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Deep Dive 18 May 2022 - 6 min read

Programmatic 'tech tax', inflated prices and transparency fears curb enthusiasm for pDOOH as supply chain races to scale

By Brendan Coyne - Editor

Programmatic out of home makes up less than 5 per cent of the Australian digital OOH market, but is tipped as the next major growth area by agencies. Supply side players are making a landgrab for scale and the demand-side platforms globally are moving rapidly to integrate 'pDOOH' into their stacks. But there are concerns that the "tech tax" and opacity that continue to plague broader programmatic may be repeated. Agencies are questioning "50 per cent-plus" price premiums attached for programmatic flexibility, and whether larger advertisers are better off steering clear. More mature markets suggest otherwise.

What you need to know:

  • Concerns flagged that programmatic digital out home (pDOOH) may end up with the same lack of transparency as broader programmatic.
  • Agencies also question economics, with some suggesting higher prices outweigh buying efficiency.
  • But pDOOH tipped for major investment increases over next year, and adtech players racing for scale on supply side and to integrate pDOOH on demand-side.
  • While some agencies suggest programmatic can carry a 50 per cent-plus price premium, OOH players suggest buying flexibly against high quality inventory – versus booking weeks or months in advance for longer periods – necessitates a premium.
  • "Tech tax" fees equate to between 15-30 per cent, making up SSP, DSP and data fees, according to OMA Chair, Charles Parry-Okeden.
  • Fee structures may vary where SSPs and DSPs are the same entity, such as Hivestack and Vistar, and some may chose to reduce demand-side fees in return to gain more revenue on supply side.
  • While agencies see pDOOh bringing smaller advertisers into market, overseas operators see major brands such as Facebook, Pernod Ricard and Bloomberg buying programmatically as big brands aim to streamline supply chains.

Fear factor

Fears of inflated cost premiums and rising ad tech costs are undermining the out of home industry’s push to go programmatic. Some market participants think pDOOH risks repeating the same mistakes that dog broader digital markets around ticket clipping and lack of transparency.

Yet other media buyers suggest that they can buy programmatically and achieve cost comparable results for advertisers, if not cheaper, while unlocking greater flexibility and growing the advertiser pool.

“It’s cheaper in some instances,” said Michael Wretham, head of planning at Melbourne-based independent Match & Wood. He said the firm takes a bespoke approach for each advertiser, and buys best bang for buck.

That is often programmatically and Wretham thinks pDOOH is broadening the out of home market.  “It’s democratising outdoor,” he said. “What we’re seeing is a lot of advertisers who were previously priced out now starting to enter the market because of the flexible buying parameters.”

Others media buyers – OMD, Nunn Media and Avenue C – agree programmatic is bringing new money into out of home, opening the door for OOH players to take a slice of broader digital budgets as is happening in more mature markets such as the US and Germany.

But the price premium – and its constituent parts – is a concern.

Grey areas

Avenue C’s Daniel Cutrone said the agency is pushing hard to automate media buying across all channels, but has reservations about programmatic out of home.

“It’s a great opportunity for brands that have never bought out of home, buying specific sites and building brand through having high share [of audience] in certain areas. But for advertisers that have bought out of home before, [pDOOH] opens up a whole bunch of additional questions, because it is a bit of a black box approach,” said Cutrone.

“[pDOOH] capabilities are fantastic: You can buy by day of week, by time of day, and all of the ways to activate are amazing. It's just that it's currently not priced effectively for major advertisers,” he said. Meanwhile not all digital inventory is available programmatically, “so there isn't the full suite of sites and formats that you can access in that system,” added Cutrone.

“That prevents advertisers that want to tap into that way of buying … and there's a lot of greyness around the cost that you pay.”

Price hike

Avenue C’s initial pDOOH tests suggest a price premium of “between 50 per cent-plus – and that can negate the buying efficiency”, said Cutrone. “So if you want to focus on two to three days a week, you might be better off buying the full week and buying it traditionally, as opposed to receiving non-guaranteed inventory and buying it as a percentage of that full week.”

More broadly, Cutrone questions the reach and frequency impacts of publishers increasing the number of rotating creative placements on digital out of home signage, programmatically bought or otherwise.

“Delivering frequency and impact in spades is what out of home has been known for. When you take one of those elements away, you're going to start to feel the impact on that channel and that medium.”

Cost>benefit

Pete Wilson, Head of Digital at Nunn Media, agreed that supply chain costs can end up outweighing benefits.

“We often brief out for pDOOH, but then realistically, the value we get from a direct approach is better than we get via programmatic. Then there are the added complications about lack of visibility around which sites you are buying. That needs to be better defined. There are also the added costs – minimum 15 per cent programmatic fees, plus agency fees, plus data. Before you know it, the value is gone,” said Wilson.

“So unless you want something really flexible and are swapping creative regularly, I’m not sure it is the right approach for the majority of advertisers at the moment.”

Is that purely on cost grounds? “Yes. Why would an agency be pushing it if it doesn’t provide some advantage? They can probably earn more fees on it, but that is not the best outcome for the client.”

Transparency trap?

John Lynch heads OOH and audio partnerships for OMG. He thinks the new supply chains and trading models pushing into pDOOH “have parallels with the digital ecosystem of a decade ago”.

“The cost of using these businesses can be high” compared to broader digital advertising costs, he added, with OOH publishers “in some cases charging inventory premiums to reflect the flexibility pDOOH offers.”

