LPA Report_April 20[1]

I N D U S T R Y P A P E R A P R I L 2 0 1 5
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Tomorrow’s Media, Understood Today
BORRELL
WWW.BORRELLASSOCIATES.COM
2015-2020
Programmatic
Advertising
Local
DigitalPublishing
CautiouslyEmbraces
Automatic
Buying-And-Selling

WWW.BORRELLASSOCIATES.COM
Acknowledgement
We’d like to thank Bill Ammerman from Tribune Media for conducting much of the research and analysis
contained in this report. Our survey of local ad managers was conducted on Mr. Ammerman’s behalf for his
masters’thesis earlier this year at the University of North Carolina. His willingness to share valuable
insights makes him a true leader in the programmatic space.
Principal Authors Of This Report
William Ammerman
Vice President
of Programmatic and
Data-Driven Revenue,
Tribune Media
Kip Cassino
Executive Vice President
kcassino@borrellassociates.com
Colby Atwood, President
CAtwood@borrellassociates.com
Gordon Borrell, CEO
GBorrell@borrellassociates.com
Kip Cassino, Executive Vice President
KCassino@borrellassociates.com
Borrell Associates LeadershipTeam:

Table of Contents
Executive Summary.....................................................................................................................................................................................................................................................................................4
CHAPTER 1: Programmatic in Perspective......................................................................................................................................................................................................................5
CHAPTER 2: Programmatic Poised to Dominate Banner & Streaming Video.........................................................................................................................9
Fig. 2.1 By 2020, Programmatic Accounts for 85% ofTargeted Banner Purchases...............................................................................................................................................................9
Fig. 2.2 Targeted Banner Ad Spending Becomes More“Local”OverTime.............................................................................................................................................................................10
Fig. 2.3 By 2020, Programmatic Accounts for 67% of StreamingVideo Purchases...........................................................................................................................................................11
CHAPTER 3: Programmatic at the Local Level........................................................................................................................................................................................................13
Fig. 3.1 Percentage of Revenue from Programmatic Sales...........................................................................................................................................................................................................13
Fig. 3.2 Less than Half Employ a Full-time Programmatic Manager........................................................................................................................................................................................14
Fig. 3.3 How Staff Size is Changing Due to Programmatic............................................................................................................................................................................................................15
Fig. 3.4 Types of Programmatic Sales Employed..............................................................................................................................................................................................................................15
Fig. 3.5 Percentage of Inventory Sold via Programmatic..............................................................................................................................................................................................................16
Fig. 3.6 Concerns About Programmatic Sales.....................................................................................................................................................................................................................................16
Fig. 3.7 Perceived Advantages of Programmatic Sales...................................................................................................................................................................................................................17
Fig. 3.8 Average CPM for Programmatic Sales...................................................................................................................................................................................................................................17
Fig. 3.9 Average CPM for Programmatic Sales...................................................................................................................................................................................................................................18
Conclusions and Recommendations...................................................................................................................................................................................................................................19
About Borrell Associates ...................................................................................................................................................................................................................................................................20
3©2015 Borrell Associates Inc. All rights reserved.
BORRELL
Programmatic Advertising, 2015-2020INDUSTRY PAPER April2015

