x
Advertisement
Scroll to Continue

You are about to read your last free item this month.

To register, get added benefits and unlimited access to articles, Become a Member. Already a Member? Sign in.

Online CPM Prices Take Tumble

Many Pin Blame on Web's History of a 'Spray-and-Pray' Medium

By Published on . 8

NEW YORK (AdAge.com) -- Forget about first-quarter woes in the display-ad market. For content companies, what will be more important are the long-lasting effects of a recession-induced ad slowdown, coupled with a ballooning supply of online impressions that's driving down internet ad prices and making it even harder to monetize media.

Cost-per-thousand ad impressions for online publishers are generally off about 20%, according to several people on both the buying and selling side, and sell-through rates are dropping. And where publishers used to unload 60% of their inventory, some are now able to sell only 30%.

But perhaps indicating more trouble ahead is just how cheap the low end of the market has gotten. An August study from the Interactive Advertising Bureau and Bain & Co.* found the average CPMs on ad networks ranged from 60 cents to $1.10, only 6% to 11% of the prices publishers could command when they sold inventory directly. And the pricing for networks appears to be getting worse not better. CPMs for ad-network-sold ads are dropping, some by 50% year-over-year, according to a recent study of pricing by Pubmatic, which tracks pricing among many Long Tail ad networks.

Fixing online ads
Part of a series
Those price drops can directly affect the cost of higher-end ad impressions. Consider that the opportunity cost of discounting a CPM is only what you would otherwise be able to sell that for. As the prices for remnant inventory get cheaper, there's less short-term reason to uphold rate-card prices if a client demands a discount.

Put another way, if you're a large publicly-traded ad seller with virtually unlimited supply that needs to make its numbers, are you going to walk away when an advertiser dangles a check in front of you but demands a 10% decrease in premium CPMs to get the buy?

Prescriptions
OK, so clearly there's a problem. But how best to solve it? Not surprisingly, there are all sorts of diagnoses and potentially remedies -- and they differ depending on who's doing the prescribing. Lately, many are looking to blame the web's heritage as a direct-response medium.

Direct marketers have long used the web to buy as many impressions as possible as cheaply as possible, caring in the end only about the number of responses they get for the money they spend. It's a "spray-and-pray" mentality. Even though it's getting less and less effective -- click-through rates have now fallen to 0.1% -- mass, low-value impressions are getting cheaper, helping to maintain viability (except for the consumer who has to sit through millions of untargeted ad impressions a year).

This mentality has trickled up to brand publishers, said IAB CEO Randall Rothenberg, who laments that media agencies tend to buy the web like TV, applying reach and frequency modeling and looking for volume. That's fine, he said, except that they're not paying for it like that.

"They say they want mass reach, scale, reach and frequency, but they want to pay for it as they pay for DR -- only if a sale is made," he said.

Wenda Millard, co-CEO of Martha Stewart Living Omnimedia and former chief sales officer at Yahoo, thinks online publishers have to do a better job educating about and selling more meaningful brand metrics.

"Publishers have to stand up for themselves and focus on your engaged consumer vs. I'm cheaper and converted 17,000 in just two hours," she said.

Resisting networks
There's the case of better managing inventory -- and the growing pool of unsold impressions. For the past several years, many publishers have relegated that to networks; the idea is selling it at a discount is better than not selling it at all. While some publishers have moved away from using networks because of this, the recession may make it harder for others to wean themselves from it.

"It's like crack," said Andy Chapman, co-head of The Exchange at Mindshare. "It's a pretty lucrative outlet and ensures there's minimal amount of unsold inventory. But on other hand [publishers] are worried about devaluing their brands. If I can go to a network and buy the same inventory I can buy from content site for 30% less, why wouldn't I?"

Fueling that problem is the overabundance of supply. Much of this has been due to the growth of social networking and online utilities, which create massive amounts of page views, but publishers aren't without fault. All those photo-based slideshows publishers love because they generate a new ad impression with every click? Why bother, unless you're sold out? It takes self-discipline to stop diluting the market.

"We don't retain clients by saying we got a 20% drop on CPM but because we say look at that reach, that ROI and the business result," said Julie Coulton, senior VP-director of digital media at Mullen.

~ ~ ~
CORRECTION: An earlier version of this story incorrectly cited Bain Capital as one of the study's sponsors.
In this article:

Comments (8)

Read These Next