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Advertising's programmatic revolution will be televised -- by Hulu.
This fall the streaming video service, which is owned by NBC Universal, Fox and Walt Disney Co., will open a private ad exchange powered by Facebook video ad exchange LiveRail to let marketers to buy ads on Hulu as easily as if they were purchasing something on Amazon. To make sure those ads are shown to the right people, Hulu will let brands combine their own data with Hulu's information on people's age, gender, location and what shows they watch as well as data from companies within Oracle's data-management platform.
The offering could make buying ads on Hulu more like buying ads on Facebook or Twitter than on traditional TV.
"The rise of programmatic is undeniable," said Peter Naylor, Hulu's senior VP-advertising. It's a huge trend, and it's one that is making its way to premium video environments like ours. And we feel that this is a bit of a watershed for the premium video-on-demand space."
Publishers like Hulu have typically been slow to automate their ad sales process over concerns that it would devalue what they're selling. Computers can't pitch a product like an actual salesperson, leaving the customer to determine its value. But Hulu doesn't intend to leave its sales force out of the equation, or to leave any money on the table.
"I'm going to enable my grown-up sales force who sell sponsorships to also sell programmatically. We're not going to put programmatic in a silo," Mr. Naylor said. And by restricting Hulu's automated ad sales in a private exchange and enriching that inventory with targeting data, the company is looking to protect its ad rates.
"The rules of media haven't been repealed," Mr. Naylor added. "The more targeted you get with a campaign, the [ad prices] typically increase. When you start using data to find target audiences that are increasingly scarce to find, that must come with a premium."
Here's how it all works: A brand will be able to combine its own, Hulu's and other companies' data to effectively create a Venn diagram with the brands' target customer in the middle. The brand will then be able to take that target audience and place bids in the ad auctions run by Hulu's exchange so that, when someone in that audience fires up an episode of "Empire" or "Seinfeld" on Hulu, they'll see an ad from that brand.
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"Think of an automaker," Mr. Naylor said. "They might have a database of people coming off a lease. They can complement that with information from Kelley Blue Book and then bump it up against our database and all of a sudden you're talking about extraordinarily valuable inventory to that marketer."
Hulu will make all of its inventory across its sites, mobile apps and connected-TV apps available through the private exchange, though higher-end sales like show-specific sponsorships won't be on offer "until we get more comfortable with how everything's working," Mr. Naylor said.
But not every advertiser will be able to access the exchange; brands will need to sign deals with Hulu for that. Hulu is still ironing out the requirements, but it is initially looking to advertisers who have signed upfront deals with Hulu and already have experience buying ads programmatically, Mr. Naylor said.
While the private exchange marks Hulu's first official foray into automated ad sales, the company does have some prior experience. In 2013 the company tested a private ad exchange by letting a select number of automated ad-buying companies bid against Hulu's inventory, but advertisers opting for the automated route had to pay more per ad than those dealing directly with Hulu's ad sales teams, people familiar with the matter told Ad Age at the time.
Hulu chose to use Facebook's LiveRail to manage its private exchange after evaluating several companies, including some publisher-centric ad-tech firms that primarily focused on display ad sales. "LiveRail came out on top for us," said Mr. Naylor, noting that the deal does not give LiveRail's parent company Facebook a window into Hulu's ad sales.