Joe Marchese on myth of attribution, VOD ad inventory, upside of live sports

by

Fox Networks Group’s President of Advertising Revenue speaks at MoffettNathanson Media & Communications Summit

A day after he opened the 2018 FOX upfront presentation in New York City, Joe Marchese, President of Advertising Revenue for Fox Networks Group (FNG), had the opportunity to dive more deeply into topics of immediate interest to the advertising community at the 5th Annual MoffettNathanson Media & Communications Summit. In a wide-ranging conversation with Michael Nathanson, founding partner and senior research analyst at MoffettNathanson, Joe talked about the myth of attribution, how “less is more” is yielding measurable results, the value of VOD ad inventory and more.

Busting the myth of attribution
Joe began the discussion by noting how little has changed despite recent digital ad scandals. There are three main problems here, and they’re rooted in the myth of attribution, according to Joe.

“So, what happened is digital has built a feedback loop that says, ‘If you spend money here, we drive sales.’ And they’ve built models that are impossible for people to break down and get inside the black box,” he explained.

“On Facebook, I might say I need a truck. So, this person is more likely to end up buying a truck at some point, and you make sure you have exposures across the category. When you check the control exposed group from the outside, you can’t check against just the high-propensity buyers. So, all the models come back saying, ‘Yep, it’s moving product.’ So, that’s problem No. 1 – it’s like we haven’t really dispelled the attribution myth. Once you do that, I think that is actually the first chink in the armor.”

The second problem is a focus on driving short-term sales at the cost of long-term brand erosion. In these scenarios, brand becomes the margin. But there are digital brands that get this.

“If you look at Apple’s media plan, it looks like it’s out of the 1950s in a lot of places – and I mean that in a good way, because it can’t be frauded. You don’t fraud billboards,” Joe said. “If you ride the subway right now, you’ll see nothing but digital companies advertising there. Do you think these guys don’t understand how digital works? Do you think they’re Luddites?”

The last problem is seen when digital players tout attribution lists when, in reality, sales are a pie. Competitors all take their slice from the same pie. So, when a vendor tells one automaker that it will help it sells cars, it’s hard to understand how it can go to another automaker and make the same claim.

“They’re going to grow or shrink by a certain percentage, but it doesn’t move a whole lot. So, you’re share shifting.”

Also, when clients tell agencies to achieve the same results year-over-year for less money, it implies that people’s time this year is worth less than it was last year, Joe said. When a CPM is supposed to reflect what you pay for people’s time, this scenario “invites fraud,” since the only place where you can try to achieve this is the imaginary “infinite inventory” of the internet.

Less is more
The industry used to have a two-party negotiation involving only agencies and TV networks. Agencies would compare year-over-year costs and avoid large increases, so TV networks simply added more ads in each ad pod.

“Well, now that’s kind of breaking, because viewers revolted,” Joe said. The two-party negotiation is now a three-party negotiation, with the viewer joining the table – and they have an opt-out cost of $10-15 a month if they want to go ad-free.

FX+, for instance, gives advertisers a proposition: “If you don’t make a viewing experience that a consumer will like better than $5, they’ve got that option,” Joe said. That “release valve” pushes the market toward the efficiency it should seek.

FNG is reducing inventory dramatically in some places, enough so viewers will notice. “JAZ pods” (“Just A and Z”), which Joe talked about at the FOX upfront presentation, are the latest step in this direction. This new ad format features just two 30-second commercials per break, reducing the total number of commercials by more than 60 percent.

The most valuable ad inventory
“If all advertising is supposed to be bought based on the likelihood that someone is watching, that should be how you decide whether something is valuable or not,” Joe said. “On VOD, when someone presses play, it’s guaranteed that there is a human being sitting there. I would say it’s probably the most valuable inventory, period.”

With FX, for example, all normal commercial breaks were eliminated in VOD. However, while FX’s ad load in VOD was down 70 percent, revenue is up.

“We basically reclassified VOD,” Joe said. The industry is now waiting for further unification of the platforms VOD content is watched on.

The upside of live sports
Yet another example of “less is more” can be seen in live sports, which FOX is embracing in a big way with the addition of Thursday Night Football to its fall programming schedule. This has massive upside for advertising, Joe said.

In-game six-second ads are one example of this upside: Joe said that during FOX’s Thanksgiving Day NFL game between the Minnesota Vikings and Detroit Lions, the network ran nine “in-action sixes” and was able to eliminate an entire commercial break – and remain revenue neutral. “That type of thinking as it applies to sports is huge.”

Listen to the replay of Joe’s full conversation at this year’s MoffettNathanson Media & Communications Summit.