Executive Summary
When it comes to automated buying and selling, the Internet reigns supreme. So it’s inevitable that advertising will also one
day become automated. And while that day is not quite here, it’s coming rapidly.
The programmatic-advertising iceberg showed its tip last year, as 4.7% of all locally placed digital advertising was done
through these automated buying-and-selling networks. This year the share will grow to 10%, which means that $5 billion
of digital ad-buying at the local level will be handled by computerized bidding. In five years, most targeted banners and
streaming video ads will be bought and sold via computerized bidding. We’re forecasting the dollar volume to grow tenfold
in that period.
Fully realized programmatic advertising will also begin to make it harder to answer succinctly, “what is “local” advertising?”
National brands will be able to pinpoint and message to specific groups of people, including tight geographies. Meanwhile,
the one-of-a-kind gift boutique, only able to afford general local advertising, will be able to bring their small-town feel
directly to a person sitting in the middle of Manhattan. Furthermore, that Manhattanite actually wants to see that shop’s
advertising. What is local anymore?
Does this spell the death of the digital salesman? Hardly. But the role will certainly change as advertisers shift to buying
specific audiences across a myriad of sites. Our survey of 154 local digital managers showed that more than two-thirds
are already participating in some sort of programmatic network and have already assigned or hired someone to manage
the opportunity. There’s a growing demand for full-time programmatic managers who can optimize CPMs and strike an
appropriate balance between direct-sold inventory and programmatic.
This report offers a primer on programmatic advertising, details the flow of advertising dollars at the local level, and
examines things at the local operations level. It points to continued strong growth as local publishers, once skeptical of the
commoditization of advertising inventory, seem to have begun cautiously warming up the programmatic monster. While
only 10% have a bad feeling about the potential effect of participating in programmatic networks, 46% have mixed feelings
or just don’t know.
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CHAPTER I
Programmatic in Perspective
Programmatic has evolved much faster than most publishers and marketers can keep up with. Last year, the Association of
National Advertisers surveyed 153 marketers and found that 74% were“completely oblivious, aware but unclear, or in need of
education”when it came to programmatic advertising. So, a primer and some perspective are in order before we delve into
the numbers and forecasts.
Simply put, programmatic advertising refers to the mechanization of the advertising marketplace. Think of it like eBay bidding.
You find an item you want (in this case, an audience of likely consumers), and you place a bid.You upload your ad, set the budget
and time parameters, and your chosen audience begins seeing it as they browse the web or visit their favorite sites. Like eBay, it
doesn’tmatterwhetheritcomesfromawell-knownretailerorsomeguyinagarageinIdaho- aslongasyougetwhatyouwant.
Programmatic refers to both the buying and selling of inventory. It lives mostly in the world of digital media, but TV and
radio are also beginning to see some action from programmatic buying. Inevitably, computerized ad-buying will spread to
newspapers, magazines and yellow pages as well.
On the next page is a diagram created byTurn, an advertising technology company, that outlines the“path”of a programmatic ad.
Keep in mind, the long list of actions on the right happen in less than half a second.
The promise of programmatic emerged three decades ago with the appearance of bulletin boards like America Online and
Prodigy. As the Internet took hold, the possibility grew that a vast network of interconnected computers could someday
automate the placement of ads. At first, ad placement was direct, with advertisers communicating their placements to
website publishers using traditional technologies such as email and telephones.
Gradually, ad-serving technologies made it easier to schedule flights of banners across multiple websites. This led to the
creation of ad networks that specialized in aggregating the supply of online ads from multiple website publishers and selling
it to advertisers at scale.
Oneithersideofthissupplyanddemandmarket,companiesbuiltsoftwareplatformsthatenabledthetransactions.Thesupply
side platforms (SSPs) worked on behalf of publishers to help them monetize their inventory.The demand side platforms (DSPs)
worked on behalf of advertisers to help them cost-effectively reach the right audiences. Together, SSPs and DSPs brought
new automated efficiencies to the online advertising industry and competed alongside traders and ad networks in the ad
exchanges for the opportunity to buy and sell ads programmatically.
The rise of programmatic isn’t due only to the SSPs and DSPs, however. It’s a triumvirate that includes some very powerful
data-tracking companies. By analyzing log files of users’ web browsing
histories, these companies can ostensibly create a marketing holy grail:
the ability to determine what they’re likely to buy soon.
One data provider, Acxiom, has developed a massive database of
consumer behaviors. For about 96% of American households, Acxiom’s
databases contain,“the names of their family members, their current and
past addresses, how often they pay their credit card bills, whether they
own a dog or a cat (and what breed it is), whether they are right-handed
or left-handed, what kinds of medication they use (based on pharmacy
records). . . . The list of data points is about 1,500 items long.”1
To understand programmatic
advertising one must realize
that the ads are being delivered
individually, one at a time, to
consumers based on data that
targets them as members of
ideal audience.
1
Pariser, E. (2011). The Filter Bubble: How the New Personalized Web is Changing What We Read and How We Think. New York: The Penguin Press.

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THE LIFE OF AN AD
1. UNIFY advertiser’s CRM, campaign,
and website (ﬁrst party) data with technographic,
behavioral, contextual, and demographic (third
party) data in a data management platform (DMP).
2. BUILD audience segments in DMP
based on business need.
3. CREATE an advertising plan to reach
target audience segment.
4. BUDGET for digital ad campaign
and develop media plan.
5. DESIGN ad for multiple media formats
(video, display, social, mobile) and devices.
6. ADVERTISE using a demand-side
platform (DSP), the technology for buying media.
7. OPTIMIZE campaign performance
and analyze results.
8. INFORM future plans by consolidating
campaign data back into DMP.
“UserABC” clicks on a URL and the publisher’s
content begins to load in browser.
Publisher asks its ad server if an ad is
available. If no ad, server asks Ad Exchange.
Ad Exchange federates ad request to multiple demand
side platforms (DSPs), the technology for buying media.
0.04 second
0.08 second
Ad Exchange sends each DSP UserABC's anonymous proﬁle,
website category, and page ad safety information.
Each DSP overlays advertiser targeting and budget
rules, and applies third-party data.
Each DSP algorithm evaluates and computes
optimal bid for advertiser.
Each DSP responds to Ad Exchange.
Ad Exchange runs a second-price auction and selects
winning bid from DSP responses.
Ad Exchange sends price and ad from winning
bid to publisher’s ad server.
Publisher’s ad server tells browser which ad to display.
Advertiser’s ad server sends winning ad to browser.
Browser displays web page including winning ad,
and signals to winning DSP the ad was viewed.
While a marketer can spend weeks building the perfect ad campaign
strategy, it takes only a fraction of a second to buy and deliver the ad.
BUILDING A DIGITAL
AD CAMPAIGN
BUYING ADVERTISING
IN REAL TIME
0.10 second
0.12 second
0.13 second
0.14 second
0.18 second
0.19 second
0.23 second
0.31 second
0.36 second
0.125 second
© 2013 Turn Inc., All rights reserved.turn.com
0
.36
SE CO ND
SE CO ND

