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Growing Fees Slow Spot Automation Growth

Per-transaction fees and resistance by walled gardens are hampering the development of tools to streamline the complicated world of buying and selling spot TV advertising.

It’s been two years since TV station groups unveiled the TIP Initiative, designed to simplify the process of buying and selling spot TV advertising. (For a spot automation timeline, click here.)

No one predicted the task of automating spot TV sales would be easy, but station group VPs and their counterparts on the agency side are growing increasingly frustrated that proliferating per-transaction fees are slowing down the process.

“There are a couple of forces that are impeding our progress,” said one station group official, requesting anonymity. “One is the fees. Everybody wants a cut. And there’s not enough reservoir to give everybody water.”

Some involved in the negotiations say that when all the fees along the supply chain, from agency software management systems like MediaOcean and FreeWheel, to traffic and billing platforms provided by WideOrbit and Imagine, are added together, they amount to about 1.5% of a given transaction. That comes on top of the commissions, averaging about 4.5% to 6% for large station groups, that many stations pay to rep firms.

To the untrained eye, 1.5% might not sound like much. But given that broadcasters transact billions of dollars in national spot each year, it can run into the tens of millions of dollars.

“If the cost gets too high, it comes right off our margin,” says Frank Comerford, chief revenue officer and president of commercial operations at NBCUniversal Owned Television Stations division.

BRAND CONNECTIONS

Comerford says NBCU is willing to pay a fair amount for a technology provider that’s giving the company something that it’s requested and brings about efficiencies.

NBCU Owned Television Stations’ Frank Comerford

“I’m not expecting anyone to sacrifice their money to make me more money,” he says. “But I do expect our partners to work with us in a reasonable way for the good of both companies and the industry.”

The fees already tied to automation will climb further, because the demand-side platform Hudson MX, which has been deriving its revenue from agencies thus far, is planning to begin charging stations for the use of its platform and technology as well.

In addition, WideOrbit, the dominant traffic and billing provider to local TV, anticipates upping fees as it enhances its complementary sell side platform.

Vendors’ Case For Fees

Vendors say the fees are justified.

“To put this in perspective, vendors such as ourselves — collectively with Videa and WideOrbit and others — we’ve literally spent tens of millions of dollars in working to improve the underlying infrastructure,” says Jay Stevens, president of Hudson MX. “That’s something that needs to be recouped.”

Hudson MX’s Jay Stevens

Stevens adds that the fees Hudson will charge stations will be a fraction of a percentage point.

“It’s important for the sell side to make that investment in funding that R&D and ongoing development,” he says. “Being able to build APIs and having data move across systems is only the first step. And even that requires product and engineering work, ongoing iteration of consistent communications.”

WideOrbit fees will climb to 1% as its platform becomes “more robust and comprehensive,” says Mike Zinsmeister, CRO. Such enhancements would include automated air times, makegood recommendations and improved handling of invoices.

WideOrbit’s Mike Zinsmeister

WideOrbit is also likely to add fees for more robust tools, such as price optimization and yield management. “They will be both optional and priced reasonably so that sellers can compare them to market alternatives and make informed decisions,” Zinsmeister explains.

Ted Kramer, EVP sales at ProVantageX, believes the advantages of automation easily justify the price tag.

“We’re already in contract with over 450 TV stations once agencies move into contract,” he says. “So we’ve already established value that stations will pay to transact business through ProVantageX.”

Videa’s Shereta Williams

Is consolidation of the platforms a way to bring down the fees? “If folks want a really small fee for these platforms, the only way to make that work is to do large volumes of business at that small fee,” says Shereta Williams, president of Videa. “Otherwise, it’s not sustainable for anyone.

“I honestly think you want best-in-class software in this space,” she says, adding it’s not possible with small fees, unless the volume is large.

Walled Gardens’ Fees

The buck doesn’t stop with fees broadcasters pay directly to automation providers. Those providers also have to pay fees to connect to walled gardens controlling data that currently must be manually downloaded and then uploaded into sell side platforms when sales reps are working on campaigns.

“People who have control of those flows aren’t going to let people in,” says one broadcast executive. “One of them is Mediaocean, and the other one’s WideOrbit.”

WideOrbit, for example, will charge fees to sell-side platforms wanting to connect via API to its traffic and billing database.

“Our understanding is that they are proposing different fees for different partners, and the fee they floated with Videa was more than some of our customers pay us,” Williams says. “To be clear, Videa is currently able to provide sales workflow automation without direct integration with WideOrbit’s Unified Sales Console.”

Empower’s Michele Toller

Agencies face similar issues with slow progress by demand side platforms. “There’s unnecessary lag time,” says Michele Toller, VP Media at the agency Empower. “We should be much further ahead than we are currently.”

Toller says much of the front-end work can be done through Hudson MX. However, she notes any time savings is negated during the process of uploading and maintaining the schedules in Empower’s media-management platform, MediaOcean.

“It’s very laborious,” she says.

It’s difficult to say if or how much the wrestling over fees is slowing down automation of the most complicated part of the spot TV buy/sell process: makegoods.

Right now, “the mechanics of handling the makegood is a manual process,” says NBCU’s Comerford. “The makegood must be matched to the spot missed, reentered into WideOrbit Traffic then sent to the client or agency and then they need to accept and send back. None of these steps are automated.”

In order for complicated pieces of the automated pipeline, like makegoods, to be fully developed, a few steps must take place.

Tegna’s Kurt Rao

“One is for the technology and the pipes to exist and be able to interact between buy side and sell side, and those are coming along, slowly but surely,” says Kurt Rao, CTO at Tegna. He expects broadcasters will be doing some testing in the first half of 2020.

The second part that’s needed involves the business rules governing makegoods. “That conversation is still a little further behind,” he says. “Everyone wants to make sure that the tech will work.”

Early iterations haven’t been inspiring, according to one station executive. “There are lots of bells and whistles, but when you get down to the nitty-gritty, there needs to be a greater effort placed on improvements and training.”

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