In the wake of the Great Recession of 2008, Wall Street’s reputation took a big hit, but the online advertising market could soon find itself functioning a lot like a Wall Street trading desk.
As Alexandra Bruell details in an AdAge piece, a number of adtech upstarts are working to build futures markets in which media buyers and sellers transact for future inventory.
As with crude oil and corn, a futures market for digital media would invite industry players and financiers to bet, through online exchanges, on the future price of media inventory. Ad sellers could lock in sales further out, while buyers could lock in prices on inventory that they expect to become more expensive.
Futures markets like those being developed by Mass Exchange and AdFin would not only give media buyers the ability to lock in pricing on future ad inventory but to profit from it.
For example, if a media buyer purchases a block of inventory at a CPM of $20 and the price rises to $25 CPM, the buyer would have the option to sell the inventory and collect the $5 difference.
On the other side of the transaction, media sellers could come out ahead if they sell future inventory at a premium and its price later declines.
The good and the bad
Robust futures markets could be a good thing for both media buyers and sellers, particularly for certain kinds of inventory.
As Brian Lesser, who heads WPP-owned company Xaxis, notes, there is a “massive quality fluctuation” in the market for video ad inventory, which means it might be ideally suited for futures markets. Being able to sell future inventory could also help publishers make more timely investments in content.
On the other hand, futures markets could create a speculative environment in which outside players seeking profit gain influence. As AdAge’s Bruell notes, “Those players might include hedge funds looking to bet and buy without the intention of using the inventory.”
Because of the hit Wall Street’s reputation has taken in recent times, the idea of hedge funds becoming media buyers and sellers will probably turn many off.
But arbitrageurs are already playing in ad exchanges, and if hedge funds can help develop and bring ample liquidity to these markets, the benefits these markets offer to publishers and media sellers which intend to use inventory could be significant.
Of course, those potential benefits probably won’t be realized immediately. The companies trying to lay the groundwork for ad futures markets are young and many issues will need to be addressed. And the markets themselves could take years to grow to a meaningful size.
But it’s not too early for media buyers and sellers alike to start preparing for the day when inventory is truly no different than any other commodity.