The Online Automotive Upfront, Part Two

Today, the TV upfront is often badmouthed by media buyers, who argue networks force them to pay inflated prices in advance or risk being left with undesirable inventory for later scatter buys.

By contrast, the agencies that represent automakers in their quest for online inventory are enthusiastic about allocating media buys upfront. They say it removes the considerable labor and risk associated with bidding year-round on scarce inventory in a hot medium.

Good for the Buyer?

“I think we get much better rates buying upfront,” said Dov Herbstman, interactive strategy supervisor for TBWAChiatDay, which represents Nissan and Infiniti. “With Nissan and Infiniti, we come in together with a certain amount of money, we’re able to leverage better CPMs, and we may even get custom packages. It’s better than if we bought on a spot basis.”

“Most important for our client is that we’re able to secure the appropriate inventory and not worry about being left with the scraps,” Herbstman said.

So how does it work?

There are relatively few top-tier automotive publishers, resulting in a lot of jockeying for a finite number of ad pages.

But manufacturers don’t just buy run-of-site. Frequently, they’ll make a few high-profile category sponsorships, then focus their attention on detail pages which provide information on specific models.

Typically, auto sites give manufacturers the first right of refusal on ad inventory appearing on their own detail pages, meaning that a company gets to be the first to bid on pages featuring its own cars. It’s called retention advertising, and it’s a defensive strategy.

“They don’t want competitors to advertise on those pages, so they buy the pages out,” said Mitch Lowe, president and CEO of Jumpstart Digital, which represents automotive publishers. “Ford will want to make sure that 50, 70 or 100 percent of the time someone’s on an F-150 page, its ads are there as well.”

Whichever of its own detail pages a company declines to purchase may then be picked up by competing manufacturers, as part of a conquest buy.

“Kelly Blue Book may say to GM, ‘Would you like to buy all the inventory on GM auto pages?'” said Julie Ask, a senior analyst for Jupiter Research, which shares a parent company with this site. “If GM agrees to buy only 90 percent, KBB then goes to its competitors and says, ‘GM’s not buying out all the inventory on its cars. Do you want five or 10 percent of it?'”

Launch times are also crucially important, frequently accounting for buys on consumer Web sites such as MarketWatch.com, Yahoo’s home page and other Web destinations with no special focus on cars.

“Ford may want to be on Explorer pages year round, but they’ll heavy up during launches,” said Lowe. “They’ll do homepage sponsorships, category sponsorships and buys on non-automotive Web sites.”

Spending

The automotive sector is one of the biggest spenders on advertising. Some estimates place combined manufacturer and dealer spending at $8 billion, or one out of every eight advertising dollars.

The amount that manufacturers spend online is dismal in comparison, ranging from two to four percent depending on who you ask. However, analysts expect the Web’s share of automotive marketing dollars to increase sharply.

“Automotive is one of the biggest categories of online spending, but the percentage of their overall marketing spend online is still pretty small,” said Forrester analyst Charlene Li. “As the Internet becomes more important in the marketing mix, that number will grow.”

Jupiter Research estimates the auto sector’s online ad-spend is $288 million, but by 2008 it will grow to $1.6 billion, a figure that includes both manufacturer and dealer spending on IAB standard formats and sponsorships.

Lowe agrees: “The car companies know they should be spending 10 to 15 percent of their budgets online,” he said. “I think as broadband increases, as rich media becomes more sophisticated, and as agencies figure out how to improve their interactive side, we’ll see the budgets rise.”

He adds that agency structures tend to hinder online spending. He predicts spending will increase once agencies learn to restructure in such a way as to prioritize interactive for clients that benefit from it most.

“There’s a bigger issue in that the interactive department is the least profitable of the agency,” Lowe said. “These companies have already pressed their agencies on commissions as far as they can go, and that was before they set up an interactive department.”

He added, “If there’s a disconnect now, it’s between the interactive part of the agency and the head part.”

Upfronts in Other Sectors

Question: So why aren’t we seeing online upfront buys in other sectors? Answer: We are, only less so.

As mentioned in part one of this story, one reason other industries heavily impacted by the Web, such as travel and finance, are not experiencing quite the same fervor for online as automotive is that they’re typically lower consideration purchases.

However, that doesn’t mean they shouldn’t be engaging in upfront buying.

“If marketers are smart, they’ll commit very long-term, especially if online advertising is working for them,” said Forrester’s Li.

Some of them are. Li said that in entertainment, finance and travel, advance media buying has become commonplace, though she’s not aware of any full-year upfront buys.

“You’re seeing it in various sectors, notably financial services and entertainment,” she said. “Film studios all want to have Memorial Day weekend ads for example, and the buys are getting more upfront-like.”

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