In a joint statement released earlier today, Fairfax Media, MediaWorks, NZME and TVNZ announced the launch of a new local advertising exchange service called the Kiwi Premium Advertising Exchange (KPEX), which will provide advertisers access to premium advertising inventory across each of the publishers' online properties.
Digital disruption has impacted each of New Zealand's major media companies, taking ever bigger bites out of the ad revenue spent on the traditional channels of print, radio and TV. Pitted against the enormous scale of tech giants Google and Facebook, even the largest publishers in the local market have struggled to compete with what these new players offer.
Until now, Fairfax, MediaWorks, NZME and TVNZ have worked independently, signing partnerships with programmatic platform providers to make their inventory available to advertisers. And because advertising sold programmatically focuses on the audience rather than on the location of the ad, this has resulted in lower prices for ad inventory.
Hive News founder Bernard Hickey previously raised concerns about programmatic networks, saying they took market power away from publishers.
"Essentially, what the programmatic networks do is create value by pooling, slicing and dicing audiences," Hickey said. "But the value created is captured by the programmatic network and not by the publisher. It disconnects the publisher from the advertiser and that reduces market power and the ability to capture a good price."
What the formation of KPEX hopes to do is return some of the selling power to the publishers.
“KPEX opens up a range of new opportunities that we were unable to achieve independently, and a viable, local, programmatic ad exchange alternative to what is offered by large international players which is good for the long-term health of the local market," says Duncan Arthur, the consulting chief executive of KPEX who previously worked at The Guardian.
When viewed in the context the current online advertising market, which is grappling with viewability issues, this move will also come with benefits for advertisers willing to pay a little extra for the premium placements.
"[KPEX will offer] unsurpassed access to New Zealand’s local news, lifestyle and entertainment destinations and will help customers solve measurement and other issues with digital advertising in a massive global pool,” says Arthur.
The importance of this issue to local publishers is clearly indicated by the fact that they've put their competitive differences aside to work together to take on the international competitors. Both TVNZ's Kevin Kenrick and Fairfax's Simon Tong have said that local competition isn't the biggest threat in recent interviews with StopPress and said they would be looking to partner up (the last time local media companies worked together was also to take on a global threat to their businesses and that has had its desired effect—for a while, at least). But collaboration is easy to say and hard to do and Arthur says that some international agreements have fallen apart because of the unwillingness of publishers to work together.
"The local publishers have all been very open-minded so far," says Arthur.
The approach being applied to KPEX is very similar to the Pangea Alliance formed between the Guardian, CNN, the Financial Times, Reuters and The Economist in the international market.
“The Pangea alliance offers marketers an efficient way to reach high quality audience in trusted environments at scale,” said Andy Wylie, the group general manager of advertising operations at NZME in a previous interview. “These factors may result in media buyers carving out spend from their programmatic budgets for the consolidated buy, in which case the media owners stand to benefit more than going it alone in the open market, so it is an approach worth considering [in New Zealand].”
Arthur was involved with the Pangea Alliance launch, and says the success of this partnership when viewed alongside others in France and Denmark served to guide the process.
"What we're seeing is a worldwide trend, and we have the advantage of having watched what others have done," Arthur says.
But not everyone has been convinced by the formation of such publishing partnerships.
Sam Smith, the managing director of TubeMogul’s New Zealand and Australian operations, saw its formation as a reaction to the perception that programmatic devalues ad space.
“The motivation for this is that they want to control high-quality, premium price points," Smith said. "And so, that then tells me that they’re afraid that they’re going to lose that price position if they go programmatic. But we’re saying that’s not the case. Since programmatic trading arrived in Australia, the only thing that has happened is that the price has increased.”
This is because demand for the ad inventory dictates price. And, in theory at least, as more premium publishers have made their inventory available, clients have competed for these slots on the open market, pushing prices up.
The problem with this argument, however, is that there is far more inventory available than Kiwis will ever be able to buy. Inventory reports released by Acquire Online last year showed that there were almost nine billion impressions available for purchase, and these numbers are steadily increasing.
MediaWorks chief executive Mark Weldon says the Pangea Alliance was very influential in terms of the structure of KPEX.