“The combination of these two can create significant incremental costs to an advertiser, but this is normal commercial structures at work in an emerging market,” said Lynch.

However, he said complacency risks repeating mistakes made in the first wave of programmatic.

“This nascent stage of pDOOH can also leave the door open to the worst of the digital ecosystem, allowing opaque practices and self-preferencing behaviour by all parts of the supply chain, including agencies,” said Lynch. “For a sustainable marketplace that advertisers can trust, the pDOOH supply chain needs to be transparent, itemised and verified.”

He said OMG has approached DSPs, SSPs and OOH vendors with a transparency framework – and so far has had no pushback: “They don’t want to see the same challenges of trust in the coming years as digital continues to face today.”

Avoidable problems

Brendon Cook, former CEO of oOh!Media agreed the OOH industry can ill afford avoidable problems.

“If you look at the broader programmatic ecosystem, only 50 per cent, sometimes less, of advertiser spend makes it to the publisher. The remainder disappears into the middle. So OOH companies have to ensure that ecosystem does not come into existence for them.”

Cook was not renowned as a programmatic standard-bearer, but he points out that programmatic OOH, with limited inventory, and the broader digital programmatic marketplace, with virtually unlimited inventory, are fundamentally different.

“Prices might appear greater than some digital buyers are used to  – because there are supply limitations. Many of the best areas and locations run at 100 per cent [load] – so scarcity pricing [is a major factor],” he said.

“The reality is DOOH has been delivering at speed for a while in terms of the right creative in the right place at the right time delivering better results. You don’t need ‘programmatic’ to do that. So the result comes back to how programmatic should be used … Also, who is doing the planning and the buying? Are they a ‘digital native’ versus somebody who has a genuine understanding of OOH?”

But Cook flags the margins being made by middlemen as a potential issue.

“A big question is who controls the SSP supply side cost and DSP margin cost – and the last time I looked, that wasn’t the OOH companies.”

Bigger picture

Outdoor Media Association (OMA) Australian chair and recently appointed World Out Of Home Organisation (WOO) board member, Charles Parry-Okeden, is CEO of Executive Channel Holdings, which operates a screens business across the UK, France and Germany, and which sold its Australian operation to oOh! in 2016 for $63m. (The firm also owns Media i and Mi3). Parry-Okeden is not convinced by arguments comparing the pDOOH “tech tax” to the broader digital programmatic ecosystem.

“The biggest fundamental difference is there are thousands of publishers in digital programmatic in Australia," he said. "In out of home, there's less than 20, which really puts a different lens on the whole system and how it all works, notwithstanding the scarcity of pDOOH inventory compared with digital.”

Parry-Okeden questions claims of 50 per cent-plus disappearing to middlemen, stating SSP costs range usually between 5-15 per cent, with DSP costs potentially the same level. Some additional data costs, he said, are usually added to CPMs, and might add a few per cent if required.

Overall, Parry-Okeden said programmatic supply chain costs are therefore more likely to be around 10-25 per cent when done via private marketplaces (PMPs), or up to 30 per cent “at the very outside” when transacted via the open marketplace.

Smarts required

“The vast majority [of pDOOH] at this early stage is via private marketplace because the relationship between the agency and the publisher remains very strong and there's still a lot of conversations about what type of campaign they want,” said Parry-Okeden.

“There’s a chance that might change, but not for a some time, because digital natives need to learn how to buy OOH, where not all screens are equal. You can’t just buy platform reach and get efficiency. Big road [billboards], small roads, retail, airports all these formats vary and can be very different. You have to understand the intricacies between different OOH environment and formats to buy programmatically,” he added.

While most deals are currently via PMPs, “If you are an outdoor specialist, then you will ultimately be more inclined to buy some open market deals, because you know what you are doing. But that [education and tipping point] may still take some time.”

Regardless of the exact premium, is a 10-30 per cent premium worth it?

“In some cases, it will be absolutely worth it. Because the advertiser is picking the eyes out of your inventory – you are giving them ultimate flexibility to buy a location at any time of day. Whereas outdoor has been [traditionally] sold in a very linear fashion. You want that billboard at the airport? You’ve got to buy it months at a time – and it’s basically a run of station.”

Buyers’ market

Parry Okeden said his digital screens business in Europe is now taking bookings from new advertisers and new markets – and starting to access broader digital budgets as a result of programmatic trading. He questioned suggestions that pDOOH will largely attract smaller advertisers that could not otherwise afford OOH cost of entry. Rather, he said Executive Channel’s pDOOH campaigns over the past 12 months include the likes Facebook, Pernod Ricard and Bloomberg.

“Coca-Cola, for example, knows when it hits 25 degrees that there is an exponential increase in consumption of soft drinks. So it might want to set aside $300,000 to buy impressions in key locations when it hits that temperature over the next three months. Is that ROI on those spots worth 15-25 per cent more? Absolutely. So for me, pDOOH’s flexibility gives out of home the ability to play a bigger role across more aspects of the funnel.”

Ultimately, said Parry-Okeden, “The sector isn’t try to force advertisers to buy programmatically. It is however facilitating the opportunity and giving brands additional strategic capability across the medium.  At the moment in Australia, programmatic is less than 5 per cent of [DOOH] spend. If you don’t want to buy it that way, well you have a choice.”

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