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These advanced targeting capabilities moved exchanges beyond remnant inventory clearance, and into the premium
advertising business.
To understand programmatic advertising, one must realize that the ads are being delivered individually, one at a time, to
consumers based on data that targets them as members of ideal audiences. Two people, sitting next to each other and visiting
the same website, might see two totally different ads, based on different cookie profiles.
For example, a consumer who visits websites about golf might be a good prospect for
ads from a golf ball manufacturer. At the same moment, another visitor to the same page
might see an ad for a Ford F-150 based on a cookie profile that suggests the person has
been looking for a new pickup truck. The market resolves these programmatic buying
and selling decisions in less than 200 milliseconds. (That beats the blink of an eye by
about 100 milliseconds.)
By allowing programmatic to deliver value in the form of better targeting, the industry
has begun to migrate from thinking of it as a method for clearing unsold remnant. One promise is that it can introduce a level
playing field across the buying and selling landscape in which price is more fluid and objectively determined.
In 2013, the Interactive Advertising Bureau developed a classification system to help demystify the techniques involved in
programmatic buying and selling. The result was a paper authored by Jeffrey Goldstein of Yahoo! that groups programmatic
into four types of transactions:
nn Automated Guaranteed - similar to a traditional direct sale, with the exception that the RFP, campaign trafficking
and fulfillment are all handled through an automated technology platform. The inventory is reserved at a fixed
rate for a specific advertiser.
oo Unreserved Fixed Rate - similar to the Automated Guaranteed in that the rate is fixed between a publisher and
advertiser, but the inventory is unreserved and available through the exchange.
pp Invitation-Only Auction - leverages an auction model rather than a fixed rate, but the inventory is only available
to a predetermined list of bidders. Also known as a private exchange or private marketplace, Invitation-Only
Auctions allow publishers more control over the ads and advertisers they accept on their sites.
qq Open Auction - an auction model in which the publisher’s inventory is made widely available to all bidders in an open
marketplace. Open Auctions were the first type of programmatic transaction to enable Real-Time Bidding (RTB).
Threat to Publishers
For publishers and their direct sales teams, programmatic has presented a threat. Initially, many offered their remnant
inventory through ad exchanges in hopes of wringing a few extra dollars from unused ad space. For many, the unexpected
consequence was that their existing pool of direct advertisers figured out that they could buy ads on the same websites for
a fraction of the cost if they bought those ads through remnant auctions.
“Alotofpublishershaveexistingdirectsalesforcesinplace-manyofwhomareworriedaboutbecomingobsolete,losingtheir
jobstomachines,”theIABsaidinapaperonbuildingprogrammaticsalescapabilities.“Howpublishersbuildtheirprogrammatic
sales capability, compensate sales people, and set budgets is important not only for them but to the ecosystem as a whole.”2
Many publishers see programmatic as a double-edged sword. On one hand, they can’t afford to pass up the revenues
available in the programmatic markets to fill their unsold inventory. On the other hand, they don’t want to risk undermining
their premium direct business by giving their existing customers a back door to buying their websites at discount rates. One
solution many publishers are willing to test is Invitation-Only Auctions (also known as private exchanges), whereby the publisher
The market resolves
these programmatic
buying and selling
decisions in less than
200 milliseconds.
2
IAB,“Building a Programmatic Sales Capability,”2014. www.iab.net/media/file/IABDigitalSimplifiedProgrammaticSalesCapability.pdf

BORRELL
can control which advertisers are able to bid on their inventory. Invitation-Only Auctions allow the publisher to assemble a white
listofhundredsandeventhousandsofactivebiddersfromprogrammaticauctionsandexposeremnantinventorytothemforpur-
chase,whileblockingexistingpremiumcustomers frombiddingon,orevenseeingtheinventory availablethroughprogrammatic.
One school of thought is that the technology stack automating ad operations
will make it easier to manage the transactional aspects of ad sales through pro-
grammatic, freeing the sales team to focus on strategic opportunities and cre-
ative initiatives rather than ad operations. The sales team will then be able to
focus on higher-value creative strategies that differentiate them from their com-
petition. The team that embraces programmatic gets out from under the bur-
den of transactional operations and emerges as a creative asset for the publisher.
Advantages and Disadvantages
Unlike auctions that position blocks of ads in aggregate prior to the flight dates, real-time bidding produces entirely new
opportunities for control over the marketing process. Programmatic RTB provides the marketer with access to real-time
analytics that can be correlated more accurately with brand-related events in the news and social media.
This data-driven media buying allows campaign optimization decisions that are more responsive to market conditions. It also
opens the door for marketing automation systems to optimize ad campaigns against real-time data gathered through brand
research. This allows savvy marketers to jump on shifts in the marketplace very fast. Remember everyone talking about how
smart Oreo was for their perfectly timed tweet“You can still dunk in the dark”during the blackout of the Super Bowl? Imagine
that responsiveness to market conditions on a much broader scale.
Other advantages of RTB are efficiency and reliability.“Using exchanges and other ad tech, [marketers] can access a huge range
of inventory across a wide range of sites and cherry-pick only the impressions they deem most valuable to them,” explained
Digiday columnist Jack Marshall. “That cuts down the number of impressions wasted on the wrong users but also minimizes
the need for costly and unreliable human ad buyers.”3
There are significant drawbacks to programmatic. One fear from the publisher’s perspective is that programmatic will drive
down CPMs as premium dollars flee in favor of lower costs on the exchanges. Marketers fear losing control of where their
advertising will run. This also may impact premium publishers who feel that their content is undervalued in a programmatic
landscape that places a premium on audiences rather than content. Also, in an open auction environment there is nothing to
prevent an ad from running in a context that the advertiser might not consider“brand safe.”
Another factor that impacts both marketers and publishers alike is the fear that programmatic advertising reduces the accuracy
of delivery and introduces the opportunity for mistakes in ad placements, incorrect geo-targeting, poor audience targeting, and
potential fraud. Nagging fears that the ads aren’t being delivered properly, due to software bugs, limitations of technology, and
human error are common among marketers.
Privacy is also a hot topic. Programmatic advertising thrives in an environment that maximizes access to personal information
about an individual’s online and offline behaviors, including their credit history, purchase history, financial status, and other
signals in the data that might indicate purchase intentions. Publishers face some risk by enabling the collection and distribu-
tion of private information about their audiences.
Reporting standards are yet another problem that adds to the challenges facing programmatic. Brand advertisers have grown
discontentwithreportsthatcontainonlyclicksandimpressioncounts.Theyareseekingmorestandardizedbrandmetricssuchas
purchase intent and brand awareness. Unfortunately, the digital media industry has lagged in establishing a set of unified brand
standards and that is holding back a considerable amount of brand spending.
“A lot of publishers have
existing direct sale forces in
place ― many of whom are
worried about becoming
obsolete, losing their jobs to
machines.”
3
“WTF is real-time bidding?”Jack Marshall, Digiday, Feb. 2014

