Tuesday, January 27, 2009

Why Ad Rates Are Plummeting And What It Means For Publishers

In economics, we call it supply and demand. Add the price elasticity component and well, that is explaining the state of ad networks and new media today. This article clearly explains the path we are headed. As content publishers look at monetization tools, from ad revenue to subscription, how they earn their revenue is being affected by glut and cheaper alternatives. For advertising, their CPM is being hurt when ad networks are discounting their own ads in the remnant, or secondary market. Why buy an ad directly, if it can be bought for less by an ad network. "Agencies and advertisers can't resist the discount and begin to buy their way onto premium sites through ad networks only. This drives down the amount of inventory publishers can sell on their own and increases their reliance on ad networks. The vicious cycle continues."

And does specific content matter. For agencies using demographics to reach a particular audience segment, does it matter whether they are reading a premium site or "stocks r us". Same audience and reach at a lower cost with more frequency. "Why pay a $25 CPM to reach that wealthy, 50-year-old, Boston-area living, Mercedes Benz-owner on when you can pay a $.60 CPM to reach the same guy five minutes later when he's reading a five-year-old article on's archives?" This economic model ultimately leads to more price wars and lower pricing.

And so, content publishers will need to offset this loss of revenue by restricting ad networks from re-selling their content, marketing the value of the content and the brand, and perhaps even charging a subscription fee for access. At the same time, the internet continues to increase the amount of accessible content; how it is controlled and managed within web sites will bring more control back into the advertising model.

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