The Biz: A Rational View of Value

The idea of auction marketplaces for media has grown in popularity over the years. The argument seems simple enough. If you have a large, openmarket where both buyers and sellers can communicate easily with one another, working with full disclosure, the absolute, true value of inventory can be determined.

Prices will shift with the movement of demand. Media assets can be defined in commonly accepted ways that will correlate with value such as targeting, context, behavior, demographics, etc. Advertising materials can be delivered with fairly minimal costs and lower friction than they once could. In this automated auction circus, the marketplace can be trusted and agrees to an almost platonic sense value (that is, its pure form).

But auctions are helpful really only when the value of a product is indeterminate, when neither buyer nor seller has a real sense of an asset's innate value - such as a Van Gogh painting or a warehouse full of 1994 calendars.

Auctions for media, on the other hand, won't generally be as successful because the marketplace has already set the value of media placements.

That's not to say that auctions for media can never work; they can, when the seller of that media isn't sure what it's worth and buyers aren't sure how much they should pay. These scenarios are most likely at the very top or very bottom of the market, but neither of those segments account for the bulk of the market.

Experience with the product in the marketplace will contribute to the perceived value. Over time, that perception of value will stabilize. Auctions don't apply well to product that has been subject to the normalizing means of valuation both time and experience enforces. With a mature product, the margin yield becomes too small to justify the resource allocation necessary to realize it.

The problem with auction-based marketplaces for intangible product such as media is their susceptibility to the hysterical whimsy of human passions. A mix of limited inventory, greater fool theory, and the incorrect predictions of any audience's content consumption can lead to an illogical attribution of value. If enough market movers have the same misdirected desires, the entire market can be driven first into the sky and then over a cliff.

Still, auction marketplaces can self-correct. Price exhaustion and advertiser fatigue will eventually bring costs back to reasonable levels. The problem is that those corrections will be more violent: Higher highs lead to lower lows. And with advertising, some investment must always be made to keep one's hold on the general marketplace, meaning a correction will only come once all options are depleted.

Maybe that's alright. Marketers can try other, less expensive media. Maybe someone will invent new ways to communicate to audiences. But if low CPMs were the only consideration, everyone would be buying skywriting.

Although the value of media might be considered indeterminate from the ethereal perspective made possible from beyond the marketplace, some media actually does have value. The programming one watches, the signal transmitted, the administration of its delivery, the film it is shot on - all that costs money. So long as there is material cost, even if the product or service doesn't have "value" it will still have "worth."

Jim Meskauskas is vice president and director of online media at Omnicom Group's Icon International. (

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