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CHAPTER II
Programmatic Poised to Dominate Banner & StreamingVideo
Last year programmatic buying at the local level was a veritable drop in the bucket. At just 4.7% of all locally spent digital
advertising, local site operators might rightfully ask, who cares?
Things are changing quickly. This year we expect programmatic buying to account for 10% of all digital advertising, or $5
billion. Our forecast calls for the share to expand nearly tenfold over the next five years at a Compound Annual Growth Rate of
93.5%. At that rate, the level of local advertising flowing through programmatic networks would reach $47 billion by 2019 and
surpass national programmatic spending. If that scenario holds true, 61% of local digital advertising and 97% of national digital
advertising would be purchased via programmatic networks.
The rapid conversion of automated buying is causing another very interesting phenomenon: Local or geographically-targeted
advertising is about to overtake national. That is, out-of-market advertisers are taking advantage of the ability to easily restrict
ad placement to a region or specific local market. That’s excellent news for local site operators who’ve had a difficult time
getting anything from national ad networks other than low-CPM remnant ads.
Couldthisbeaharbingerforanewmarketingworldwherebroadlyplacednationaladverting(thinkSuperBowlandprimetime
TV programming) no longer exists? As audience databases explode with information that can define not only demographics
but also pinpoint where they’re sitting, standing or riding at that very moment, the answer is, probably not. Broad-appeal
brand advertisers such as McDonald’s, Coca-Cola and United Airlines will still want to make everyone feel good about their
brands regardless of geography. But programmatic buying will certainly affect widespread erosion of nationwide deals.
While automated buying programs may account for 61% of all digital advertising in a few years, it will have a more profound
effect on two formats: banner advertising and video advertising.
Targeted Banners
Figure 2.1 illustrates how programmatic buying already accounts for half of all targeted display advertising, up from 24% just
two years ago. By 2020, the forecast is for 85% to be sold via programmatic. In other words, only 15% of local and national target-
ed banners will be sold via traditional sales reps in five years if this forecast holds true.The rest will be invoiced through networks.
Figure 2.1: By 2020, Programmatic Accounts for 85% of Targeted Banner Purchases
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
$0
Targeted Banner Advertising
2013 2014 2015f 2016f 2017f 2018f 2019f 2020f
85%
15%76%
24%
TOTAL Sold via Programmatic Direct Sold

© Borrell 2015 All Estimates and Forecasts in $ Billions

BORRELL
Year 2013 2014 2015P 2016F 2017F 2018F 2019F 2020F
National $18.63 $26.48 $33.04 $38.92 $43.47 $45.95 $45.59 $46.28
Local $7.42 $17.14 $30.65 $46.37 $61.62 $72.68 $76.81 $79.18
Total $26.05 $43.63 $63.69 $85.29 $105.09 $118.63 $122.40 $125.46
% National 71.5% 60.7% 51.9% 45.6% 41.4% 38.7% 37.2% 36.9%
% Local 28.5% 39.3% 48.1% 54.4% 58.6% 61.3% 62.8% 63.1%
As noted earlier, programmatic buying has also begun changing the face of what we’ve known as local advertising. Two
years ago, the ratio between locally purchased banners and national was 1 to 2.5. That is, for every $1 spent on targeted
banners by businesses inside a market (or“local”advertisers), $2.50 was spent by national advertisers - or those who didn’t
have a store in the market they were buying. Largely due to the influence of programmatic, this is about to flip.
Figure2.2forecaststhatthelineswillcrossin2016,whenlocallygenerateddigitaldisplayadspendingwillbegreaterthannational.
This disparity will grow for the rest of the decade. By 2020, the ratio of locally generated digital display to national will reach 1.7 to 1.
Figure 2.2:Targeted Banner Ad Spending Becomes More “Local”Over Time $in Billions

