the Association of National Advertisers' 2005 Television Advertising Forum in New York. "Prices are distorted for scatter market buyers by 'make goods' for improper forecasts and promised audiences. Prices are distorted for the networks, or sellers, when a program turns into a smash hit and over-delivers," said Roehm, speaking as she roamed the stage with a wireless microphone. "In other words, neither buyer nor seller knows exactly what is being bought or sold. Nor do they know if they paid a fair price, because there is no transparency in the marketplace. But they do know they're locked into a relatively inflexible system months in advance--despite the fact their media needs might change." Roehm noted that frustration over the upfront's lack of "transparency" and "free marketing fundamentals" was motivating the automaker to shift money away from traditional television into areas including direct marketing, the Internet, gaming, and branded entertainment.

The solution, she proposed, is one based on the stock market's fundamentals of "anonymity, liquidity, transparency, and arbitrage." She said she favors a system modeled after the Nasdaq, as opposed to the New York Stock Exchange, because it's a more open exchange and would offer the same fairness and efficiencies to smaller advertisers--not just the big ones, such as the DaimlerChryslers and Procter & Gambles of the world, she said--as well as the networks.

"In terms of the actual process of trading TV, each spot already has a value--the value placed on it by the TV networks--just like a share has a value that is initially placed upon it by the company that holds it," she said. "I would envision an electronic system where each trader is anonymous and has the ability to buy and sell spots every day--spots that would, at any given time, have a value established by the marketplace. The process would start with what would amount to an enormous IPO: the sale of all these spots to the market. After all shares have been parceled out, they would be traded between advertisers and networks."

Explaining her views after the presentation, Roehm said that the networks would still own the airtime, and the marketers who currently buy would lose their guarantees.

"But in the end, we would all gain efficiency and transparency," she said. "The stock market works pretty well, so why wouldn't this?"

In other parts of her talk, Roehm said that the networks have to evolve to providing "content on demand," which includes Video-On-Demand, wireless, and "Internet Protocol TV," which allows content to travel to computers, cell phones, and other non-TV wireless devices. She quoted Mark Burnett, the executive producer behind "Survivor," "The Contender," "The Apprentice," and others, as saying: "If I could make a show for a BlackBerry, I would." She then challenged networks to do just that.

"By 2010--maybe even sooner, within the next three years--the promise of IPTV will be the norm," Roehm said. "It's a true 'pay for performance' model, because then, we could truly measure who's watching what. It takes the notion of opting-in to whole new level. The next few years will be the age of accountability."