TTD: Amazon & Disney Squabble Ad Sales

Investment Analysis Clubs Saul’s Investing Discussions
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There is an interesting exclusive article I just read on the WSJ site. You will need a subscription to read it - so I will post the link & walk you through the main points of the article and and how it links to The Trade Desk and what I learned about the internet television ad business.

https://www.wsj.com/articles/amazon-disney-fight-over-ad-rev…

Disney is launching its new streaming service in November. It is currently at odds with Amazon which makes the, Amazon Fire TV streaming stick, over the percentage of ad placement revenue it will give Amazon in return for Amazon allowing users of its Fire TV to see Disney content. According to the article Amazon’s Fire TV had a 29% market share in the United States in Q2 of this year behind ROKU’s 41 percent market share for media device shipments.

Amazon, as well as ROKU, typically negotiate with a supplier of content, such as Disney, for a percentage of ad slots in return for carrying the content on its device. Typically Amazon begins negotiations asking for 40% of the ad slots, according to the article, and negotiations often bring down the final agreement to 20% or 30%. Keep in mind Amazon is the “sell-side” platform for these ads within the content providers app when viewed through the Amazon Fire TV device. The Trade Desk is on the other side, or the “buy side”, of the equation. The more inventory Amazon has to sell, now that Amazon Fire TV it is no longer a walled garden, the better for The Trade Desk as it gives it more opportunity to match its client’s ads with viewers and content.

My interest is around the negotiation which must be taking place across the streaming landscape for “sell-side” ad placement rights. It helps my understanding that the “buy-side”, represented by a company like The Trade Desk, has a much more powerful position in the entire financial advertising ecosystem no matter what device a user uses to see Disney content. Disney sees all “buy-side” platforms as neutral and as its customer, where it sees the “sell-side” platform as a negotiating adversary at worst and a wary partner at best.

My contention is that The Trade Desk is really in the sweet spot - it has the smartest management in the space, a platform that is ahead of competition, and an enviable position on the “buy-side”. No matter how the Disney/Amazon negotiations turn out The Trade Desk still wins.

Frank - long DIS, long AMZN, long TTD, see profile for all holdings

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In this transaction, Disney or content creators, providers or publishers are typically referred to as just that; Content Providers. In the ad exchange; Disney could represent themselves and sell their ad inventory as a Supply Side Platform (SSP) to the other side of the transaction, referred to as the Demand Side Platform (DSP). The Trade Desk in your example would be the DSP, of which their are at least 40 reputable DSPs navigating the ad exchange. I am long on TTD, but understand that it can be a relatively competitive marketplace. The goal of the SSP is to get the highest revenue for the ad inventory for themselves or their clients; therefore they are going to listen to all comers, including TDD, but all comers to serve themselves or the needs of their client. Keep in mind, that Content Providers may engage a SSP, such as Telaria (TLRA) that has been discussed on this board, to represent the Content Provider in the ad exchange. As an example, TLRA currently represents HULU among others in this regard. Regarding CTV platforms such as ROKU, you are correct, in exchange for being on the CTV platforms, the CTV platform will take ad inventory from the Content Provider as compensation in kind; also referred to an an “inventory split agreement”. The CTV platform will then in turn sell that Content Providers ad inventory to the best and highest bidder as platform revenue. In the case of ROKU, they can operate as both a CTV platform as well as a SSP; they have created something called the Audience Marketplace. See below:

https://newsroom.roku.com/press-release/press-releases-usa/r…

As CTV and programmatic advertising continues to grow; as cord cutters and never corder continue to grow, I have purchased a basket of players in this marketplace (TTD, ROKU and TLRA). My thesis is that the multiplier affect will occur once, internationally, smart phones + 5G + CTV streaming + programmatic advertising collide and create a reaction of a super nova. A cell phone across the world in everyone’s hand with access to 5G and global wifi, will mean streaming and ad content reaching billions of end users. KABOOM!

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Hi FrankDip!

Thanks for the highly informative summary.

You describe TTD as serving the interests of Disney in this example. Do you know how the recent deal between TTD and Amazon Fire fit into all this?

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Do you know how the recent deal between TTD and Amazon Fire fit into all this?

On July 26th of this year Amazon Publisher Services announced that it would allow advertisers to utilize the services of the following ad content buying platforms belonging to Amazon DSP, dataxu TouchPoint, and The Trade Desk. Prior to this change in policy if an advertiser wanted to buy an ad that was part of the ad inventory managed by the Amazon Fire TV platform the advertiser (or its agency) had to buy that ad through Amazon. This is known as a “walled garden”.

So the change in policy benefits The Trade Desk as well as other buy-side platforms dataxu and TouchPoint.

Here is a link to the Amazon blog post announcing the change.

https://aps.amazon.com/aps/2019/07/26/dsp-demand-available-f…

Frank - long AMZN, long TTD, see profile for all holdings

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Hey good article.

I think we are getting the story a little backwards though.

From the article.

When Fire TV was first launched, it allowed a number of media companies to have apps on its platform without sharing any advertising revenue, people familiar with the situation said…

Disney believes its popular apps—and the coming launch of Disney+—give it substantial clout, and the company hasn’t been keen to give up any ad inventory to Amazon, people familiar with the company’s deliberations said.

I interpret that as Disney’s apps have been around from early days before Amazon started to have ad revenue/inventory sharing agreements in place. Disney appears to have been living rent free in Amazon’s FireTV ecosystem. They have been providing very little if any ad inventory to Amazon.

So now Disney comes to Amazon and wants to put Disney Plus into Fire.

Though Disney+ won’t have ads, the discussions with Amazon to carry it on Fire TV gave the tech giant an opportunity to revisit advertising terms for various other Disney apps

Recently, the two sides have discussed a proposal in which Disney would give up 10% of its ad inventory, the people said.

Disney Plus is vitally important for the future of Disney. Not getting agreements with streaming distributors, particularly the big 3, will be detrimental to the service. Amazon is using this fact to “open the books” on Disney’s existing app agreements to get better terms for Amazon.

For their part Disney is able to use their clout to not pay 40, 30, or 20 percent. But make no mistake about what the article is saying. Currently Amazon monetizes Disney apps very little if at all. Because Disney needs to distribute Plus on Fire, Amazon looks to be getting Disney to fork over Ad-revenue, something the article says they really haven’t been doing before.

My own belief as this evolves. I think the competition for owners of content to get subscribers for SVOD or to be viewed for AVOD will be extremely fierce and existential to all media companies. The clout the big ones have have will erode over time as churn takes its toll. Media companies will lose pricing power quickly.

For the distribution platforms like Roku or Fire I see competition in players eroding over time, with a handful gaining such a market share as to set a standardization. Media companies will want to launch new services and platforms will want to revisit old agreements. This Disney article is the first peak into that.

They both have leverage but I believe in the long term, platform has the superior leverage. There’s just too much other content. More to come. Too many streaming platforms nobody watches on or cares about.

That is why Netflix is already at negative churn in US last quarter. But not saying one quarter makes a trend yet.

Darth

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