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Tag Archives: Programmatic Media

Lawsuits Expose the Seemly Underbelly of Programmatic Digital

25 Sep

fraudsterAt the rate things are progressing in digital media and programmatic trading, the tenuous relationships between advertisers, agencies, ad tech providers, exchanges and publishers are about to come unglued.

While many in the ad industry have had their doubts about programmatic digital, this sector has grown unabated for the last several years. According to eMarketer in 2014 advertisers invested 28.3% of their ad budget in digital media. Their projection is that this will grow to 44.9% in 2020, likely topping $100 billion in total spend. eMarketer estimates that 80% of U.S. digital display activity in 2017 will be transacted programmatically. 

Interestingly, since 2014 the industry has become much more attuned to the risks encountered by advertisers when it comes to optimizing (or should we say safeguarding) their digital media investment. Yet in spite of the findings regarding unsavory practices emanating from the ANA’s seminal 2016 study on “Media Transparency” advertisers continue to pour an increasing share of their advertising spend into this media channel.

However, not all advertisers are continuing to embrace digital media quite as readily as they once did. A handful of progressives, namely Procter & Gamble, have begun to rethink the share of wallet being allocated to digital media and programmatic trading. Marc Pritchard, P&G’s Chief Marketing Officer, has been very outspoken in summing up his company’s position quite succinctly; “The reality is that in 2017 the bloom came off the rose for digital media. We had substantial waste in a fraudulent media supply chain. As little as 25% of the money spent in digital media actually made it to consumers.”

Given Mr. Pritchard’s comments it has been quite intriguing to monitor the legal developments in two high profile lawsuits that have recently been filed.

In the first case, Uber is suing Fetch Media, its digital agency suggesting that it had “squandered” tens of millions of dollars to “purchase non-existent, non-viewable and/ or fraudulent advertising” on its behalf. Uber has further alleged that the agency “nurtured an environment of obfuscation and fraud for its own personal benefit” and that of its parent company, Dentsu Aegis Network. To be fair, Fetch Media has denied what it says are “unsubstantiated” claims by Uber which it claims is designed to draw attention away from their “failure to pay suppliers.”  Allegations include that the agency acted as agent for Uber in some markets and executed principal-based buys in others and that they earned and retained undisclosed rebates tied to Uber’s media spend.

The second case involves RhythmOne, a technology enabled media company and its partner dataxu, a programmatic buy-side platform/ applications provider. RhythmOne originally filed suit regarding $1.9 million worth of unpaid invoices. Dataxu filed a counterclaim alleging that RhythmOne “used a fake auction to consistently overcharge” them and suggested that RhythmOne also “procured inventory from other exchanges, and then marked it up,” both violations of their partnership agreement. As an aside, for the $1.9 million in payments that dataxu admittedly and intentionally withheld from RhythmOne, going back to January, 2017, it is likely that dataxu’s clients had been billed and remitted payment to them. Which raises questions as to how and when their clients will be made whole.

Of note, both of these lawsuits delve into a range of topical issues that pose risks to most programmatic digital advertisers:

  • Agencies executing principal-based buys, rather than acting as agent for the advertiser.
  • The retention of undisclosed rebates tied to an agency’s use of advertiser funds.
  • Non-transparent fees and mark-ups being tacked on to the actual cost of media inventory by multiple middlemen (i.e. agencies, DSPs, exchanges).

These are issues that advertisers should familiarize themselves with and address through the development of a comprehensive client/ agency contract. In addition, advertisers must vigilantly monitor supplier compliance with the terms of those agreements to insure full transparency and, importantly, accountability when it comes to the stewardship of their digital media investment.

As these two cases highlight it is dam difficult for an advertiser to accurately assess the value of digital inventory that is being proffered on their behalf by their agency and adtech partners. Beyond establishing what percentage of an advertiser’s digital dollar actually goes toward media inventory, these separate, but related legal actions demonstrate that it is not just a lack of transparency that advertisers must worry about, but a lack of ethics. When it comes to programmatic digital media the American artist, John Knoll, may have said it best;

“Any tool can be used for good or bad. It’s really the ethics of the artist using it.”

