Sizing Up And Improving Your Digital Ad Sales

I don’t think anyone questions the increasing importance of digital ad sales to a station’s bottom line. The question is really around identifying the best way to compete effectively for those dollars.

As a recent TVNewsCheck Sales Management Special Report observed, “to keep pace in today’s dynamic media ecosystem, TV station sales departments have had to change how they operate. They have shifted their focus from competing mostly with other TV stations to competing with all other local media as well as national digital media with an interest in local markets.”

The report touched upon several trends that highlight the industry’s focus on organizational shifts that align with digital ad sales opportunities. One change has led TV sales managers to look for account executives “who are skilled in selling digital media and who can hit the streets to drum up new business.” 

The other powerful shift involves multiplatform — or what has also been called “360” — selling, where stations create integrated solutions that package inventory on their websites, mobile apps and digital subchannels as part of helping local advertisers achieve their sales and marketing goals. 

Michael O’Brien, VP of sales at E. W. Scripps, told TVNewsCheck: “Our pitch is that we can reach consumers no matter where they are, whether they’re on their mobile phone first thing in the morning or watching on the iPad while the game is on the big screen or if they’re watching something on the phone while they’re standing in line at the grocery story.”

There’s no-one-size-fits-all when pursuing these digital advertising opportunities. For example Jerry Martin, GM of Post-Newsweek’s NBC affiliate KRPC Houston, told TVNewCheck they prefer a “hybrid” approach. “We may always stay there with traditional salespeople who are comfortable in transactional business. And then there are people who can develop new business on the TV side and digital side. They will be the new superstars. That’s kind of what we have now on our sales force.”

The industry’s financial management community is and should be focused on how ad sales departments are reorganizing as part of the digital advertising pursuit. Currently, as Borrell Associates’ Gordon Borrell has pointed out, these revenues represent digital dimes compared to the dollars that traditional media continues to attract, which means cost of sales might need to be aligned with the opportunity.

In fact, Borrell’s research has highlighted a number of financial management considerations arising from how companies structure their sales efforts.

One of his findings has been the relatively high operating margins for digital ad sales units that operate “independently” from the station or company’s traditional media sales team. “The average EBITDA margin (earnings before income, taxes, depreciation and amortization) for local digital operations that are leveraged out of traditional media companies is 49%.” In fact, one broadcast CEO told Borrell his Internet ventures contributed 6% in company revenues but 8% of company profits (EBITDA) last year.

But wait, before you use these finding to justify creating an independent digital ad sales operation, let me explain why I placed quotation marks around “independently.” 

Borrell’s research shows that these sales units don’t pay all of the same operating expenses as their traditional media counterparts. For example, “The vast majority of these local media operations aren’t charging their digital units for rent, advertising and content — things that are already paid for by the host company,” according to Borrell.

Even if digital ad sales operations aren’t seeing a true 49% operating margin, they do seem to deliver more net revenue than their traditional ad sales counterparts. Borrell says pure-play companies that are factoring in those charges, still reported margins that were “a respectable 20% to 30%.”

Something else to consider is the risk of not investing enough in digital ad sales initiatives. Just last fall Borrell commented, “Traditional media’s relentless requirement to do more with less has led to underperformance in the fast-growing digital space…. While I’d agree that digital media offers product extensions for existing newspaper, cable, TV, radio and magazine customers, I’d also say that a far bigger opportunity exists.”

Participants in our November webinar, Budgeting for Digital in 2014: Thinking Big Pays Off, were able to focus on the scope of that opportunity. As part of his presentation Borrell reviewed the market-by-market analysis contained in his firm’s Digital Forecast for 2014.

When asked how TV stations and other local media businesses should be approaching the digital media ad market, Borrell replied that most of the media companies he has studied view digital media as a product extension. He says they are applying the same growth rates and margin requirements used for their traditional business lines. “The result is that they chase the wrong digital products, shut down some digital experiments too soon, and almost always experience mediocre growth in digital revenue.”

In contrast, Borrell’s research shows organizations that view their digital ad sales operations as a start-up business are better positioned for realizing broader growth opportunities. “Companies that start the process by asking ‘How much could we be making?’ will find it can be anywhere from three times to as much as 10 times more than their current digital media revenues. When they see that — and believe in the validity of those numbers — big things start happening.”

It was these observations from Borrell that underscored for us the importance of creating the right benchmarks for the industry’s digital ad sales operations. In Borrell’s own words, the growth metrics used for traditional ad sales, coupled with making digital sales a mere extension of current ad sales operations, are undervaluing what stations should expect to accomplish in the digital ad space.

In response to this need for better data, Borrell Associates has teamed up with MFM to develop some digital ad sales metrics. We worked with Borrell to poll our members last month. The company is combining the results of that study with data gleaned from other research projects to come up with the first comprehensive look at contributions from digital ad sales efforts. 

Gordon Borrell himself will present the findings at Media Finance Focus 2014, the 54^th annual conference for MFM and our BCCA subsidiary. The conference will be held May 19-21 in Miami. All MFM members in good standing will receive a copy of the completed report after the conference.  

Borrell will also be a featured speaker at Media Finance Focus’ invitation-only CFO Roundtable, scheduled for Tuesday, May 20. In this forum industry leaders will dive more deeply into the proprietary data collected from the benchmarking initiative.

Media Finance Focus serves as the industry’s primary source of professional education for financial and business executives. More information about this year’s conference and the 75-plus sessions we have planned may be found on MFM’s website.

While its location is certainly one reason for our conference theme of “Radiate Success,” the digital ad sales metrics report, along with presentations from more than 175 industry experts, is designed to provide the type of actionable information that our attendees can use to help their organizations radiate success within the industry.

With agencies such as ZenithOptimedia forecasting digital advertising to grow at a compounded annual rate of 16% per year, optimizing digital ad sales operations is going to be one of the best ways for stations to radiate success in 2014 and beyond.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. She can be reached at [email protected]. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.