Can AOL's 'Barbell' Ad Strategy Save Digital Publishing?

Protecting Premium Pricing While Embracing Real-Time Bidding

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Digital publishers have long cast a suspicious eye on the "programmatic" ad market, worried that allowing automated buying of their ad inventory would damage their high-margin direct-sold business.

With good reason: why would an advertiser pay top-dollar buying direct from a publisher when digital middlemen can offer the same audience and the same environment for a fraction of the price?

Publisher uneasiness with third-parties was on display last week when News Corp. announced it was creating its own private ad exchange, and banishing third-party ad networks in the process.

But a growing group of digital publishers believe they've found a way for premium and programmatic to coexist; it's called the "barbell" sales strategy, a term coined by AOL CEO Tim Armstrong. "The barbell strategy of our advertising business connects programmatic advertising on one side with deep marketing services on the other side and connects in the middle with data and analytics," he said on the company's latest earnings call.

Bench press
The so-called "barbell strategy" is being embraced in some form by a variety of publishers wary both of protecting the pricing of their premium inventory, while gathering up as much machine-bought "programmatic" ads as possible. Indeed, the real-time ad market -- where ads are traded through sophisticated Wall Street-like technologies -- is growing so fast it can't be ignored, growing nearly 74% to $3.34 billion in 2013 according to a new estimate from eMarketer.

According to AOL, the key to making the 'barbell' work is to sell both premium and programmatic together. The company claims the two work better when run in conjunction over time, and is likely to harp on this message at its "programmatic upfront" event during next month's Advertising Week. The marketplace, Mr. Armstrong said, has been receptive to the pitch so far.

AOL is hardly the only one that sees this strategy's virtues. Yahoo COO Henrique de Castro recently talked about a similar plan at Cannes, while publishers such as Scripps, Meredith, Pandora and the New York Times have all implemented at least some version of it. "The reason these guys are doing it is because the market is demanding it," said said Wells Fargo analyst Peter Stabler.

Client demand
Matt Prohaska, who joined The New York Times four months ago as director of programmatic advertising, said advertisers are asking for buys of this nature, and the Times is actively trying to sell them. "We're having conversations with at least one client a week where lightbulbs are going on at the client direct and they're saying, 'Wow, I can now have my brand budget and my direct response budget work well together.'" Mr. Prohaska, speaking with Ad Age last Friday. He said he'd had three such calls that day.

Credit: Tony Effik

Tony Effik, the vp managing director of media and connections at R/GA. said he's likely to spend more money with a publisher that can offer him a package of quality premium inventory along with programmatic, as opposed to just one or the other. "I personally prefer the idea of having fewer publishers on the media plan, so I would actually move the money," he said. "Makes my life easier."

Despite the excitement, the strategy isn't a cure-all for digital publishers.

When asked by Ad Age to provide revenue numbers tied to the strategy, AOL declined. "I can't give you sales figures since we are mid quarter," wrote an AOL spokesperson in an email. Without "barbell-specific" figures, it is difficult to say whether Mr. Armstrong's claims of success are accurate, but AOL's ad business seems to be moving in the right direction. The company reported advertising revenue growth in each of the first two quarters this year.

A stopgap?
While many advertisers have embraced running both programmatic and premium campaigns, not all are sold on running both in the same place. Mr. Effik said that R/GA does run ads with AOL, but only premium, not programmatic. "The clients we have that work with AOL tend to just want to do the premium stuff with them," he said. "We get the programmatic elsewhere."

Further, publishers hoping to get a big upfront commitments on their programmatic inventory may be disappointed. "I have yet to see the value of buying programmatic upfront," said Julian Zilerbrand, SVP and global digital director at Starcom MediaVest. A publisher has to prove its combination of programmatic and premium performs well in order to receive investment, he said.

There's also the possibility that the "barbell" is just another stopgap measure for publishers as the world goes programmatic. As automated programmatic buying continues to grow, the share of premium, direct sold dollars will likely go down, leaving publishers in a tricky place no matter how well they package the two together.

"I do see this as a transitional phase," said Mr. Effik. "It's almost like a fight against the trend."

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