Tuesday, December 09, 2014

The True Value of Scale

I just read Michael Baer’s article, “The Tyranny of ‘Scale’.”

I agree with most everything Mr Baer says, as it echo’s what I've been saying here for some time now.

Here’s the one line in the article that struck me the most. 

“Scale discounts the importance of value and impact.”  Mr Baer goes on to defend this statement by mentioning how irrelevancy doesn’t add value to the consumer.
Absolutely true.  But also, absolutely irrelevant to an advertiser.

To an advertiser, scale does add value.  No, not only by increasing the number of people who will have the opportunity to see the add, but by lowering the cost of production per view.

Say a commercial costs $500,000 to produce.  If the advertiser buys 10 million impressions, the production cost per impression is five cents.  If the advertiser buys only 1 million impressions, the production cost per impression is 50 cents.

If an advertiser truly purchased only the impressions they thought to be relevant, the media buy might be only 100,000 impressions.   Which increases the production cost per impression to a whopping $5.

Or, in other words, unaffordable.

Right now in our business, scale underwrites the cost of production.  Advertisers don’t mind spending half a million on production if they know 50 million people might see it.

Or, to put it another way, the current economics of production can only be justified through large audience size and repeat exposures.  Neither of which are supported through reducing scale.

This is not to argue with Mr Baer’s article.  I think everything he said is correct.  

But until we change how we underwrite the cost of producing great advertising, scale will continue to be the only relevant data point for advertisers.

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