• by Bill Wise , November 20, 2006

Last week, advertisers got their first glimpse of the e-Media Exchange, the auction-based TV (and other traditional media) ad-buying exchange initiated by blue-chip advertisers like Wal-Mart, and powered by e-Bay. The Exchange is said to be ready to roll in Q2 '07; the advertisers involved got their first sneak preview last week. And as I've said many times before, the Exchange is a revolution whose time has clearly come.

But at the same time, it still isn't clear whether the e-Media Exchange will actually thrive. That'a an open question; there are forces acting both against and in favor of the Exchange's long-term survival.

Let's start with the forces against. To begin with, the networks don't like the Exchange very much; and if the networks themselves don't go along, the Exchange won't work (it's the networks' inventory that the Exchange is selling). The networks' reaction isn't surprising, as the Exchange was created out of advertiser suspicion of network double-dealing when it comes to ad pricing: auctions, the Exchange members feel, are a more accountable and transparent way to buy media. Meanwhile, something else the networks have a strong reason to dislike is the fact that an auction would wrest pricing controls out of the hands of the networks, placing it in the hands of advertisers.

Then there's institutional culture. The Exchange is an attempt to replace the traditional networks' culture of lavish upfronts and martini lunches during ad buys. But while martini lunches might not foster transparent pricing, they're an important aspect of networks' tradition and corporate culture--and old traditions die hard. That's especially true amongst large corporations, and the traditional networks happen to be large corporations (or pieces of large corporations).

Of course, martini lunches really do serve a valuable purpose. Television advertisers are spending enormous sums of money; and there's a strong argument that large purchases are best done face-to-face. Even in the search world, the engines have reps who handle ad spend for larger clients, despite the fact that the actual ad purchases are made via online auction. And if there's a need for a human interaction in the online auction of search, there's no reason the same wouldn't be true of online TV ad buys.

Finally, those behind the Exchange may have made a tactical mistake in declaring that they'll start the Exchange as a place to buy remnant inventory. That makes sense politically, as the networks would never have agreed to let the Exchange start out by managing anything bigger that remnant. But the move also ignores a basic principle of how auctions work, and that's a problem. To paraphrase what I've said many times, auctions are competitions over specific items--and to create a viable arena for those competitions, you have to offer something that people are interested in fighting over. But remnant inventory is definitionally the inventory that nobody wants; that's not the kind of stuff that creates bidding wars, and so it's not the stuff that makes for viable auction marketplaces.

OK, now why should the e-Media Exchange work? Because the auction networks have a record of creating clear and fair pricing. That kind of environment for buying TV spots would be an attractive change for advertisers who crave greater transparency in their ad buys. And if the advertisers are willing to fight hard enough for it, there's definitely a chance that the networks will go along with the advertisers' wish.

Meanwhile, the Exchange has made a smart move in deciding to start the program on cable TV. Cable TV is subscriber-based, which means that cable networks have demographic, geographic, and/or psychographic information that the standard networks don't. That kind of data creates opportunities for the networks to slice and dice ad inventory in ways that clearly showcase each slot's value. That, in turn, allows networks to charge more for the given slot, which is good for them; and it will also be able to drive more bidding wars over any given slot, which is good for the longevity of the Exchange, which is good for the advertisers. And initial success in a cable TV run will make the Exchange an easier sell to the larger networks, too.

One final note here: There's no reason to assume that the Exchange is a guaranteed home run, just because it provides auctioned ad buys. Google and Yahoo have clearly shown that auction-based advertising can be a highly viable ad model; but there are plenty of auction media outlets that you haven't heard of, simply because they died along the way. And whether the Exchange will become TV's Google, or the next cutting-edge idea that lost because it was too ahead of its time, remains to be seen.