More NewsStudy: Publishers Slashing Prices to Dump Excess Inventory

Study: Publishers Slashing Prices to Dump Excess Inventory

Publishers turn to ad networks to sell 30 percent of all ad impressions in 2007, up from 5 percent in the prior year.

Online publishers have dramatically increased their reliance on ad networks to sell excess inventory in recent years, but may be losing money in the process, according to a new benchmarking study by the Interactive Advertising Bureau and consulting firm Bain & Company.

The “Digital Pricing Benchmarking Study,” released yesterday, found that publishers used ad networks to sell 30 percent of all ad impressions in 2007, up from only 5 percent in 2006, for an increase of 600 percent. Among the primary reasons for the shift is that publishers are racing to create more inventory but are unable to sell all of it through their direct sales teams.

But while ad networks help unload that excess inventory, they do so at a steep discount, as much as 90 percent less than what publishers get from direct-sales ads — a “foreboding” development, according to the study.

“There is a message here for both publishers and networks about being better partners and indications going forward for how to best manage inventory and sales relationships,” said Sherrill Mane, senior vice president, Industry Services of the IAB. “This study is an opportunity to begin to understand some very complex marketplace dynamics.”

Higher CPMs will benefit both publishers and ad networks, the study said. So each party should take an active interest in establishing clearer guidelines and best practices. Publishers should focus on more closely managing their inventory, while ad networks should focus on working more closely with publishers.

“Online publishers are producing more inventory than the market demands, and risk devaluing the premium nature of their brands, particularly in light of ad networks growth and their dramatically lower pricing,” said John Frelinghuysen, a partner in Bain’s Global Media Practice and study author, in a written statement. “Building more effective relationships between publishers and ad networks is critical. In the longer-term, both parties will benefit from gains in ad network CPMs.”

The study also found that online publisher revenues grew by more than 30 percent in 2007, while ad network revenues grew more than 50 percent, both driven by marketers moving their ad budgets online. It also found that premium video inventory was in high demand, resulting in CPMs two to three times greater than the average for display ads — a finding that Mane called “surprising but gratifying.”

“Everything we had already heard about video selling out and being in high demand was confirmed here,” she said. “It’s always a pleasant surprise when what you heard is borne out.”

The pricing study — the first of what the IAB hopes will be a series of benchmarking studies — was conducted through executive interviews and data analysis involving seven of the largest online publishers.

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