What Might Replace The CPM Pricing Model For Video Ad Buying?

“On TV And Video”is a column exploring opportunities and challenges in advanced TV and video.

Today’s column is written by Steve Wadsworth, president and CEO at Tapjoy.

Many in digital advertising have been calling for the end of CPM pricing for years.

It is an antiquated pricing model that attempts to deliver on one goal – reach – but fails to drive any of the other metrics that matter to advertisers. Worse, the industry obsession with counting and monetizing eyeballs has led to unintended consequences that drag down the industry and devalue the user experience.

Yet most digital ads continue to be bought and sold on a CPM basis, and much of the blame can be placed on apathy and institutional friction. Even while some brands push for different models, their agencies continue to buy on a CPM because. That’s how it’s always been done and how the system is set up.

We need a new pricing system because advertisers are fed up with fraud, quality, lack of measurement and other issues. In some cases, they don’t know what they’re paying for. Fortunately, the technology, infrastructure and general mood of the industry are finally in a place where change might be possible.

If ads are no longer bought on a CPM, what might take its place?

Key pillars: accountability, transparency and performance

What the new system looks like remains to be seen, but its contours are beginning to take shape.

We know that it will involve a much deeper level of measurement and reporting, most of it provided by independent services that can be trusted by advertisers and publishers alike.

Recently, companies such as Moat and Integral Ad Science, which track metrics such as viewability, audability and completion rates, have gained such popularity that many brands now refuse to work with partners who aren’t certified by one or the other. And the IAB is on the precipice of releasing an open-source measurement and tracking solution for each of these key metrics.

A new system will also have to offer as much transparency as possible. Programmatic has fueled much growth in advertising, but it creates an additional layer between advertisers and consumers, making it easier for low-quality or even shady publishers to hide in the weeds. Fortunately, efforts such as Ads.txt and the Trustworthy Accountability Group, which create transparency in business relationships and transactions, are gaining momentum.

Last but not least, any new pricing structure must inherently address the performance issues that plague CPM pricing. When ads are bought on a CPM basis, marketers know that their campaign received a certain number of impressions, but those impressions are often wasted by a lack of viewability or audability. In many cases, advertisers are paying even though their ads are at the bottom of the page, where no one ever sees them.

Any new pricing system should also include performance metrics that clearly indicate the level of user engagement the ad received.

The front runners

The metrics that might replace CPM for buying video ads could include cost per view, audibility and viewability on completion, cost per completed view or percent complete.

Cost per view (CPV) would guarantee that advertisers are paying for impressions that meet the current standards of viewability: at least 50% of an ad’s pixels on screen for at least two seconds. From an advertiser’s perspective, CPV by this definition seems like the least they would expect for user engagement with an ad they would pay for. It is better than paying on a CPM, but not by much. The issue isn’t the metric – CPV – it’s how it is defined, and we can do better.

Audibility and viewability on completion goes one step further than cost per view to report whether the ad was viewable and could be heard.

Cost per completed view measures how many people watch a video ad. While this metric might be challenging for a number of publishers, other than those specializing in short videos or highly engaging ad experiences, it would certainly give advertisers the full level of accountability, transparency and performance they seek.

If cost per completed view is impractical for publishers, then percent complete is a possible compromise. A payment system based on percent complete would charge advertisers based on how much of their ads were watched. If viewers watch an entire video, advertisers would pay one rate, or a lower rate for a smaller portion of the video watched and so on.

Then there is cost per perfect view, which is less of a metric and more of a rating factor. As Izzy Hedges, the EVP of International Media at ad agency Vizeum, recently told me, “This model enables us to look at different elements to prove that our advertising activation resonates with our consumers. We have started to develop a scorecard that attributes a certain value to each component of the metric such as screen size, viewability, completion rates, engagement and retention.” Put another way, cost per perfect view is the combination of user engagement metrics that best achieve the advertiser’s objective, balanced with cost.

Many of the largest and most sophisticated advertisers in the mobile ecosystem are already beginning to use these or similar metrics. Whenever these advertisers can, they avoid buying on a CPM basis, relying instead on downstream ROI metrics. Mostly, these are performance advertisers – generally app publishers focused on acquiring new, high-quality users to their apps. But it shouldn’t be long before major brands begin to follow – demanding a similar level of accountability, transparency and performance.

Change will not come easily to the brand and agency world, but the rewards are worth it. As advertisers get more thoughtful and prescriptive about how they are buying ads and base their pricing structures on the downstream goals of their campaign – rather than just defaulting to CPM – the ecosystem will respond with the accountability, transparency and performance they demand.

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This post was syndicated from Ad Exchanger.