News has been racing around the blogosphere and major advertising publications about NBC Universal's announcement that they're going to start selling ads on PRN's retail media networks, along with offering ad "bundles" that include television and out-of-home spots. Opinions on the importance of this news have ranged from "no big deal" to the "next big thing". For example, MediaPost's Joe Mandese offers an interesting synopsis and analysis, leading to his conclusion that the deal is "smart and forward-thinking". But my take on the deal is slightly different: By trying this approach, I think NBC U is about to find out if ad agencies, media buyers and similar Madison Avenue ilk will ever successfully compete in the retail media market.
Why did NBC U do this deal?
The first big question we have to answer is why NBC U is getting more involved with retail media. As Mandese notes, this isn't the first time they've entered the space, and their last attempt, the ill-fated NBC On-Site, "cost NBC and parent General Electric millions in start-up costs before it eventually pulled the plug." Since the demise of that project in the 1990s, the technology and infrastructure have changed a lot, but the fundamental problems surrounding monetizing in-store advertising space haven't. What is different this time around is the broader spectrum of advertising options that small and large advertisers alike have at their disposal. While overall TV viewership is declining, the number of households using a PVR (like TiVo) to time-shift programming is steadily rising, by last count to around 17%. And while TiVo gets a lot of attention because of its ability to skip commercials, in all likelihood it's just going to become a new way to deliver and measure ads (as last week's blog about TiVo's StopWatch program suggests). Likewise, online advertising is far bigger than anyone could have expected, more people spend more time online than we could have imagined, and more advertising opportunities are presenting themselves on mobile devices and digital out-of-home networks than ever before. Simply put, today's advertisers have more options and better control over delivering their messages to an increasingly segmented audience.
NBC U has certainly noticed these trends, as well as the fact that out-of-home has been one of the fastest growing pieces of the advertising pie for the past few years. Put the two together, add in the arrival of a fair number of digital signage networks that by themselves might be large enough to be tractable to big advertisers, and suddenly you can see where NBC U is headed. By announcing their intent and partnering with one of the biggest and most established companies in the industry (PRN), they've instantly made themselves the biggest fish in the (admittedly small) pond. Offering ad bundles that include OOH spots was a particularly masterful stroke. They'll almost certainly sell unbundled space to advertisers who balk, but those who do take them up on the integrated offer will (a) look pretty progressive in the industry, and (b) probably contribute nicely to NBC U's bottom line -- since OOH placements can carry substantially higher fees than placements in traditional media. So even though outdoor and out-of-home might only make up a small fraction of sales, it has the potential to add a disproportionate amount to profits.
So where are in-store media buys heading?
That's the $64,000 question, and while I certainly don't have the answer, I'm pretty sure that Mandese's vision of retailers carrying broadcast-style content with ads delivered by a traditional media conglomerate and overseen by the OVAB won't be correct either. He seems to think that "out-of-home video networks are television -- they're just television in new and different locations," but seven years in this business tells me that's not the case -- not from the retailer's perspective, not from the network manager's perspective, and certainly not from the advertiser's perspective. Instead, I think that two dominant advertising models will emerge, along with numerous variations that reflect the principles and business needs of individual networks.
The first model will look something like what NBC U, SeeSaw and others vie for today. Screens in heterogeneous networks across the country (or maybe even across the world) will be aggregated and managed collectively, and media planning and buying agencies will have the opportunity to price and buy screen inventory based on rules imposed by these aggregators. Networks in public spaces and malls, along with networks of roadside billboards, will probably see good success here. There's no brand hegemony to worry about, and on the average, bigger networks of this sort will be better for advertisers. It's also better for smaller advertisers who might need to focus on a very specific geographic region or would otherwise have a hard time figuring out how to get their content up onto a particular venue's network (and there are a lot of these small guys out there right now).
The second model will bypass agencies altogether. Instead, CPG manufacturers will deal directly with the retailers that carry their wares, much like they already handle their POP display deals. If P&G, Colgate-Palmolive and Unilever are already budgeting for, building and distributing physical displays to thousands of retailers, they'll probably be able to extend that expertise to placing spots on the venues' digital media networks. This takes us back to the importance of cooperative (co-op) marketing programs and the need for tighter overall marketing integration, which is something that retailers and manufacturers alike are talking about right now.
In the end, network owners will choose their ad sales model based on who they think their advertisers are most likely to be. For example, Wal-Mart rules their marketing and merchandising operations with an iron fist. Consequently, the co-op style program might make the most sense for them, since it guarantees participation from key vendors and allows Wal-Mart to stay in control of the entire operation. On the other hand, many other retailers are more concerned with monetizing their retail media and less concerned with building a cohesive in-store experience. For them, assigning control of their digital media inventory to a semi-autonomous aggregation service might make more sense, since it allows them to keep a tight focus on their core competency of being a retailer (and not a media company). So while I do think that NBC U has the opportunity to grab market share on networks that fit our first profile, my gut says the second group is likely to stay off-limits to media buyers and planners for the foreseeable future.
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