Programmatic Video: China Versus the West

Following a trip to London, Charlie Wang shares his observations on the key differences between China's video programmatic system and that of the big players in Europe.

Recently, I spent some time in London learning about programmatic trends in Europe, and I had the pleasure of meeting with some of the most popular European programmatic players including Turn, TubeMogul, The TradeDesk, RocketFuel and AppNexus.

It was interesting because the programmatic ecosystem between Europe and China is drastically different. Since my area of focus is on programmatic video, I’d like to reflect and summarize on the differences in the video space below:

1. Premium Versus Remnant

The first interesting difference lies in what the two markets consider to be premium inventory on video channels.

In China, premium inventory is easily defined: it is the inventory on the top online TV (OTV) programs such as movies, television series, or variety shows.

This understanding of premium is largely similar to the way Chinese advertisers understand traditional TV.

The hottest programs and channels are always considered more premium because they are the largest in viewership.

Remnant video inventory in China is largely understood as user generated content (UGC) inventory, where the ad environment is uncontrolled and there is a greater risk for brand safety issues.

In Europe however, the definition is quite different. Since a large portion of online video inventory comes from YouTube, western advertisers do not perceive UGC to be remnant inventory. Instead, the quality of the video inventory is judged less on content but more on the audience.

Hence, the definition of premium drastically differs from one advertiser to the next. Because as long as the audience is deemed on target (by a third party), then it is considered premium regardless of the content.

2. Unlimited Pass-Back Versus Fixed Pass-Back

Another aspect that is completely opposite in the two markets is on the issue of pass-back inventory.

In China, a fixed pass-back ratio is negotiated with a publisher prior to the campaign going live.

The publishers will also mark-up the inventory based on the pass-back ratio – the higher the ratio, the higher the publishers mark-up.

This discourages the advertiser or trading desk from passing back too much inventory, which the publishers are not able to monetize.

In Europe, pass-back ratios are rarely negotiated – the publishers essentially have an unlimited pass-back ratio – so long as the advertisers don’t want the impression, and pass it back at will, they will almost always find another advertiser for monetization. This does not happen in China.

The cause of this difference is two-fold – firstly, the publisher programmatic and inventory management stacks in China are less mature than that of the west, hence pass-back inventory has a higher chance of not being able to be monetized due to poor inventory management.

The second reason is due to publisher policy, most of the hottest programs on top OTV channels have extremely high demand, so advertisers will have to book in advance to be able to reserve that inventory.

This issue is amplified even more in first tier cities. Due to demand, the publishers must set fixed pass-back ratios so they can monetize most of the inventory by selling directly to non-programmatic advertisers.

3. Pay Only For On-Target Impressions

One model of particular interest is around the many specialist video demand side platforms (DSP), which have a pay only for on-target impressions model. The model works on the Nielsen Online Campaign Ratings (OCR) currency, hence the advertiser will only pay for the impressions that are deemed on-target by Nielsen, the rest of the impressions served would essentially be free of charge.

This programmatic transaction often also comes with a high price tag as the advertiser will not experience any wastage on non-target exposure.

Comparing this model to China, where we are still buying on a cost-per-mile (CPM) basis – as long as the publishers hit the impressions verified by the third party, then it’s all good.

Will we eventually have the same model? I think so, because once the publishers are confident about operating on a third-party currency, then this model is merely another way to mark-up their inventory.

But in order for that happen, they’d have to open up to the third-party players like Miaozhen and AdMaster.

This will take some work, as the relationship between publishers and third parties are not what we call friendly. There are still on-going discussions on geo-location differences, stable audiences (removing Internet café populations), as well as ad target verification methodology.

4. Data Quantity Versus Quality

The last difference is the availability of targeting data between China and Europe.

Looking at the western ecosystem, there are many third party data management platforms (DMP) on the market that provide a plethora of targeting options.

There are so many data providers that sometimes they say completely different things about a single consumer.

One DMP may tag the consumer as a 20 to 25-year-old male with an interest in cars, and another may say the consumer is a 30 to 35-year-old female with an interest in make-up. While the west is drowning in data, China has an almost complete blank in the third party DMP space.

There is no shortage of data in China, especially with the Baidu, Alibaba and Tencent (BAT) domination. Some even argue that their datasets are a lot more valuable and accurate than the west because so much more consumer information is available on these platforms.

But the core issue lies in the fact that Chinese publishers are still following a “walled garden” approach.

The data can only be used if it’s used to buy inventory within the publisher’s own ecosystem. Hence, with no third party data to turn to, most advertisers have to use their own first party data, which in the west is called custom segments and only a little part of the targeting options that are used.

Lately, we have seen the BAT platforms gradually opening up their DMP. Tencent recently announced its third party DMP just last week. So as the programmatic ecosystem matures even more, I’m sure more and more data will be available on the market.

*Learn more about China’s unique programmatic ecosystem at ClickZ Live Shanghai (September 8 to 10, 2015).

**Image via Shutterstock

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