Opportunity cost makes mag publishers cool to 3rd party online ad sellers

[This post has been updated] Traditional magazine publishers are rethinking their strategies for selling surplus online ad space, according to a story in Mediaweek. For instance, Rodale Publishing, which produces front-rank titles such as Men's Health, Prevention and Runner's World, has discontinued its sale of online ad space through so-called "third party networks" after only six weeks.

Digital ads accounts for more than 10% of the company's revenue. However, selling unsold online space was a hassle, so it turned over some of that inventory to a third party vendor.

The results weren’t always pretty, recalls MaryAnn Bekkedahl, Rodale’s executive vp, group publisher.

In one instance, an ad for an automaker popped up on a site where Rodale had already sold a schedule to a rival auto brand. In another unfortunate case, an ad for a fast-food chain showed up on a site’s nutritional channel. The low point was when a Spanish-language ad inadvertently appeared on the English-language homepage of Women’s Health.

Then, there’s the inherent lack of ad-content control that comes with handing over one’s inventory to an outside representative. “We don’t want the dregs of the universe and the sex toys,” explains Bekkedahl.

Think Equity Partners reports that the number of online ad sales networks has ballooned over the past 7 years from fewer than 50 to more than 300. But magazines that use them report that the results are disappointing -- low rates, poor quality control, proliferation of cheesy ads and the undermining of the reputation and brand of valuable sites.

Forbes [Media], like Rodale, was disappointed by the networks, says Jim Spanfeller, president and CEO of Forbes.com. In short, Spanfeller wasn’t big on having outsiders selling Forbes’ online inventory for what amounted to pocket change. “It wasn’t really worth the opportunity cost,” he says. “I think at the end of the day, larger sites like ourselves, we’re really going to want to have as much control over our sales process as possible.”

According to PricewaterhouseCoopers, online ad revenue accounts for less than 4% of magazine publishers total ad revenue.

[Update: Curiously, a digital benchmarking study from the Internet Advertising Bureau and Bain & Company, reported by Adotas, says the use of “ad networks” has surged from 5% of total ad impressions sold in 2006 to 30% in 2007.

Online publishers are continuing to experience growth rates of 20-30% in ad revenue, and keeping up with these rates has left many with an excess of inventory which they are selling through ad networks at up to 90% discounts versus direct sales rates.

John Frelinghuysen, a partner in Bain’s Global Media Practice and study author said “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. Building more effective relationships between publishers and ad networks is critical. In the long-term, both parties will benefit from gains in ad network CPMs.”

Other key findings in the study include online publisher revenues grew by 32% in 2007, yet ad network revenues grew more rapidly(in excess of 50%), as marketers boosted online spending. High demand for premium video inventory resulted in CPMs 2-3 times greater than display ads on average. Also, found was most publishers in the study lack information to closely measure the impact of cross-platform sales, though most indicate focus on using cross-platform to drive volume, not price.