Auction an Alternative to Unsold Inventory

| July 23, 2013

Mike Kinosian
Managing Editor
TALKERS  magazine

kinosianLOS ANGELES — Airline executives are adamant that all seats on all flights are sold, albeit by fluctuating fares.

Likewise, hotel owner/operators strive for as few vacancies as possible.

The same sentiment obviously applies in radio, as managers cringe at the notion of any unsold inventory.

Bid 4 Spots 2Conjure up characteristics of such entities as eBay, Priceline.com, and Lending Tree (“When banks compete – you win”) and you get a fairly representative taste of Bid4Spots.com.

This specific complement to a radio station’s sales staff features eBay’s live auction component; has Priceline similarities, in that general categories are picked; and it resembles Lending Tree’s reverse auction model.

newmarkdavidDecision to launch Bid4Spots.com came to fruition in June 2004 thanks to Dave Newmark, president/chief executive officer of Newmark Advertising, a thriving agency he and his wife Patty owned in Los Angeles’ San Fernando Valley (Encino).

Motivation struck earlier that year when Newmark witnessed his son bidding for music on eBay.

Firmly believing something analogous with radio implications could be done online where he could protect confidentiality, Newmark and a programmer labored on the concept for six months.

The first auction eventuated for the broadcast week of January 10, 2005.  Since then, 10,000 advertisers have signed up in the system, although approximately 10% of them have actually done auctions.

Lose-Lose

One particular Newmark Advertising client, The Sharper Image, was buying considerable direct-response television. “In national cable television, they have a discounted rate for remnant airtime,” Newmark points out. “It is broadly accessible for any advertiser who wants it.”

Variables are that they must allow the cable channel to pre-empt them and they have to consent to the spots running anytime day or night.

sharper image 2Management of The Sharper Image spent millions of dollars in that environment and they asked Newmark if radio had a comparable scenario. “I had to say the honest answer was no,” he recounts. “Some companies would have specific deals like that with networks or stations, but the industry didn’t have anything like what existed with national cable television.”

Not only did that seem odd to Newmark, it struck him as being problematic. “If there was unsold inventory, and advertisers were not able to access it easily, it seemed like a lose/lose situation,” the Stanford University alum comments. “There had to be some way around it.”

Game Over

At that point, Newmark approached several radio group owners and asked what they thought of auctions.

Consensus was it would not work with the reason being that it was tried before, and it failed. “They were correct,” Newmark succinctly admits. “I was talking about this in 2004 – just after the dotcom boom and bust.”

Several extremely well-capitalized ad exchange companies for broadcasters began to populate. Notwithstanding that they had deep financial pockets, they were not able to make it happen. “Buyers and sellers were not using those platforms,” Newmark remarks. “I thought they must have all missed one basic thing.”

Several months later when Newmark was having a casual conversation with a software developer who was doing some unrelated Bid4Spots work, he had an epiphany. “I immediately thought of those ad exchanges and I realized what they all had wrong,” he enthusiastically recalls. “They had the supply and demand equation backwards.  Forward auctions work well only when the demand is high and the supply is low.  If I could figure out when demand would be at its lowest point – when regular airtime buyers were pretty much gone from the store – it would be as close to ‘next week’ as possible.”

That would still allow sufficient time for stations to input and push through orders to the next broadcast week. “Demand would be at its lowest point and supply is high,” Newmark states. “The rest are details about structuring the auction and making rules. I made up the rules based on being an ad person – not a tech person. My background is not technology. My background is advertising, so I knew you just could not reveal rates of individual stations. If you do, game over because stations will not participate and won’t go into the reverse-auction format.”

Confidentiality of those rates must be protected with Newmark stressing, “After all, it is an ad exchange and you must have full transparency.”

Equate the auction to an unwired network, where you do not necessarily know the underlying rates of each individual station. “All you know is that you are on many stations and you paid one amount,” Newmark notes. “That is pretty much what we do.”

Crowded Arena

Google AudioSeveral other players came in after Bid4Spots: Google Audio perhaps being the major one and there was Soft Wave Media Exchange (SWMX). “One of my worst years was when Google bought dMarc,” Newmark candidly declares. “They did a lot of planning and I always felt like they didn’t kill me today – maybe they will kill me tomorrow. It was very anxiety inducing.”

Finally deciding that the best way to handle it was just to put on psychological blinders, Newmark stopped reading what Google was doing. I just executed,” he comments. “Hopefully by doing my best, it will win the day.”

Another early challenger was Spot Runner, which had a platform for accessing local cable television and it was going to go into radio, but “It never got off the ground,” Newmark explains. “Google actually made the same mistake that the original ad exchanges made, which is they did forward auctions.  They imagined a radio buy much like ‘search’ and envisioned having access to really detailed information at the station level.”

Their theory was it would be important to know the temperature at the radio station, for example, so they could tell if an advertiser should be promoting hot coffee or cold shakes. “Advertisers could bid to be on stations that were addressing listeners in the most relevant way,” Newmark notes. “In practice though, it was too limiting because radio is a storytelling medium. Generally speaking, products and services being advertised speak to a fairly broad audience.  It does not get that granular, so there were not very many bidders for that airtime. It was a circular problem because stations questioned what they had signed up for and they bailed. With fewer participating stations, there were fewer advertisers.”

