If eBay's Media Exchange Flops, What Does it Mean For the Networks and Google?

Authored by Jay Baage on April 6, 2007 - 1:54pm.

Cable TV networks like Turner Networks, Discovery, Lifetime and ESPN have decided to boycott an online exchange designed by eBay to sell advertising time, according to the Cabletelevision Advertising Bureau, a trade group in New York. Without the participation of cable networks, the eBay exchange will have no air time to sell to advertisers. This poses a crucial question for media executives to ponder, if at all, companies like Google will be able to penetrate offline media such as print, radio, and television?

The Cabletelevision Advertising Bureau is clear in its verdict about eBay’s media exchange:
“We don’t believe that eBay is going to get this right,” said Sean Cunningham, president and chief executive of the cable association to the New York Times.

Cunningham further said the exchange had "too narrow an application" and "clear connectivity issues," among others.
"Additionally, the refusal by major members of the agency community to consider this interface reinforced our conclusion that ending our participation was the correct decision for our members and their advertising clients," he said.

The refusal of cable networks to participate in the exchange not only disrupts the eBay plans but also raises questions about how companies like Google will fare as they try to bring ad auctions that have worked online to traditional media like television and newspapers. Some analysts assume that Google' future dominance of radio and TV advertising is assured, when, in fact, it faces significant challenges.

Earlier this week, DoubleClick announced that it had created an online exchange for online ad sales that could be used in the future for offline ads, too. Seven national cable networks tested the exchange over the last month, and executives at those networks decided it went too far in removing humans from the ad sales process, Mr. Cunningham said.

Josh Wexle, CEO of Cherry Hill Research, who operates a small public company called SoftWave Media Exchange (SWMX), which competes with Google in the radio- and television- ad placement business, says in an interview with Henry Blodget on his blog Internet Outsider, that revenues from electronic exchanges for selling traditional advertising won’t heavily affect various bottom lines (both Google's and the traditional media companies'):

”Many analysts overestimate the profit potential of Google's expansion into radio and TV advertising. The mistake is thinking that Google will generate AdWords-like profitability in TV and radio (50%-60% operating margins) instead of AdSense-like profitability (10%-20% margins).”

My Take: The transition from selling offline advertising the way it has traditionally been done to setting up electronic exchange(s) is not going to be an easy one. But cable television networks as well as media agencies that expect a glorious past to shield them from the forces of change need to think again. Napster, TiVo and Google have already disrupted the old way of doing business in the media world. This is an age of anxiety for media corporations, an age in which technology and sciences at a first glimpse may seem to pose threats, rather than present great opportunities.

The networks need to embrace this new brave world of digital technology, surrendering control to the viewers, freeing up their programming and letting viewers watch television programming on their own terms. This is a huge transition since it means that the networks will have to redefine their relationship with advertisers, affiliates and everyone else that wants to distribute their programming. Many theories are put forth as to how and when this is going to happen, but the truth is that no one really knows.

What is interesting to me is that Google’s success is based on accountability and personalization – two areas where television networks have not been able to deliver, either to the audience or to the advertisers.

Google’s CEO Eric Schmidt has acknowledged that as Google is exploring moving into television, it may well face a conflict between its core belief that advertising must be useful and the typical television commercial that is “based on feeling and emotion.”

But moving into television is not the highest priority for Mr. Schmidt who has said to Saul Hansell at NYT as early as 2005 that: “Our model is likely to affect television last,” he said, while expressing optimism that a formula for useful, targeted commercials could be found.

For now, he quickly added, the market for various forms of direct marketing is three times larger than that for television ads. “I was shocked by this,” he said. “All of us are so conditioned to television as the height of advertising. We are in the really boring part of the business,” Mr. Schmidt concluded, “the boring big business”.

I think that priority still holds at Google, because, as Josh Wexle points out, Google can still achieve higher margins elsewhere that moving into television.

Joakim Baage