Low CPM Rates Sow Discontent Among Publishers, Ad Networks

Any cultural psychologist will agree that in times of crisis or concern, tempers flare and folks begin pointing fingers. In revolutionary France, that meant throwing up barricades and taking up arms. But today, the current woes facing the online advertising industry — while significantly less bloody — are nevertheless a source of worry.

Both publishers and ad networks are renewing their focus on maximizing income amid decreasing media revenues and sinking CPM rates. And for many, that means taking a hard look at who’s serving which ads, who’s representing which sites, and how everyone is being paid. For publishers using ad networks, that means reconsidering their partnerships with networks and representation firms.

Some think it could be the start of something revolutionary.

Ad networks often provide a valuable service to sites by allowing them to outsource most, of not all, of their ad sales. But the way networks group their inventory with those of related sites — which makes it easier to promote the opportunity to advertisers — doesn’t show off publishers’ content to the best advantage, or so think publishers. That disagreement, heightened by the pressures caused by low CPMs, seems to be a recipe for discontent and defection.

Winstar Interactive, which positions itself as an alternative to the big ad networks, promises significantly higher CPMs to its publishers because its sites are sold individually, instead as part of a network or channel. It’s a significantly different strategy from the ad networks’ Run-of-Network and Run-of-Channel deals.

Sharing the individualistic philosophy is Phase2Media, whose founder, Richard Glassberg, said he started the single-site representation firm simply because “I’ve never believed in the network model.”

“The whole philosophy of this company is that advertisers buy brands,” said Glassberg, the company’s chairman and chief executive. “And advertisers don’t want to buy a bundled network of inventory it doesn’t know. We started [Phase2Media] for that reason, and we’ve been phenomenally successful. We don’t have a network buy or a network product.”

Some very rough math suggests that DoubleClick earned an average CPM rate of $8.90 last quarter, based on its Media unit’s revenue of $60.4 million, and a total of 185 impressions served. The actual average CPM is even likely to be lower, since DoubleClick doesn’t report impressions served on its ad network separately from those served by its outsourced DART customers, or on its email network.

Spokespeople from DoubleClick did not return calls or emails seeking comment by press time.

“What’s happening is that lots of sites are, with the downturn in dot-com spending, asking themselves if it’s worth it to be represented and sold as part of network of 200-300 other sites,” said John Denny, vice president for marketing and business development for Winstar Interactive, which said its CPMs average about $20 across all of its member sites.

The catch is that Winstar and Phase2Media won’t take on just any client — just sites which they see as having established brands. Winstar recently concluded deals with Entrepreneur.com, and Fodors.com, both of which came to Winstar Interactive from larger ad networks — Engage and DoubleClick, respectively.

It’s the same story at Phase2Media, which Glassberg said saw an average CPM of about $12 during third quarter.

“The ad networks’ publishers are coming to us,” he said. “We’ve turned down about 650 sites in last 18 months. Since these guys started collapsing, we’ve turned down 200 in last 60 days. I don’t believe that there’s a lot of desire for the networks. I believe the advertisers and marketers don’t buy the networks for their premium advertising buy. The reason people use us is that we sell them as a site.”

Entrepreneur.com joined Winstar from ad network Engage, which has recently undergone two major restructurings in response to revenue shortfalls brought on by the harsh ad market. The first, in September, saw the company cut about 175 jobs; the latest, this month, axed 550, or about half of the company.

Amidst those reorganizations, Entrepreneur.com executives felt lost in the shuffle and poorly handled. That perception, combined with waning CPMs, led it to look elsewhere.

“We had a wonderful experience with Engage up until the September timeframe, in which … that reorganization changed everything,” Entrepreneur.com president and chief executive Thomas Davin said. “There wasn’t really a clear focus of people who represented our site.”

“We used to have a business group located here in New York, who really understood the market, advertisers and sites. That group, more or less, began to disperse with the reorganization,” he said.

Engage corporate communications director Mark Horan declined to comment on the relationship with Entrepreneur.com, but said “the reaction thus far has been pretty positive to our restructuring.”

“I haven’t heard of anyone who’s left because we don’t have the right people to serve their accounts,” Horan said. “That doesn’t mean it hasn’t happened. But I think that we’ve kept the right people especially on the site acquisition team, which is the team that interacts with the publishers themselves.”

Davin said the biggest draw to Winstar Interactive for Entrepreneur.com was its focus on maintaining a small roster of publishers.

“We have one of the highest mixes of people who actually own a business or are starting a business,” Davin said. “They actually take action based on the things they find at Entrepreneur.com. And it takes people who really understand the site to sell its inventory.”

“Before, we were afraid we were going to get lost in the mix,” with Engage, he added.

Ad networks, too, are reconsidering their relationships with publishers. Engage has been renegotiating its contracts with many of its publishers, cutting payout from 60 percent of CPMs to 40 percent.

While the move was well-received by investors and financial analysts — the company has promised to stem its history of mounting losses — several smaller publishers noisily disapproved of the change.

But Engage fired back by saying it was bringing the payout back in line with industry standards, and that the company had long-extended overly generous terms to its low-traffic publishers. But Horan added publishers likely understand that Engage’s continued survival is in everyone’s interest.

“Probably, publishers realize that in order for our companies to remain viable, we need to get profitable, and to get profitable, we need to make some changes,” he said. “Therefore, what we’re doing makes sense, and it make sense for everyone who’s trying to advertise on the Web.”

“We’ve had some drop-off … but about 75 percent of the sites [with which Engage has opened renegotiation talks] that we’ve heard back from, have accepted the new terms,” Horan added. “So that shows, that even under a fairly harsh environment, people are, for the most part, sticking with Engage. They must be somewhat happy to be doing that.”

Horan declined to specify how much Engage’s sales forces were cut during its restructuring efforts. But he did say that Engage’s publisher retention is at the level anticipated by executives following the reorganizations and contract renegotiations.