An announcement is expected soon about the long anticipated launch of a new ad auction website powered by eBay and supported by nine prominent advertisers. On this new website, TV commercial time can be bought and sold in a sort of automated trading system, like the Nasdaq Stock Market. This is a big symbolic step for the way the TV business is run. If successful it could eventually scale down the importance the upfront market rituals and revolutionize the way tens of billions of dollars in ad revenue flows.

According to The Wall Street Journal (WSJ), the Ad Exchange group includes major commercial advertisers such as Toyota Motor, Wal-Mart Stores, Microsoft, Hewlett-Packard and Home Depot, as well as a handful of media buyers including Interpublic Group's Magna Global. Together they have put up a total of $50 million for the test, and enlisted eBay to build the auction site – dubbed e-Media Exchange – that would sell national ad time available on a yet-to-be determined cable network in a test tentatively set for January. The group also plans to launch an informational site called admarketpilot.com.

This development is no doubt a consequence of Google’s success in providing better flexibility and accountability to advertisers than investing in the old fashioned and inflexible upfront TV market.

Before Google, there had been little clear-cut evidence that the Internet will change the business models of the traditional media industry. Then Google came along and revolutionized the advertising economy — simply by realizing that it is not about quantity, but quality, of the audience – and in some sense the ads — because they can serve a valuable purpose for the audience.

Google’s CEO Eric E. Schmidt posed a number of hard questions during a presentation to a room of top marketing executives in October last year. “If broadcast TV takes in around $46 billion in yearly ad revenue,” he posited according to Business Week, “how do you prove that’s the right amount to spend? And given (that) advertising is the fundamental aspect of commerce, why not do it right?”

Point taken. The expected result of e-Media Exchange is to accelerate the recent shift in bargaining power to advertisers and possibly drive down average prices. Roger Adams, senior vice president of marketing at Home Depot, says traditional negotiations are likely to remain the norm for popular shows, because they often involve elements such as product placement. “It will be a two-tier upfront,” he predicts, according to WSJ.

My Take: The broadcast networks still operate, by and large, as they have for decades. The single business model in network television has been to supply the largest possible number of desirable viewers to the advertisers who provide the networks with revenue and thus fund the programming. But some big advertisers have grown discontent with the inflexibility of the networks. Earlier this year, Johnson & Johnson decided it would not participate in the upfront market, telling networks it preferred to buy ad time on its own timetable — the new system would help advertisers do that. As it is currently envisioned, advertisers would post media plans on the auction site and invite bids from networks and media outlets. People involved say the new system would also help level the playing field of big spenders and little guys and make the ad-sales market transparent. I think that is true. Today networks pretty much keep advertisers in the dark about demand, leaving media buyers to pick up scraps of information as they bargain. Prices are often based on what an advertiser has paid in the past, rather than purely on demand. No stock broker would accept this situation when buying and selling securities. Neither should advertisers.

It is like Ann Bybee, advertising manager for Toyota’s Lexus brand, says to the WSJ:

“The current system has been in place for so many years, and nothing new or innovative has taken place. Meanwhile, other industries are changing by leaps and bounds.”

Lately, we have seen examples of the networks experimenting and expanding their visions to free up their content by applying a platform agnostic approach in tune with the digital age. New technologies and new ways of watching television certainly threaten to deteriorate revenues coming from selling traditional advertising in the form of 30-second spots, but it also opens up for a variety of new opportunities to make money. Not only is the number of distribution channels for television content growing, but prime time is growing as well, since it is different for Internet (daytime when people are in the office or in school) and mobile (rush-hour when people are stuck in trains or on buses and five minutes before the hour as people are waiting for a meeting).

So, if the networks really are sincere about becoming true 360 media companies in tune with the digital age, maybe this auction model is not so bad after all. Sure, it might drive down prices and force the networks to become more flexible in sales of commercial time, but the 30-second spot is supposedly on its last legs anyway. This might just be what the networks need to accelerate the pace of the change and find new business models that bring in revenue today rather than tomorrow.