My take on the Pajamas Media ad network collapse.
I just posted this comment on a blog elsewhere, but it’s stuck in a moderation queue. Here’s the full text. I will probably go into more depth later, but the core point is that ad networks such as PJM use early capital to acquire ad space on many properties, aggregate that space, and then resell it. As the volume grows, they can command higher CPMs, and at some point, are no longer burning capital. It looks like PJM just didn’t get to that point.
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I have no affiliation w/PJM whatsoever. I follow ad networks, though, having negotiated a number of contracts there. There is *no way whatsoever* that PJM was able to fork over $4 to $7 CPM and not do so at a loss. If you need evidence of that, check out the history of Glam, a fashion/lifestyle network, and specifically http://www.techcrunch.com/2008/03/29/glam-makes-big-cuts-in-publisher-payments-up-to-80-drop-in-revenue/ The basic idea behind these networks is to buy exclusive rights on a blog at a premium (that is, at a loss for the network) in order to get to scale. You aggregate millions of unique visitors per month, targeting a specific demographic. Once you hit scale, everything is easier, including selling ads and finding ways to get more impressions for a lower CPM from publishers — that’s the sweet spot. Then, and only then, are you going to profit. Given the numbers — $4 to $7 CPM and only 29MM pv/month — I’d be shocked if PJM were running anything other than a horrific loss. Let’s say they had a well-optimized remnant chain ($1 CPM) and in a below average month, sold 50% at $3 CPM. (I think those assumptions are on the high end, for what it’s worth.) Let’s also assume that they paid out $4 CPM that month, also assuming best case scenario for PJM’s profitability. That’s a loss of 29k*$2 = $58,000 that month. One could imagine that happening 4x a year, with few if any significantly profitable months. Even conservatively, PJM was probably running a loss in the hundreds of thousands of dollars **just to acquire ad space**.
1 year ago