© Borrell 2015
What could cause this change? Several factors are at play:
•• Programmatic becomes “do-able” at the local level. Sophisticated programmatic and targeting software
and expertise, once available only to bigger national players, becomes available to local media. Local retailers em-
brace programmatic buying as a means of reaching specific, high-value audiences.
•• Local CPMs rise. As the demand rises, CPMs follow.
•• National CPMs decline. The attractiveness of a massive, untargeted nationwide campaign declines as national
advertisers spend less overall to reach specific audiences. Lower demand forces CPMs down.
•• National programmatic banners become “value-added” in bigger cross-media deals. Programmatic
buying is making inroads in other media, including broadcast TV, cable, magazines and radio. That will make cross-
branding packages attractive to national advertisers. The digital part of these deals will be deeply discounted to
sweeten those high-priced buys.
As national programmatic undergoes this struggle, local site operators stand to benefit most. There are two reasons: First, pro-
grammatic makes national advertising readily accessible to a local site, and at higher rates (because it’s targeted) than national
remnant ads; second, programmatic has the potential to entice smaller local businesses to buy more inventory outside of the
market. Consider these examples:
•• A Tucson dress shop that sells Southwestern fashions is now a candidate for “national”advertising because it can
display its banners to potential shoppers hundreds or thousands of miles away. The shop can target anyone who’s
searched for “Southwestern fashions,” who’s selected “Tucson” as a destination on a travel or hotel site, or who
might have visited www.southwestindian.com or www.etsy.com/market/southwestern_dress.
•• Businesses in seasonal markets have long tried to reach out-of-market travelers before they made vacation plans.The
General Palmer Hotel in Durango, CO., can now find potential guests in South Bend, IN., and The Lobster House in
Cape May, NJ., can reach potential diners in Wilkes-Barre, PA. Local media companies participating in programmatic
networks will be the prime sellers of that type of out-of-market advertising service. Their competitors will be out-
of-market digital agencies with existing relationships in vertical categories, like Yelp (restaurants), Officite (medical
practices), HomeAway Inc. (vacation rentals), and Blizzard Internet (hotels and B&Bs).

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•• Virginia Diner in Wakefield, VA., which has an adjoining shop that sells peanuts, can now hit specific targets outside
the market. It can display ads to anyone who’s visited other gourmet gift sites, school fundraising sites, or has a
profile that lists“Boy Scouts”or“Girl Scouts,”since Virginia Diner has an active fundraising program for scouts.
All of these examples also show how, in the very near future, the concept of “local advertising” can start to mean different
things. Programmatic can deliver on relationship marketing’s promises of getting in front of the right person at the right time,
regardless of localization.
In a way, it’s the rebirth of contextual advertising. But while it’s been available for more than a decade via Google, Yahoo!
and Bing, programmatic targeting offers a broader dimension. Instead of tied to a search term or what type of words are on
a page, programmatic networks key off the viewer’s individual profile and can deliver a far greater variety of banner sizes.
Streaming Video
There’s more to programmatic than digital display, and there’s more to it than what’s happening in the digital arena. By the
end of this decade, the programmatic force will dramatically affect how ads on broadcast television, cable and radio are sold.
Video advertising will be disrupted most. Today, video accounts (including streaming video) for nearly $1 of every $3 spent
on advertising - roughly the same as print. It remains a favored format by the car industry, political candidates, brewers,
jewelers and the fast-food industry. The ease with which TV spots can be converted to shortened digital video ads is similar
to the way large databases of print classified ads could be easily transferred to searchable website listings. So the scene is set
for video screen transfer, which in fact has slowly been occurring. Here’s an interesting fact: The amount spent on streaming
video advertising last year was more than half as much as advertisers spent on all TV advertising.4
Programmatic will be the catalyst that transforms digital video into a multimedia giant - and in the process, follows the
transition of broadcast television and cable entertainment from the big, single-purpose screens on our walls to all manner
of digital devices throughout our homes, vehicles, pockets, backpacks and on roadside billboards, elevators and gas pumps.
Our forecasts for programmatic video reflect the shape of this marriage to come.
While programmatic networks are creating a whole other shockwave within analog media, for this report we are only ad-
dressing programmatic advertising as it pertains to the digital space.
Figure2.3plotscurrentforecastsforthegrowthofdigitalvideoadspendinganditsprogrammaticcomponent.We’reforecasting
that, by 2020, two-thirds of streaming video advertising will be purchased through programmatic networks.
Figure 2.3: By 2020, Programmatic Accounts for 67% of Streaming Video Purchases
4
Advertisers spent $37.6 billion on broadcast TV and cable advertising in 2014 and $20.5 billion on video-streaming commercials.
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Streaming Video Advertising
96%
4%
2013 2014 2015f 2016f 2017f 2018f 2019f 2020f
TOTAL Sold via Programmatic Direct Sold
67%
33%

© Borrell 2015 All Estimates and Forecasts in $ Billions

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What fuels the trend in Figure 2.3 is the same phenomenon that deconstructed the newspaper industry: the up-sell strat-
egy that gave advertisers steeply discounted (or free) banners if they’d continue buying print display ads.
In simple terms, up-sell assumes that two lookalike products can be sold: the core product responsible for the majority of
revenue and a new product that may cannibalize it. Using the up-sell strategy, companies will offer the newer product at a
deep discount, hoping to ensure purchase of the core product.With regard to video, the new product is programmatic sales
of lookalike streaming video commercials to broadcast customers. “Buy a campaign of 30-second spots on local sports for
13 weeks and we’ll give you 5,000 pre-roll spots aired to sports enthusiasts in our local digital network for half-price.”
The up-sell is popular with current sales staffs. It’s easy for them to sell and helps them meet quarterly sales goals. It feels good
to station executives because the core product is being protected and, ostensibly, attaining value because of the digital tie-in.
The major problem with the up-sell strategy is that the core product is never really protected. Share of market continues to
drop as advertisers realize the value of the new product and realize that the bundle costs more than the individual product.

