Markets

The TV Business Kills Off Another Threat to Its High-Priced Ad Cartel

By Jim Edwards

Updated on: August 5, 2010 / 6:00 PM EDT / MoneyWatch

The death of Spot Runner's Malibu Media platform is yet more evidence that the TV business acts as a cartel to keep prices high: Why else would it turn its back on an online exchange that allowed advertising buyers and sellers to do their deals with the click of a mouse?

Even though there is no reason why 30-second ad slots shouldn't be sold the same way as stocks or pork bellies or junk on EBay, the TV business has put up fierce resistance to online ad exchanges where its wares could be easily traded (and more importantly, correctly priced).

Consider:

Malibu Media folded just eight months after it was launched. Spot Runner never announced it had signed a single client or TV network despite president John Gentry promising to do so in January.
Google TV Ads has not been widely adopted even though some people believe that the Google TV platform could do to the boob-tube what the search engine did to newspapers.
An attempt to set up an online exchange by former Walmart advertising boss Julie Roehm was nixed after it met resistance from cable TV operators.

Think about that: Why would an advertising seller want to restrict the number of venues in which their ads are sold? On top of that, consider how clunky the current face-to-face/phonecall business is:

The promise of buying efficiencies are less attractive, [Tracey Scheppach, innovations director at Starcom MediaVest] said, since TV is already a very efficient industry in which a relatively small number of people move billions of dollars in transactions. Still, Gentry said the handcrafted way the industry does business results in unacceptable errors.

"It's mind-boggling to me that a spot doesn't run because someone missed a fax," he said.

Yes, broadcast TV deals are still done by fax! When was the last time you used a fax? Precisely.

And what's all this about the industry being "efficient" if "a relatively small number of people move billions of dollars"? Sure, that sounds efficient if, like Scheppach, you're one of the small number of people. But it's not efficient in terms of determining the lowest or highest price of advertising based on aggregate demand.

I suspect that Malibu Media died in part because TV channels boycotted it en masse and giant media buying agencies refused to deal with it because it would mean giving up their reason for being. In fact, Malibu was hobbled by the nets from the get-go after it specifically promised not to price media as a commodity:

Malibu seeks to help match buyers and sellers by using an algorithm to find the best offer to fill available ad space. The Web platform does not include a blind auction. That would spook media companies worried that their inventories would be treated like commodities. It preserves most aspects of the traditional way the TV industry does business, with sellers retaining control of inventory and relationships and buyers keeping their clout.

Could it be that both media buying agencies and the networks just don't want their inventory to be exposed to the efficient pricing of the marketplace?

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