Bulging Bucket

It is Newmark’s contention that about 80% of radio is local; however, he concedes that his company does not really serve that market well. “We are not very popular among local advertisers,” he comments. “We attract some network advertisers but not many.”

Advertisers who use Bid4Spots are generally national or regional, and they usually want to be in a specific set of markets or a particular format anywhere.  “They tend to be small-to-medium-sized companies and usually do not have an ad agency,” Newmark explains. “They like doing things themselves and don’t typically have a marketing person. What has happened is that we have tapped into many online companies and we actually need to help them much more than they realize. We have transitioned from a self-service model to a full-service one, even though the auction takes place on a computer.”

Former radio buyers talk to each Bid4Spots advertiser in order to prepare them for the auction. They will review all of the auction parameters and Newmark points out that, “If they don’t have a radio commercial, we will help them produce one.”

Time invested in the process on the station level is about 30 minutes a week, including 10 minutes on Wednesday – the day before the auction – to see if any advertiser needs to be blocked. Bidding itself only takes a few minutes. “Someone from the station might come in for a few minutes during the four-hour auction,” Newmark explains. “When they win, they must create internal broadcast orders for their own systems.”

Currently working with some 3,300 radio outlets from all broadcast groups, Newmark views the medium’s universe of stations from the level of audience sampling. “Some are rated by Arbitron either monthly [by PPM]; every quarter; or twice a year,” he states. “The total from those three groups is about 5,000. The other 6,000 or so commercial stations are only rated once a year – and not by demo or day-part.  I consider that to be a separate set; eventually, I am sure we will get to those other 6,000 stations.  When calculating cost-per-thousand, we must have the same basis of measuring, so I decided to keep rated stations in one bucket and we are in that bucket.”

Recognizing that facilities have much more to them than their ratings stats, Newmark remarks, “We have to strip all of that out in our auction system. We stay out of their way when it comes to selling beyond ‘next week.’  We cannot replace direct-buys that are planned out for weeks or months at a time.  If an advertiser wants to be on ‘Station X’ for several months, we cannot help them. They have to work something out with the station. The industry appreciates that we stay out of it. In some cases, one person bids for the entire group, and in others, each station bids for itself. It doesn’t matter to us.”

It is imperative in any marketplace that there are victors on both sides. “Buyers and sellers have to think about it as a win,” Newmark maintains. “If one party feels like it is a ‘loss,’ there is no marketplace. That was the downfall of Google, SWMX, Spot Runner, and all other companies that did not understand the ad exchange methodology.  We always look to satisfy both sides. In any marketplace, some buyers will be thrilled and others will not be so thrilled.  The same thing is true with sellers. It has to do more with expectations in the marketplace. Stations that have loved us the most have understood that it is about total revenue – not necessarily about the rate.”

In that vein, owing to auction dynamics, rates differ wildly and Newmark is quick to grant that Bid4Spots will not work well for stations expecting a certain rate for a day-part. “We respect that point of view,” he acknowledges. “In the long run though, stations from New York City to Victor Valley, California make solid revenue from us. It blows me away every week when I see all the stations around the country making money from us. We are doing what has not been done before, which is to tap into a pool of untouched advertisers.”

A number of things could make advertisers really pleased or unhappy with the setup. “It is a free country so you can advertise anything you want, but I can’t know if the public will want what an advertiser is selling,” Newmark rationalizes. “Advertisers have received fantastic results from the auction but the response might not be quite as they had hoped. They might leave if their expectation is not met. Those advertisers with a product or service that people want who listen to the guidance we give and the auction construction generally tend to be extremely happy.

Screaming Opportunity

Logic might dictate that when the economy is doing poorly, a company such as Bid4Spots would thrive, since advertisers would supposedly jump at the chance to get inventory on hungry stations. “That is not true,” emphasizes Newmark, who had a “very tough” 2012 and a “particularly rough” fourth quarter last year. “If an advertiser thinks consumers will respond, they will be in. The fiscal cliff was absolutely paralyzing to small business; the election did not help, either. Our business took a big dive. Since then, as the economy has begun to improve, advertisers are becoming a bit more confident about the general consumer response, so we are seeing profound growth.”

Zero commitment is required to sign-up in the Bid4Spots system. A station is invited if it is the format and market requested by the advertiser. It does not matter how many listeners a station has. After that, it is up to the manager to decide to enter and bid all the way through. “We have stations that depend on us for hundreds of thousands of dollars a year in revenue,” Newmark states. “They don’t care about rate because it doesn’t get out to advertisers. They just want the dollars.”

The clever bidding process concept Newmark conceived resulted to be far in excess of the $100,000 he “naively thought” it would require. Exceptionally bullish on the growth of his company and working with the radio industry to help grow American business, the Bid4Spots founder/chief executive officer comments, “With so many new media channels and social media, some dollars have migrated from radio but the listeners have not.  There is a screaming opportunity for advertisers who have never used radio before to come to a company like ours, which does all the work for them.  We get them tremendous value and we help them get out their story in a clear, compelling way. Staying true to our one-week-at-a-time model – and not going any further out than that – has been a hallmark of our success.”

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Mike Kinosian is managing editor and West Coast bureau chief at TALKERS. He can be reached at 818-985-0244 or Kinosian@Talkers.com.

 

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Category: Sales