"I was in New York earlier this year and spent about two weeks talking to CNN International about how the Pangea Alliance works," says Weldon. "It's a co-operative, it's a joint venture and it's a model that works. A business initiative only works if it solves material business problems. And if you talk to publishers in the industry, there are several recurring themes. Firstly, with an almost infinite pool of inventory, it is increasingly difficult to identify inventory that delivers the right audiences. And secondly, in any market that's unregulated, there's a lot of fraud. And what KPEX does is provide premium inventory that delivers high quality, verifiable and authentic audiences."
Weldon also says that local publishers provide local jobs. And this is a particularly important point when viewed against the small teams employed in the New Zealand offices of Google and Facebook (whether this is enough to motivate advertisers to support local publishers is another question).
Weldon points to his experience at the New Zealand Stock Exchange, saying that he was always against the notion of incorporating the local market into the Australian stock exchange because it would deprive New Zealand of control of its own market.
"I'm a huge believer in local institutions," Weldon says.
And because the primary ad exchanges have until now been dominated by international players, it has in a sense limited the amount of control publishers have of the prices of the premium advertising inventory.
As is the case with the Pangea Alliance and other international examples, the KPEX initiative will also be powered by Rubicon Project, a global technology company specialising in the automation of buying and selling advertising inventory.
Initially advertising inventory will be limited to the four media parties, with other premium local publishers being invited to contribute inventory to the exchange over time.
Weldon explains that there will, however, be rules dictating which publishers are allowed to add their inventory onto KPEX. He says KPEX will be limited to publishers who can show their online brands are bot-free and verifiable.
"If somebody buys 500,000 impressions, we want to know where they're coming from and that they're real people," he says.
These sentiments are mirrored by NZME group head of revenue Laura Maxwell.
"We've looked at how such alliances have been formed internationally, and we will be looking to add new premium partners to ensure advertisers have as much choice as possible," says Maxwell.
Maxwell also stresses that each of the publishers would retain a direct sales team responsible for other elements of ad selling.
"KPEX is only relevant to the programmatic side, which is only part of the overall eco-system at NZME and the other publishers," explains Maxwell. "We also have direct, native and other online advertising opportunities that fall beyond programmatic."
In some ways, the industry is preparing for the future. Programmatic was one of the fastest growing categories in terms of digital ad spend in the latest figures, and it's tipped to balloon over the next few years.
"If we had waited two year to do this, it would've been too late," says Weldon.
The KPEX inventory will from November become available for advertisers to purchase. And Ben Sharp, the managing director of AdRoll, says it will be business as usual for those looking to buy this premium inventory.
"AdRoll already works with over 500 exchanges, many of those with premium inventory," he says. "The KPEX alliance is great for the industry and just proves, even further, that programmatic is not just for remnant inventory and that the industry is shifting towards a more intelligent way of purchasing media."
Sharp does, however, make the point that the success of the partnership will depend largely on the willingness of advertisers to pay for audiences that could be reached for cheaper, elsewhere.
"Publishers want a fair price for their inventory (we agree with that) and advertisers understand that to show ads on premium sites they need to pay a little more," says Sharp. "The great thing about working with AdRoll is that our algorithm, BidIQ, allows ads to be shown across the web, wherever an advertiser’s potential customers may be for a fair price."
Since the development of programmatic ad-buying, advertisers have become accustomed to paying very little to reach their target audiences, with an insider in the programmatic industry recently telling StopPress that it's often difficult to convince users to pay as little as ten cents extra per impression for the guarantee that it's human and viewable.
As OMD general manager Andrew Reinholds previously pointed out: “Ultimately programmatic for OMD delivers such a cost-effective audience for our clients that even say if 25 percent of the clicks were fraudulent, the way we track and optimise, then the remaining 75 percent of the actual clicks are of real value for us and the CPA [cost per action] delivered will be well below other types of buys.”
That said, the appeal of having brand visibility on some of nation's biggest websites will no doubt draw in many advertisers. And if a brand is willing to pay for a Herald or Stuff takeover, then it will no doubt also be willing to pay for some premium inventory across those and other premium publications.
UPDATE: Maxwell said that inventory sold through real-time bidding would from now on be limited to the KPEX exchange.