Magna Global, the ad buying arm of Interpublic Group of Cos., has signed an upfront advertising deal with YouTube, shifting spending from television ads in an effort to reach consumers more efficiently.
Magna, which buys ad time on behalf of clients such as Johnson & Johnson, Coca-Cola and Fiat Chrysler Automobiles, has committed to spending at least $250 million between October 2016 and December 2017 on Google Preferred, which offers a premium pool of advertising space on YouTube, according to a person familiar with the matter.
Magna said the ad dollars it plans to spend on Google Preferred will come out of its clients’ TV ad budgets, a big change from past deals where much of the money that it spent with the company came from other digital budgets like display advertising. The company said the commitment is about four to five times more than what it spent on Google Preferred last year, and its overall TV ad spending will decline this year as a result.
“We have negotiated a meaningful share shift from linear television to digital video,” said David Cohen, president of Magna Global North America. Magna got many clients to sign off on the YouTube deal in advance.
YouTube declined to comment on specifics surrounding the agreement, but Tara Walpert Levy, YouTube’s managing director of agency sales, said the pact is the company’s “biggest upfront deal to date for Google Preferred.”
For perspective, the $250 million ad deal is the equivalent of about one-eighth of the entire $1.96 billion in video ad revenue that YouTube is projected to bring in from the U.S. this year, according to estimates from eMarketer.
While it’s a significant amount of money as YouTube tries to prove itself as a marketing alternative to traditional television, Magna still spends far more on TV. Its annual spending on national TV ads is typically $5 billion to $6 billion, according to a person familiar with the matter.
The ad buying firm was partly motivated to strike the agreement with YouTube because it is unhappy with the possibility of having to pay higher prices for TV ads during the impending upfronts, the season when broadcast and cable ads are sold in advance of the new season.
“We need to change the demand in linear television if we are going to change the premium that we pay in TV,” said Mr. Cohen of Magna.
After several years of anemic upfront ad sales, ad buyers are bracing for a more robust TV upfront marketplace. Ad buyers and analysts estimate that overall ad-spending commitments could increase 3% to 5% in this year’s upfront market and ad prices may jump 6% to 9% compared with last year’s upfront prices.
Marketers are sick of “paying more for less,” Mr. Cohen added, pointing to the continued erosion in TV ratings.
Magna committing TV dollars was particularly important for the popular online-video service, which has been working for years to convince advertisers that its service can provide better reach and results than TV. YouTube is hosting its NewFront presentation Thursday evening at the Javits Center in New York, hoping to win over more ad buyers.
YouTube has helped make video creators like the Fine Brothers and Michelle Phan into wildly popular celebrities among younger viewers glued to their mobile devices. And while it has managed to siphon away some TV budgets, much of YouTube’s growth has come at the expense of money that would have otherwise been spent on display ads and other ad budgets such as print, according to advertisers and buyers.
Ad buyers including Mr. Cohen said that YouTube’s prices have held them back from spending more because, in many cases, they can be much higher than TV ads. However, Mr. Cohen said that Magna was able to get YouTube ad prices to come down “significantly” and that the prices Magna’s clients will be paying will be “commensurate” with TV prices.
YouTube declined to comment specifically on pricing. Ms. Levy of YouTube said that “as deals get bigger and as clients and agencies are willing to invest more significantly, there is always an advantage that goes with that.” She added that YouTube has made “progress with clients on their comfort level on pricing because of the return they have started to see.”
The upfront deal with Magna is one example of what has helped YouTube stave off increasing competition for online video ad dollars, as publishers and media companies fight for a piece of the pie and as Facebook, Snapchat and Twitter garner more buzz for their video efforts.
So far, YouTube remains the dominate player in digital video ads, with about 20% market share in the U.S. this year, according to eMarketer. Web video advertising is expected to rise 28% to $9.8 billion in 2016, according to eMarketer, but that’s still only a fraction of the legacy TV business.
Overall spending on TV ads is still expected to rise 0.5% to $63 billion this year, excluding the Olympics and political spending, according to Magna Global, which also has a research arm.
[ By: Suzanne Vranica ] [ The Wall Street Journal] [ Read More ]