With the broadcast networks in the midst of their upfront presentations for the coming fall season, the upfront market for the ad time on those shows is about to break, and once again debate rages over the efficiency of the entire upfront process. There must be a better way, the thinking has long been. But how would it work?
The answer may well be in an idea being advanced by a group of advertisers, marketers and agency executives that would move the whole process online. To that end, the group has put out a call for advertisers to pledge $50 million in ad dollars to test a pilot program. The coalition consists of 10 marketers, including Wal-Mart, Microsoft, Hewlett-Packard, Philips and Lexus, and last week the group introduced its idea at the annual convention of the Association of National Advertisers. That proposal includes a mock auction site set up by eBay. Louis Schultz, chief executive officer of LMS-Unlimited, a marketing and advertising consultancy, and former CEO of Initiative Media, was asked by the ANA to help moderate the effort. Schultz talks with Media Life about eBay's auction plan, what advertisers would gain under the new system, and why the upfront is overdue for an overhaul.

This idea has been around in various forms for a while. What made advertisers decide to take it on now?

This program started two years ago with Julie Roehm, now at Wal-Mart, basically taking on the upfront and saying there's got to be a better way.

As things have evolved, this idea has kind of changed from being a media auction during the upfront to being basically another tool in the arsenal that allows marketers to buy advertising time, particularly when they're interested in pure rating points more than buying programming. It probably would have greater application for the scatter marketplace than the upfront marketplace.

How does this idea compare to other online ad auctions?

The only real online auction system is one that Google is trying to institute for radio and some magazines. The difference is that they are buying what one might call remnant space and are then auctioning it off to advertisers.

They are taking a risk in that they are buying the time and taking control of it, so if they don't sell it they probably wind up eating the cost.

The proposal for this auction is that the control is still maintained by the supplier. The networks still own their inventory. And whether it's cable, broadcast, syndication, digital, VOD, they are putting it up there and they can decide to sell it or not sell it at whatever price. It's much like if you put an antique chair on eBay itself.

So the control is a major issue, as to who controls the inventory and at what price it chooses to sell that inventory.

The second difference is that we're not talking about remnant space. We're talking about frontline stuff.

So prices would be established for "Desperate Housewives." That's A-list programming. Then there's B-list or C-list, which is the stuff that's about to be canceled. There would be prices established for that.

The way the networks work now, you'll buy a package and you'll have so many A, B and C programs in a package. The more A's you get, the higher the package, but you have to take some B's and C's with it. Nobody just sells their A programming.

Under the system we're advancing you could buy A programming only, if you chose. You might pay a ton of money for A only, but that's your choice. 

So say the normal price for a package of three spots, one A, one B and one C, might be an average of $900,000. But if you wanted to buy only A, you might pay $900,000 for only two spots. Or you might buy C, but get six or eight spots for the same $900,000.

You can go to market when you want to go to market, and you can spend what you want to spend. From a marketer's standpoint, that's great flexibility.

Secondly, you wouldn't need artificial guarantees because you'd buy a particular spot at a moment in time and you'd pay whatever you think the value is for it. So the networks wouldn't have to guarantee it.

The current system puts a lot of pressure on agencies to be good estimators of what the time will be. And the networks are basically selling spots rather than rating points, which is a little bit different.

Will this bring advertisers better value?

For a great many advertisers it may yield better pricing, for some it may not. For example, there are a lot of package goods advertisers like Procter and Gamble and Unilever and possibly Pfizer that buy very inexpensive GRPs. They buy a lot of eyeballs and they've got historically great rates. This may not be very beneficial for them and they may want to stay with the way they're doing it. They can do that.

Other advertisers with smaller budgets, which is more typical of the advertising community, may find that they'll get savings. And they will get weight when they really want to have the weight, and in the kind of shows that they want.

But in an auction, remember. the inventory can go away. So they'll have to be paying attention all the time, or all the inventory could be sold. That could work to the advantage of the networks.

There's a lot of pluses for everybody, and there's obviously risks.