BORRELL
CHAPTER III
Programmatic at the Local Level
To determine how local publishers are handling the programmatic opportunity, we invited 154 ad managers to participate in
a 17-question survey. The survey ran from December 2014 through early January.
There were 154 starts and 102 completions. Respondents represented a broad cross-section of online publishing, with 44%
being local broadcasters, 37% newspapers, and the rest yellow pages and pureplay Internet companies.
Combined, the companies represented accounted for annual digital ad revenue of nearly $500 million, with an average of $5.6
million per publisher. Of those reporting digital revenue, 54% had $1 million or less and 19% reported $10 million or more.
More than two-thirds (68.6%) of local publishers surveyed said they participate in some form of programmatic selling. About
one-fourth (26.5%) of those who aren’t currently participating said they don’t intend to use programmatic in the next 12
months. However, among the smaller publishers (those with less than $1 million in total revenue), 45% don’t participate in
programmatic. That percentage fell to 13% non-participation for publishers making $1 million to $10 million, and 6% for
publishers over $10 million.
We found interesting results when we asked what percentage of digital revenues currently came from programmatic. About
one-fourth of the respondents are getting more than 30% of their revenues from programmatic networks.
Figure 3.1: Percentage of Revenue from Programmatic Sales
Approximately what percentage of your online advertising inventory is currently being sold through programmatic sales?
Source: Borrell Associates 2015 Survey of Ad Managers. N=89
© Borrell 2015
The median share of digital revenue coming from programmatic sources was reported at 5.0%. Slightly less than one-third
(31.3%) said none of their digital revenue comes from programmatic. If the non-zero responses are eliminated, the average
percentage of revenue generated by those employing programmatic sales is 18.1%.
Don’t
Participate
31%
Up to 10%
21%
Between 11% and 30%
25%
Between 31% and 50%
15% More than half
8%

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Publishers with more than $10 million in total revenue say that programmatic sales account for 16.3% of total revenue, on
average. Mid-size publishers reported 14.4%, and small publishers reported 10.7%. Interestingly, the higher the revenue of a
publisher, the more programmatic is part of their mix.
Onlyhalfoftherespondentssaidtheyexpectedthepercentagetoincrease.Giventhefastriseofprogrammatic,that’ssomewhat
surprising. But remember, we asked about “share” of digital revenues. It could be that direct sales are growing as well. One-third
expected programmatic’s share to remain the same, and 6% said they thought it would decrease. The rest didn’t know.
More than half of the respondents (55%) said they have no full-time programmatic employees, indicating that the majority of
publishers assign the task to a manager with other responsibilities. Forty-two percent had between 1 and 5 employees, and
2% reported having six or more employees dedicated to managing programmatic sales.
Figure 3.2: Less than Half Employ a Full-time Programmatic Manager
How many ad operations employees do you have dedicated to programmatic advertising full-time?
© Borrell 2015
Among those publishers who indicated that they employed people dedicated to programmatic, the average was 2.6 people.
Not surprisingly, publishers with digital revenues above $10 million are more likely to have a dedicated manager assigned to
programmatic sales, compared with those with between $1 million and $10 million and those with $1 million or less.
We also asked who within the organization managed programmatic activities. For those without a full-time designee,
responsibility fell to either an existing sales manager or to someone handling ad ops. Publishers in the $10+ million revenue
tier are much more likely to have a senior executive (VP of sales, GSM or DOS) running programmatic compared with smaller
digital publishers.
A fear that sales staffs have - fueled by some pundits who’ve predicted that automated buying will make sales reps obsolete
- is that staffs will shrink. So far, that’s not been the case. Only 1% of respondents said their sales staff had declined due to
programmatic activity. Nearly 18% said the staff size had actually increased.
55.3%
16.5%
11.8%
14.1%
2.4%
None 1 2 3 to 5 6+
Number of Fulltime Employees

BORRELL
Have you changed the number of employees you have dedicated to ad operations due to programmatic sales?
Answer Options
Response
Count
Response
Percent
We have increased the number of employees dedicated to ad
operations as a result of programmatic sales.
15 17.6%
We have decreased the number of employees dedicated to ad
operations as a result of programmatic sales.
1 1.2%
We have made no change to the number of employees dedi-
cated to ad operations as a result of programmatic sales.
59 69.4%
Don't know 10 11.8%
TOTALS 85 100.0%
Figure 3.3: How Staff Size is Changing Due to Programmatic
© Borrell 2015
Among publishers who indicated that they currently engage in programmatic sales, 42.2% said they participate in open
auctions. The number of respondents who expect to use “invitation-only auctions” (also known as private marketplaces)
in 2015 increased almost 10 points, from 20.6% to 30.4%. The percentage of respondents who expect to use “automated
guaranteed” in 2015 increased 8 points, from 24.5% to 32.4%. The number of respondents deploying unreserved fixed-rate
auctions was projected to remain unchanged at 27.5%.
Figure 3.4:Types of Programmatic Sales Employed
What types of programmatic sales does your organization currently employ?
Source: Borrell Associates 2015 Survey of Ad Managers. N=151 for“Current”and N= 166 for“Future”
© Borrell 2015
Current Future
OpenAuction
43 44
25
33
31
21
28 28
32
27
2 3
Automated
Guaranteed
Invitation-Only
Auction Unreserved
FixedRate
No
Programmatic
Other

