YouTube, Hulu, NBC Try Direct or Private Ways to Automated Buying

Video Advertising Enters the Programmatic Space

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More and more banner ads are auctioned off as though they were second-hand merchandise sold on eBay, while video has remained the last bastion of traditional ad sales due to its relative scarcity and tech hurdles.

But now that's changing: Video advertising is increasingly being bought and sold using sophisticated algorithms, or "programmatic" buying.

Hulu's exchange is a walled garden.
Hulu's exchange is a walled garden.

Over the past two years, Google's DoubleClick ad exchange -- home to YouTube's inventory, among other publishers -- has seen a 200% jump in inventory made available programmatically by publishers and triple-digit revenue growth for programmatic-video ads. DoubleClick Product Management Director Rany Ng said auto and retail advertisers have quadrupled spending on programmatic video in the last year.

Forrester projects advertisers this year will spend $686 million buying video ads through real-time auctions, a 71% rise from last year that will reach $1.1 billion next year. However, that's still a sliver of advertisers' video budgets. The firm estimated that video-ad spending will hit $3.6 billion this year and $4.6 billion in 2014.
That advertising's premier auctioneer Google takes bids for YouTube ads in real time is as unsurprising as sales-heavy Turner keeping its video content away from automated exchanges. But even TV's closest digital proxy, Hulu, has dipped its toes into the programmatic pool. "We've been beta testing an ad exchange in the past year," said a Hulu spokesperson.

Rather than seeding its supply within free-for-all open marketplaces, Hulu's exchange is a walled garden. It is limited to Hulu inventory, like the pre-rolls that stream before an episode, and only a select number of ad-tech partners can bid on those slots in real time for their clients. To avoid cannibalizing direct sales, Hulu is pricing ads sold through the exchange higher than those sold by its sales team, according to people close to the situation. Hulu declined to comment.

Programmatic direct
Alternatively, premium-video publishers are looking to automate their direct-sold deals. For its digital-video content, NBC is considering this "programmatic direct" compromise in which its ad-sales staff would negotiate custom packages with advertisers, then plug those orders into an automated process, according to people familiar with its practices. An NBC spokesperson declined to comment.

Advertisers would prefer programmatic direct deals to publishers' private exchanges because the former can guarantee how many ads a buyer would receive, said Scott Ferber, CEO of video-ad server Videology.
These direct deals have become automated video ad-buying company TubeMogul's fastest growing source of inventory, rising from near-nothing to 1.4 million ads a day in the span of a few months. Still that's not nearly as many as the roughly 44 million ads bought in real-time auctions through TubeMogul each day.

"Programmatic direct or private marketplaces, they have definitely crossed the chasm. We're seeing it in the most-premium publishers that embrace programmatic, from The New York Times to Viacom to Discovery," TubeMogul CEO Brett Wilson said.

When will programmatic overtake TV? Satellite carriers DirecTV and Dish Network already automate the sale of some TV spots, but Magna Global North America President Kristi Argyilan said the TV slots available programmatically are leftovers not sold as part of TV networks' annual upfronts.

Meanwhile online video publishers like AOL have begun selling their content in the same marketplaces as that excess TV inventory, said Cordie DePascale, VP-product at ad-software company MediaOcean.
The ultimate sign that programmatic has overtaken traditional buying would be the automation of TV's annual upfronts, which Ms. Argyilan said isn't too far on the horizon. How far? "A couple years."