Why are advertisers so eager to sidestep the upfront?

You go in at a certain time of year and put down a lot of money. You buy programming that may not be there once the season gets rolling. You're buying rating points and placeholders for it.

You're getting, on the positive side, guarantees, but on the negative side you're making major commitments well before your marketing plans are ready, buying in May for as far out as the next summer. Most clients operate on a fiscal year, not a broadcast year, so they're making a lot of guesses.

Generally, there’s a lack of flexibility with the overall process itself. There's no transparency. It's hard for a client to get a handle on what stuff really costs. Rate increases tend to be the rule in the upfront. So the question becomes, how much will prices be going to go up from year to year. Are they going to go up 5 percent, 3 percent? The emphasis is on pricing more than on programming.

Further, a lot of people have moved outside of the traditional upfront buying because they're doing brand and entertainment deals. They're looking at how they can do a tie-in with "Desperate Housewives" or "Survivor" or "Lost."  They're looking at product placement or product exposure.

There's a lot of major issues facing advertisers and they all come to fruition during the upfront, when advertisers as a community are putting somewhere around $8.5-$9 billion into the market in a relatively short span of time.

The advertisers don't feel that that's to their benefit really.

How far along is this plan, and when could we see it implemented more widely?

This started two years ago, and there's been a lot of work by some very dedicated people. Some agencies are involved, and they're helping to guide and flesh out the system.

Their thrust right now is to get a steering committee formed, hopefully under the banner of the Association of National Advertisers. The steering committee then will finalize getting all the materials together so that advertisers can sign up.

They've put out a challenge to get advertisers to commit to spend a collective $50 million in a pilot program for some time in the '06-'07 year. It might start as early as the fall, or it might start in January of next year.

They've gone a long way down the road with eBay to developing a system. Now it's probably beyond what I would call the blueprint stage and on to the working-model stage. But the building still has to get built, to use architectural terms. They're well beyond just general conversation.

If the pilot went extremely well, it could be operational by next year's upfront, that is, the May/June/July period, when a lot of the money is being spent.

How it will be implemented will probably depend on a set of guidelines that will be worked on while the test is going on. There are a lot of rules that have to be developed on how it would all work, as well as a lot of logistical concerns.

Do you see networks jumping aboard for a pilot run?

It may not be ABC, CBS and NBC, though Fox could like it.

There's going to be a lot of questions. I guess the issue is if the system allows them to control their inventory, as they do now, and to accept or reject an offer, much like eBay, where you put something in and you can set a reserve price, and if it doesn't get that price you can pull it off the market.

So depending on the technicalities of it, they might be willing to experiment because they're going to learn. I wouldn't rule them out from taking part in the pilot.

I wouldn't be surprised to see one or more of the traditional broadcast networks in there. They can try and put some inventory in the game and see what happens.

Can you share any details about the eBay model?

EBay has an actual working model that has two aspects to it. The first is an auction. The network, the broadcaster, the digital player, whoever is using it, puts up inventory and it's bid on. They can have a starting price and a reserve price, and basically you bid on it.

This could be especially good for distressed merchandise, as a way for the broadcast networks to get something for it. When that show airs, they'll either have to put Smoky the Bear in there or advertising, so they might consider using it that way.

The second part of the model is a reverse auction, whereby the marketer might say, "I want 100 18-34 GRPs in the week of May 10." And then people will submit plans and bids on it.

Could this ever replace the upfront?

I think the answer is, yes it could.

Right now it's a baby step in that regard. But I think the upfront will change. I think there's going to be a lot more brokerage of time in the future. As the playing field gets leveled, a different marketplace is going to evolve. 

If you're doing internet, cell phone and television marketing, all three of those can be integrated at the same time. If you're buying an ESPN program and it's going to appear on your cell phone, like “SportsCenter,” there's a value to that. But do you include it, do you exclude it, how do you decide what the exposure will be for all of that?

I think that the marketplace, because of the technology, is going to evolve. And it's going to be a much more inclusive marketplace.