"Conversations have definitely picked up," said Ron Amram, VP of
media at Heineken USA, regarding what agencies are calling
The payoff: Potential for new income and an alternative sales
pitch to marketers. "It's a way to get a good deal on inventory,
depending on the media vendors' financial needs throughout the
year," said Dave Penski, chief investment officer for Publicis Media U.S.
Principal-based programmatic buying, often referred to as
arbitrage, is already common at media agency networks' digital
buying arms and trading desks, such as WPP's Xaxis and Omnicom's Accuen. It usually
requires marketers to agree to pay a bundled price and waive their
right to see how much agencies originally paid for inventory and
made on fees.
But there are risks for agencies now expanding their
principal-based buying operations beyond just programmatic.
Clients' needs could change after agencies purchase print, TV or
other advertising with them in mind. Agencies could lose money if
ad prices fall before they sell what they've bought. And conflicts
could arise if the need to sell off inventory tempts them to
recommend it to clients.
"There is a conflict of interest," said Mr. Amram. It's
manageable if the client isn't buying such inventory from the same
agency that handles its day-to-day media buying, he said. "A
holding company could be doing principal-based buys, but they
should not be selling to existing clients," he said.
Some marketers see the appeal, but it's not for everyone,
especially at a time when the Association of National Advertisers
has put a spotlight on media buying practices with an
Kargo, a firm that sells digital
advertising and the technology services to target specific
audiences with it, is currently in talks with a holding company's
media agency network about selling it large amounts of inventory.
The agency network would buy the inventory at a discount and then
be on the hook to resell it to clients.
Kargo CEO and founder Harry Kargman said it's the first time the
company is in talks to do this kind of deal on a large scale. The
media agency network could buy all at once or in smaller
increments. "They can determine whether they want to take a
principal stake and buy ahead of time so it's locked up, or risk
the price going up and not having inventory," he said.
Publicis Media, through its two-year-old Apex Exchange, is
making principal investments in both traditional and digital media
inventory that it then resells to clients. It's also buying as
principal when there's an opportunity to co-create content and take
a stake in that content, "to give clients an advantage in price" or
"a first look," Mr. Penski said.
While it's currently small -- only about 25 people out of the
network's 2,500 investment arm -- Mr. Penski said he expects to
take it into new markets and nearly double that headcount by the
end of the year. "We'll grow as we see client demand," he said.
The trend is being fueled partly by changing compensation
models, replacing structures pegged mainly to full-time employees
and media spending, as well as marketers' desire to pay their
vendors more slowly. "We have to provide multiple go-to-market
options for clients," Mr. Penski said. "A one-size-fits-all model
of FTEs and commissions is not going to work."
"Clients want extended terms," he added. "Vendors are really
struggling with this along with agencies. Because of this,
alternative business models are coming up and being created to deal
Apex also includes programmatic buying. "We either have to
partner with a third party or take on that risk ourselves," Mr.
Penski said. "We are very clear with clients where we've made an
investment." Those clients waive their right to transparency on
costs and fees.
Omnicom Media Group's Omnet is similar to Apex in that it buys
up media based on what it thinks clients will want to buy, and then
sells it to clients just as a media company would sell its
inventory in the scatter marketplace, according to people familiar
with the operation. Unlike Publicis Media's approach with Apex,
however, Omnicom handles principal-based programmatic buying
through its separate programmatic buying arm and trading desk,
Accuen. Omnicom declined to comment.
"Is this happening? Yes," sais Doug Ray, CEO of Carat U.S., though he noted that
neither Carat nor its parent DentsuAegis are currently taking
principal positions on inventory in the U.S. "It's certainly likely
we'll see a trend moving forward."
The shift toward more principal-based buying is driven by
"clients looking for more flexibility, continued pressure on
pricing and agencies looking for alternative opportunities to
increase margin," Mr. Ray added. And it's happening "within the
construct of it being contract compliant," he said.
That said, Mr. Ray noted, "I don't think it'll be as significant
a percentage of the market. It represents a fraction, at least for
now and in the foreseeable future."
"I definitely think there's a ceiling in the 5% to 10% range,"
said Heineken's Mr. Amram, regarding the share of media buying that
principal-based buying could represent. "It will ebb and flow, but
it really depends on inventory and times of change and pivot, and
we may potentially be at one now."
"I don't think it's going to be more than 20% of the market,"
said an angency executive who wished to remain anonymous. "Today
it's probably less than 5%."
Still, one agency executive said he's seeing a boost in demand
from clients for these kinds of buys as they look for more
"financial flexibility." It started with the shift to digital,
which is purchased on a short-term basis, he said. Traditional
media commitments are longer and bigger, with less flexibility for
It's also gotten easier for agencies to take on these kinds of
risks, he said. "We've got much better data than we used to. I can
take a principal risk on properties that I know my clients are
going to have demand for based on data and analytics to support
He agrees that principal-based buying is only going to assume a
small percentage of the market, but the growth of this kind of
business depends on what happens in a "digital world." "Legacy
pricing is what's driving the majority of what's spent in media
now," he said. "When you move to biddable places in a new world,
who knows how that changes."
"It could go one of two ways," said another executive. "Either
the client bodies putting pressure on us decide they have to clean
up their own act as well, and then things go back to the way they
used to be in the legacy days, or the short-term pressure increases
and we do more principal activities. I would bet on it getting
In a suggestive development on that
front, executives with experience in principal-based programmatic
buying are moving into leadership roles at individual agencies.
Xaxis' Brian Lesser is now overseeing the larger GroupM network in
North America, and Omnicom Media Group recently appointed Annalect's Scott Hagedorn as CEO of
its new media agency Hearts and Science.
"There is a movement of thinking from the trading desks and the
more novel business models into the AOR, which then changes the
direction and thinking of the AOR from the inside," said Mr.
Kargman, the Kargo CEO.
~ ~ ~
An earlier version of this article said DentsuAegis took principal
positions on inventory in its barter operation. It does not.