BORRELL
Shifting focus from revenue to inventory, most respondents (52.8%) indicated that programmatic sales consume 10% or less
of their total inventory. Looking just at those respondents who indicated that they employ programmatic sales, the median
answer was that 25% of total inventory goes to programmatic. A smaller group of publishers (22.5%) indicated that more than
30% of their inventory was sold programmatically.
Figure 3.5: Percentage of Inventory Sold via Programmatic
51% +
41% to 50%
31% to 40%
21% to 30%
11% to 20%
1% to 10%
None
Number of Responses
7
7
6
11
11
19
28
© Borrell 2015
As noted in Chapter 1, publishers do indeed have concerns. Our survey identified the key ones as commoditization and
depressed CPMs, lack of staff expertise, and an undermining of advertiser relationships. In Figure 3.6 it’s interesting to note
that none of the concerns were shared by a majority of respondents.
Figure 3.6: Concerns About Programmatic Sales
Which of the following are concerns that you have about programmatic sales? (Select all that apply.)
Commoditizing product
Lack of experience
Undermining direct relationships
Concern that CPMs will drop
Uncertainty about sales model
Fraud
Lack of transparency
Privacy concerns
Other
34%
33%
30%
28%
26%
23%
18%
17%
18%
© Borrell 2015
When we asked respondents what the key advantage of programmatic might be, increased revenue topped the list. More
access to quality advertisers came in second. One survey participant wrote, “We're being bought by agencies that would have
never purchased our sites, and it's allowing us to take less business from the bottom-feeding ad networks.”

BORRELL
Figure 3.7: Perceived Advantages of Programmatic Sales
What is the primary advantage you hope to achieve through programmatic sales?
Increased overall revenue
Greater access to quality advertisers
Streamlined ad operations
Better value for customers
Cost savings
Other 11%
32%
12%
13%
19%
12%
© Borrell 2015
Because increased overall revenue was the top choice, it is worth noting that the average programmatic CPM reported by
respondents was a relatively low $4.88 - less than half of what a local “direct” CPM might be. To make matters worse, 58.6%
indicated that their average programmatic CPM was $3.00 or less.
Figure 3.8: Average CPM for Programmatic Sales
What is the average CPM (cost per thousand) you are receiving for ads sold programmatically?
> $10
$7 to 10
$3 to 6
$2
$1 8
4
10
20
5
Number of Responses
Average CPM: $3.88
© Borrell 2015
Overall, publishers skewed toward a positive view of programmatic’s impact on their revenue. Nearly 44% responded
that programmatic was having a positive impact, compared with 10% who felt it had a negative effect. Ambivalence and
uncertainty are major factors in attitudes toward impact. More than 46% either don’t know what that impact is, or they believe
the impact is a mixture of positive and negative.

BORRELL
Figure 3.9: Average CPM for Programmatic Sales
Overall, what impact do you think programmatic advertising is having on your online revenue?
26.3%
20.0%
26.3%
17.5%
6.3%
3.8%
Bad
Good
Very positive
Somewhat positive
Mixed
Somewhat negative
Very negative
Don’t know
© Borrell 2015

Conclusions & Recommendations
Publishers’ skepticism or reticence won’t halt the growth of programmatic advertising. The automated process of bidding
for banner and video ads makes sense because it reduces costs and creates greater market efficiencies. In the end, we think
it opens up fantastic opportunities for local publishers. In fact, handled well, we think it could be a very good thing.
At an average local CPM of $3.88 for programmatic buys, nobody’s going to get rich just yet. But it’s a far cry from the less-
than-a-dollar CPM many have been accepting for remnant inventory. CPMs are bound to increase as ad technology gets
more sophisticated at reaching specific targets. Also, programmatic buying opens the door to a treasure trove of“national”
advertising to which local publishers never had as much access.
So it’s a good thing. And, may be a very good thing for those who learn how to manage the networks well. To prepare for a
successful transition, here’s what we recommend:
•• If you haven’t already jumped into the programmatic game, do it. It’s the best way to get educated on the topic.
Speak with current ad-tech vendors or participate in webinars or conferences.
•• Invest in audience management and ad-serving software for your own sites. The greater targeting you can offer
advertisers to your own traffic, the higher CPM you’ll command.
•• Educate account executives. They’re likely to already be hearing about programmatic either in the trades or from
advertisers themselves.They need to know the company’s position.They also need to know the company’s commit-
ment to the core strengths of account executives as relationship-builders who add value to the partnership through
their knowledge and creativity.Technology should be viewed as a tool that eliminates the tedium and headaches of
ad operations, while freeing the sellers to work toward their strengths in retaining premium customers.
•• Establish a clear policy about when programmatic buys will be accepted, and revisit that policy every quarter using
the latest data. In some cases, publishers may decide that the risks of undercutting direct local sales is too great and
would yield a net loss of revenue. In other cases, the publisher may already be experiencing a downturn in direct
local sales and may be eager to sell more inventory through programmatic channels.
•• Be wary of upselling programmatic. If done properly, programmatic advertising can be very powerful in its own
right. The dangers of upselling something now that will be explosive in the near future can only lead to trouble -
and less revenue.
•• Use programmatic as a strategic competitive advantage. The technology stack that automates ad operations will
make it easier to manage the transactional aspects of sales. This frees the sales team to focus on higher-value
creative strategies that differentiate them from their competition. The team that embraces programmatic gets out
from under the burden of transactional operations and emerges as a creative asset for the publisher.
BORRELL

