Airline Seats in 2015: Why Publishers Need to Pursue Dynamic Pricing in Video

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Look around at the seats the next time you fly. Chances are, you won’t see many empty ones. In part, that’s because airlines work hard to sell most of their inventory. But they don’t just do it by slashing prices. On the contrary, airlines today are flying mostly full planes and they’re charging more because they use a dynamic pricing model. Which begs the question: if dynamic pricing has helped the historically turbulent airline industry improve profitability, why aren’t video publishers using the same tactic to increase CPMs and revenue?

When it comes to premium video content, publishers know that inventory is in short supply. It’s easy to add another banner placement to a publisher website with a few lines of code. But it’s impossible to create more video viewers out of thin air. Accordingly, publishers have ramped up production, but nothing changes the fact that premium video content is expensive to produce. More importantly, few publishers have changed their sales tactics. Put simply: publishers are ignoring the law of supply and demand.

Even though video supply is scarce, publishers pre-sell the majority of their inventory because their sales teams have been trained to value sell-through and predictability above all else. In fact, an auction is actually the better way to sell something that’s in short supply, whether it’s a Rothko painting or a video ad impression. When Christie’s auction house goes to sell a Rothko, they don’t call a few major art collectors and take the first good offer they get. Instead, they assemble as much demand as possible in one room (and online) and hold an auction with all the qualified buyers.

When video sales teams opt for predictable revenue rather than negotiating for the maximum CPM that they could have charged an advertiser, they’re making a mistake. Their personal sales incentives might be tied to selling out the available inventory. But the reality is that being “sold out” is shortsighted for the publisher as a whole. Publishers are leaving a lot of money on the table by not selling more video inventory in programmatic, where multiple bidders are competing for the same impression. (Arguably, if online video as a cultural phenomenon had matured faster, it’s possible that real-time bidding would have begun in video, not display, but that’s a story for another day.)

When publishers pre-sell their inventory at low CPMs, they’re making an assumption that all buyers would pay roughly the same price for their content. If an airline took that approach, an aisle seat bought two hours before a flight should cost the same amount as a middle seat purchased months in advance. We all know that’s not the case.

Similarly, airlines don’t price seats at $50 in January to fill planes the following December. They constantly evaluate supply and demand (and the competition) to determine the highest margin they can make. Full planes are great, but filling the plane isn’t the only goal; airlines know that it’s better to sell one seat for $10,000 rather than 100 seats for $50 apiece, or $5,000.

Using an RTB auction to sell video inventory means that CPMs better reflect the true marketplace, one where buyers compete for valuable inventory. And setting appropriate price floors in that auction can ensure that CPMs don’t fall below the publisher’s comfort zone.

Many of the publishers I know are thinking through these issues in great detail, and putting people, technology and analytics into figuring out the right balance for their organizations. But too often I see publishers put their best-laid plans aside, and take the guaranteed money by selling to an ad network. This effectively lets someone else benefit from the high CPMs the publisher could have received had they stood their ground.

You might be thinking that this argument might sound odd coming from someone on the demand side, but there’s a good reason why advertisers are willing to pay higher CPMs—more granular targeting. For the buy side, more video inventory means greater scale on audience buying in video, which is the Holy Grail. For publishers, better audience targeting will only drive greater returns on their video content. This is a virtuous cycle that’s just waiting to begin at scale.

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