Valuating New Types of Media

Every so often you’ll have folks come in your door with something completely new: a new form of media, a new technology, a new way of targeting, or some such innovation. Very frequently media buyers get stumped by new things they can’t directly compare with the things they’ve done before. But to let all of these opportunities go by is a mistake. There’s a great deal of value in seizing upon new types of advertising.

I remember when search engines first began to offer keywords. (Yes, it took more than a year before they figured out how to work the matching of media with keywords.) A lot of agencies passed on that one, while some scooped up certain keywords and locked them up to this day. Try wresting the word “database” or “application” from Microsoft, and your search engine rep will laugh out loud.

Of course, there are a lot of losers out there, too. Anyone remember “push”?

But if you find a particular new online application that probably suits your client, how do you price it? What’s fair? Often this question, too, will keep the new opportunity off the buy, but this should be a relatively simple question to answer.

The rough algorithm looks like this: Take the exposure provided, multiply that across the value of the particular target reached, and index this product with some sort of consideration for how much messaging power the medium has.

To acquire these factors numerically, we typically look to close precedents and analogues. For instance, with online banner ads, we would take the message value of print (reduced a bit due to creative limitations) and multiply it across the relevant audience reached online. This would give us a CPM (cost per thousand impressions) of about $15, depending on the probable audience. And, indeed, as the market for online advertising matured, we saw a gradual trend toward about a $15 CPM. This price would have been quite a bit higher had the other media – like print – not been in such great supply to suffice as an alternative.

Let’s take a look at an example of a new medium – one of those nutty start-ups with a new type of advertising. For our example, we’ll use a company in New York City that figured out how to take electronic billboards on top of taxis and hook them up to a GPS system that allows different ads to appear in different locations around the city. This company, Adapt Media, hasn’t yet – to my knowledge – figured out its pricing model, so I’m going to presumptuously tell it what the model should be.

Applying this rough calculation to the Adapt Media offering, we can find the following analogues:

  • The media value is most analogous to a combination of both outdoor advertising and point-of-purchase advertising.

  • The exposure received by a given cab would be analogous to the impressions garnered by a mobile billboard execution (those trucks with billboard trailers you see in front of conventions in New York City).
  • The audience winds up being particularly valuable, as it gets exposed to folks who are very difficult and expensive to reach.
  • Unfortunately for us advertisers, there really isn’t much alternative media for targeted point-of-purchase media. Without this backup, we will be paying a premium, particularly for hot locations.

Taking into account all of these factors, we assign numbers to the variables. Starting with a conservative point-of-purchase and outdoor cost basis of a $5 CPM and multiplying it by another 25 percent to take into account the lack of alternative supply, we come to a basis price of $6.25 CPM. For perhaps 20 percent of the locations, we will have to pay an additional premium of 50 percent to account for valuable audiences that are otherwise difficult to reach. That averages out to a general CPM of $6.88, assuming rather liberally that the hot locations sell only as well as the general locations. The vendor would likely disagree with this notion, wishing to get a higher average, but this CPM is where we would start our side of the negotiations.

Using the mobile billboards as a good device for determining the exposure of a given ad over time, we find that a taxi will be seen by approximately 100,000 people per day in New York City (estimated by cutting mobile billboard companies’ optimistic estimates nearly in half).

Were a cab to sell all of this exposure at the average rate all the time, the cab would be worth an impressive $20,500 per month. This, however, remains unlikely. The area in Manhattan most likely to be purchased (probably at a higher-than-average CPM but, as greedy buyers, we’ll ignore this) remains only about 20 percent of the whole. That eventual 20 percent sell-through would connote a monthly per-taxi revenue of approximately $4,125.

As agency buyers, we wouldn’t expect to pay all of this in the beginning. As charter advertisers, we’d expect a pretty good deal and an incumbency that would allow us to renew these favorable rates for some time to come – perhaps a cheaply renewable exclusive on certain locations. $3,000 per taxi per month would be rather tempting. Of course, we’d want to purchase only a small portion of this per month – probably near the locations of our client’s retail outlets. The real price per advertiser might be a small percentage of that $3,000 sum, depending on how much geographic area we wish to buy.

Of course, different types of clients have different relevant media analogues. Some clients use different types of print, which imply very different rates. Your mileage may vary, but the formula remains constant.

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