Kill or Cure: How Reckitt's Big Buy Rocked Online Ads

$20 Million Seemed to Boost Medium -- Until Giant Hammered Prices

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NEW YORK (AdAge.com) -- Last spring when Reckitt Benckiser said it would take $20 million of its marketing budget out of TV and pour it into web video, it sounded like manna from heaven for a medium starved for dollars and attention and in the teeth of a recession.

But then web video execs saw the fine print: this wouldn't be a fat Hulu.com-like video buy where it can cost $40 or more to reach 1,000 viewers on shows like "30 Rock" and "Arrested Development." Nope, Reckitt was looking to buy pre-roll at $2 to $4, or even as low as $1, rates comparable to remnant display-ad inventory sold on an ad network. Think news video, casual gaming and low-end lifestyle sites, all of which can stand in as proxies for the daytime TV audiences that Reckitt wants to reach.

What's more, Reckitt Benckiser set up an elaborate reporting system to assure it never pays for an impression when it shouldn't. Reckitt won't pay for an impression when an ad is requested from its ad server -- as is typical -- but only when an ad completely loads, along with technology that initiates a consumer click to finish the pre-roll ad and start the video.

So, the marketing world, and particularly the niche of online video, was left with a conundrum. Video sites had waited for years for the first big, bad package-goods marketer to shift a piece of its massive TV budget and take a flier on the space. And Reckitt Benckiser, with its scientific marketing, $475 million measured-media budget, and brands such as Lysol, Jet Dry, Air Wick and Clearasil, certainly filled the bill.

But Reckitt turns out not to be the white knight video execs were expecting. It's wielding a hefty budget, true, but demanding such a low CPM rate that even video ad networks took a pass, let alone publishers trying to stay afloat in a down advertising market. Initially, four ad networks -- all venture-funded startups -- agreed to take the buy, Brightroll, Glam Media, TidalTV and Yume. That was an unpopular decision among some of their peers, both publisher and ad networks, who feared the buy -- probably the biggest single investment in web video by a marketer -- would drag down rates across the market.

Misstep?
"The question is, are they losing money on that deal? Likely," asked one media CEO of those that took the buy and who, like others consulted for this article, would very much like to do business with Reckitt Benckiser in the future and asked not to be named.

"I think they are making a mistake in their media strategy, because Reckitt is about premium brands; it won't showcase those brands -- it will schlock them up," said Doug Knopper, CEO of video ad server FreeWheel.

So far, video ad network Brightroll is the biggest recipient of Reckitt's big video spending, and CEO Tod Sacerdoti said it is not losing money. "It's not a loss leader at all," he said. "The reason we wanted to be involved with an advertiser like Reckitt -- aside from the money -- is it is pushing the market in ways most marketers are unwilling or unable to do."

Networks typically keep a fixed percentage, like 40%, and pass 60% on to publishers.

Reckitt Benckiser declined to comment for this article, but Adam Kasper, senior-VP of digital media at its agency, Media Contacts, said the biggest challenge was actually getting the inventory at the budgeted rate. So far the campaign, which began in April, has served 5 billion impressions, and Mr. Kasper believes it will take until December to spend the rest of the $20 million. Part of that is legwork on Mr. Kasper's part, cajoling once-reticent publishers to take the campaign.

A favor
Break Media took some spending for sites like Screenjunkies, and also acted as a guide to help Mr. Kasper and Reckitt source the kind of video sites that would qualify. "Some thought Reckitt was trying to cheapen the marketplace," said Andrew Budkofsky, Break Media's senior VP-sales. "Every advertiser thinks 'premium' is different. We felt there was a range of CPMs at any given time and that it made sense for us."

Mr. Kasper, an avowed fan of web video who does plenty of business on the high end buying $40 CPMs on Hulu, believes that Reckitt is actually doing the market a favor by exposing the sheer volume of inventory that can be had and paying a fair price for it.

"The online video market has been overinflated for years," he said. "To the extent this campaign has helped bring it down makes it more palatable to clients. The truth is, online video as a channel is never going to succeed at costs that are higher than TV."

Moreover, not all online ad execs see the buy as bad news. "I actually think it did publishers a favor by drawing a brighter line between different types of advertising," said Michael Henry, former sales chief at Veoh, now CEO of video rep firm Outrigger Media. "There's certainly a place for remnant or direct-response TV dollars to run in online video, but that's going to look like commercials running between analog episodes of "Happy Days" at 2 a.m., not a demographically-targeted mid-roll on "CSI."

Reckitt and Brightroll are jointly funding a Nielsen study no doubt proving some aspect of its effectiveness, and plan to make a big deal of it in the fourth quarter. Some online ad execs fear the outcome. What if the campaign turns out to be an unqualified smash hit? Then it validates a strategy that if repeated by the rest of the category puts content owners and probably even some ad networks out of business.

Looking up
For his part, Mr. Kasper is pleased. The campaign has gone swimmingly from Reckitt's perspective. Business is booming: Net income was up 17% on an adjusted basis in the second quarter while the video campaign was underway. Reckitt plans to renew the campaign for 2010 -- and perhaps even increase it. More and more sites are coming around, so Mr. Kasper has every reason to believe he will have better inventory to work with next year.

What's more, the outlay was big enough that Reckitt and all the partners involved -- some 12 took significant spending -- will come out with better research than has ever been generated on the effectiveness of online video as a marketing channel compared to TV. The downside? They can use it to win more $2 CPM buys.

But many believe a marketer like Reckitt had to wreck the online video marketplace in order to save it. Without the volume, no credible comparison to TV is possible. Without TV dollars, online video looks like on overlay text ad on YouTube.

"There is a false equilibrium of ad rates, and they exposed that," Mr. Sacerdoti said, referring to the premium video sites that make a living charging high CPMs and constraining inventory. "There are lots of sites that have aggregated very large audiences that have different price tolerances than the broadcasters."

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