New York Times Co., Hearst, Tribune and Gannett Form Private Online Ad Exchange

Local News and TV Properties Are Latest to Cut Networks, Other Middlemen, Out of the Market

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The nation's largest newspaper and local TV companies have created a new system to sell online advertising in a private exchange, part of a growing shift by publishers to take control over the digital ad-buying process in an attempt to raise ad rates.

The New York Times Co., Hearst, Tribune and Gannett will start selling the bulk of ad inventory for its newspapers and local TV stations in a closed system to be administered through the consortium's joint venture, called QuadrantOne. While the news publishers had formed that venture in 2008, the new selling system restricts almost all of the consortium's inventory of web pages to a single entry point.

It's the latest group of publishers to attempt to raise ad rates by forming an exchange, following media companies such as CBS Interactive, Forbes and Weather.com. The new exchange means the papers and TV stations will stop dealing directly with ad networks, though networks will be free to buy from the exchange like any other advertiser. The exchange won't include the biggest online properties owned by the joint-venture partners: NYTimes.com, USAToday.com and About.com.

The private exchange signals a renewed seriousness on the part of publishers to reclaim ownership over its ad inventory -- even that which they cannot sell directly -- from a middle layer of companies including ad networks, data firms, ad-serving technologies, verification companies and others which siphon off a fair chunk of the costs that an online publisher would charge to an advertiser.

"This is really a major strategic move for the owners and a way to get ahead of where the market's going," said Michael Zimbalist, part of the New York Times Co.'s research and development arm and a board member of the joint venture. "The market's been craving something like this."

The group of news companies created the joint venture a few years ago to create an alternative to this process and retain more advertising revenue, but each company only allotted about 10% of its inventory to the consortium. The venture will now pipe all of its pages through the private exchange, called Q. The media firms will still sell ads through its direct-sales force, but the latest change is significant since the rest of the inventory will now only be available through Q and will not be funneled to any ad networks or other exchanges.

But whether that means publishers will see more ad dollars flowing into their coffers remains to be seen. "We're going to see a lift for sure, since we're obviously going directly to the buying community," Mario Diez, CEO of QuadrantOne, said. "But it's difficult to answer in specifics of exactly how much more we'll get."

Mr. Diez said that because the private exchange offers a guaranteed set of what he sees as premium content, brand-focused buyers are likely to pay more than they would for the so-called blind inventory that is commonly available on ad networks where advertisers are purchasing targeted groups of audiences irrespective of which websites they're visiting. "We're providing structured inventory," Mr. Diez said, pointing out that an advertiser will be able to buy a targeted audience as well as a particular content placement within the private exchange. "That is much more valuable to a brand marketer."

The purpose of the exchange is to better leverage local ad properties, but Mr. Zimbalist said the national brands -- USA Today, New York Times or About.com -- may play a part in the private system down the road. More immediately, the joint venture is looking to capitalize on mobile advertising.

The exchange is open to any ad buyer, but is already being used by buying agencies, such as MEC, which sees this exchange as a way to cut through the clutter of ad networks. "One of our goals here is to remove the middlemen in the equation, like ad networks," said Rich Astley, a senior partner and practice lead for MEC. "We think, generally speaking, it's a premium that's worth paying for, but performance does speak for itself, and that remains to be seen."

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