As a data-driven company, we are experts in local advertising.
We are the leaders in tracking and forecasting local ad spending
across any market in the U.S., Canada or the U.K., down to the county
or province level. We help clients gauge the levels of advertising
and marketing expenditures in their markets by any type of business.
We help media companies increase their market share and marketers
adjust their budgets by providing detailed ad-spending data,
fact-based consultation and training.
Methodology & Model
Our unique and disruptive methodology of tracking advertising was first developed in 1990 as a holistic way to gauge spending in tra-
ditional media. Since the late 1990s it has continuously progressed to include deep levels of data that monitor online advertising. Now
used by more than 7,000 companies, our ad-spending estimates are derived from a blend of bottom-up and top-down data, as well as a
continuous flow of our own market surveying.
Unlike most other companies, our approach starts at the bottom with local business expenditures, instead of at the top — media compa-
nies receipts. This is based on our belief that the media world has become so complex and fragmented that it’s impossible to deliver an
accurate assessment via only the traditional top-down approach of tallying receipts of the largest media companies.
Our model is designed with a powerful and unwavering local focus. This model of collecting expenditure and receipt data enables us to
measure ad spending that is generated and spent in any given market, directed to a market from elsewhere, and generated in a market
but spent elsewhere. For more detail on our methodology, visit www.adspending.com.
Company ProfileCompany Profile
BORRELL
Tomorrow's Media Understood Today

Market Data
Our market data is remarkably deep, offering ad-spending assessments across each of the
12 media types (newspapers, online, TV, radio, direct mail, etc.) and for any of 100 busi-
ness categories (furniture stores, car dealers, hospitals, telecommunications, etc.). It now
includes mobile and promotions data and offers backcasts and forecasts up to five years.
Under the umbrella of our Local Ad Spending Report (LA$R™) data set, our data subscrip-
tion product — The Compass — offers an interactive tool that media managers, analysts
and sales professionals use to manipulate the data to uncover enlightening facts.
The richest data surrounds the levels of spending on digital media. For instance,The Com-
pass offers guidance on how much a mid-size auto dealer in Albuquerque might spend
on search engine advertising, search engine optimization, or online video ads. We are
continuously improving the offerings to meet our clients’ needs and offer monthly user
group webinars with Compass subscribers. For a preview or to schedule a test drive, visit
www.adspending.com.
Industry Papers and Subscriptions
We release a variety of analysis-rich industry papers and memorenda throughout the
year. These papers are typically published every 30 days and include dozens of charts and
tables, as well as appendices packed with market-level data. They cover topical issues in
both online and mobile advertising, often in the framework of how those trends affect
traditional media. Annual reports include:
   SMB Spending on Digital Marketing
   Real Estate Advertising Outlook
   Automotive Advertising Outlook
   Local Advertising Forecasts
   Benchmarking Local Online Media
   SMB Social Media & Mobile Advertising Outlook
   Recruitment Advertising Outlook
Interactive Revenue-Acceleration Program (IRAP)
Our Interactive Revenue Acceleration Program is offered exclusively to Compass subscribers. It puts media companies on the fast track
to driving significant growth in their digital sales efforts. This turn-key program brings a Borrell expert to the client’s market to offer a
higher level of training on using the data, as well as seminars to educate local advertisers about the benefits of digital marketing. Clients
routinely see an ROI of 300% or more from this program.
Local Advertiser & Consumer Surveys
Our local market survey programs deliver powerful insights. Ongoing SMB surveys are offered in waves (standardized questions); other
surveys can be customized to fit a client’s needs. How well do you know your local market? How are advertisers thinking about their
radio, newspaper or yellow pages budgets today? What are they planning to do with interactive marketing in the coming year? How are
consumers thinking about your website or mobile app? Where do they go to get local news, or information on local shopping? All these
questions and more can be answered with our surveys.

An Annual Subscription is the best way to stay informed on the most important industry trends. Subscribers receive:
   At least 12 industry papers per year
   Access to all archived papers
   Access to interactive webinars with lead analysts discussing report findings
   Downloadable PowerPoint with all report charts and tables
   Client memoranda as issued on pertinent topics
Revenue Survey
Since 2001, we've been collecting data on interactive revenues and expenses from local media companies. The data encompasses more
than 6,000 companies, giving us an accurate picture of online advertising sales across the U.S. and Canada. We conduct private bench-
marking reports for local media companies and compile an annual summary of the data in our "Benchmarking Local Online Media"
report each spring. The data allows us to study the best-practice companies and how they're able to achive as much as 10 times the
average market share.
Conference & Company Presentations
Our annual Local Online Advertising Conference is a first-class event. Held each spring in NewYork, the event brings together the largest
group of local interactive media executives of any conference. The speaker list represents a Who’s Who among local media. Eighty per-
cent of the attendees are company executives, most of whom are in charge of interactive strategies. In addition, we speak at nearly 100
company meetings and conferences each year. Excellent presentation skills are a core competency at Borrell.
Webinars
We host or participate in dozens of webinars throughout the year. Our topic list is extensive. We develop custom presentations specifi-
cally for companies, trade associations or other groups. We do not conduct sponsored webinars.

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