There are steps that advertisers can take to both safeguard and optimize their digital media investment. If you are interested in learning more, contact Cliff Campeau, Principal of AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

Increase Your Digital Coverage by 40% In One-Easy-Step

01 Aug

simple is goodConfucius once said that “Life is really simple, but we insist on making it complicated.”

Perhaps the same can be said of digital media buying. Too often it seems as though the onset and rapid growth of programmatic buying has created more problems than solutions. An expanded media supply chain with multiple layers of costs, increased levels of fraud, brand safety concerns, visibility challenges, a lack of transparency and perhaps most troubling, eroding levels of trust between advertisers and their agencies.

Growing pains? Perhaps. But something needs to change and this author would like to suggest one potential solution… abandon programmatic digital media buying altogether. Seriously? Why not?

Consider the following and the concept won’t seem so far-fetched:

  • In 2015, advertisers spent $60 billion on digital media, with close to two-thirds of that going to Google and Facebook (source: Pivotal Research).
  • According to the advertising trade group, Digital Content, today this duopoly is garnering 90% of every new dollar spent on digital media.
  • What happened to the magical pursuit of the long-tail and the notion of smaller bets being safer? Economics. The fact is that the notion of the long-tail simply didn’t work as researchers and economists found that having less of more is a better, more statistically sound pursuit. To wit, Google’s and Facebook’s market share.
  • Today, programmatic digital display advertising accounts for 80% of display ad spending, which will top $33 billion in 2017 (source: eMarketer).
  • Between 2012 – 2016 programmatic advertising grew 71% per year, on average (source: Zenith).
  • In 2018, programmatic will grow an additional 30%+ to $64 billion, with the U.S. representing 62% of global programmatic expenditures (source: Zenith).

Come again. Two publishers are getting $.90 of every incremental digital dollar spent and programmatic digital media buying accounts for 80%+ of digital media spend. What are we missing? Is there an algorithm that specializes in sending RFPs and insertion orders to Google and Facebook in such a manner that the outcome yields a 40% or better efficiency gain?

As we all know, there have been numerous industry studies, including those sponsored by the World Federation of Advertisers (WFA) and the Association of National Advertisers (ANA), which have suggested that at least 40% of every digital media dollar spent goes to cover programmatic digital media buying’s transactional costs (third-party expenses and agency fees), with only $.48 – $.60 of that expenditure going to publishers.

So, for an advertiser spending $40 million on programmatic digital media, if the law of averages holds true, $16 million will go to cover transactional costs and agency fees. That means that of the advertiser’s original spend, they will actually get $24 million worth of media. While we know that programmatic media can yield efficiencies, can it overcome that type of transactional deficit?

If that same advertiser eschewed programmatic digital and decided to rely on a digital direct media investment strategy, what would it cost them?

Assume that they hired ten seasoned digital media planning and investment professionals for $150,000 each (salary, bonus, benefits), they would spend $1.5 million on direct labor costs. Further, in order to afford their team maximum flexibility, let’s say that the advertiser allocated an additional $1 million annually for access to ad tech tools and research subscriptions to facilitate their Team’s planning and placement efforts. This would bring their total outlay to $2.5 million per annum.

If they were spending $40 million in total, this means that the team would be able to purchase $37.5 million worth of digital media. Don’t forget that placing digital buys direct will greatly reduce fraud levels that can eat up another 8% – 12% of every digital ad dollar, while also greatly improving brand safety guideline adherence. Compare that to the $24 million in inventory purchased programmatically. 

So how efficient is programmatic?

Sadly, most advertisers can’t even address this question, because their buys are structured on a non-disclosed, rather than a cost-disclosed basis. Even if they had line of sight into what the third-party costs (i.e. media, data, tech) and agency fees being charged were, they wouldn’t have a clue as to the fees/ charges that sell-side suppliers were levying, further eroding working media levels.

A simplistic solution? Perhaps. But the fact that the industry continues to drink the programmatic “Kool-Aid” without any significant progress toward resolving the dilutive effect that programmatic transactional costs, agency fees and fraud have on an advertiser’s investment seems a tad irresponsible.  

Ask yourself. What would you do if it were your money? 

 

 

Is Your Contract Worth the Paper It’s Written On?

25 May

partnershipThe Association of National Advertisers (ANA) recently released its study on programmatic media. The study was conducted in conjunction with the Association of Canadian Advertisers (ACA), Ebiquity and AD/FIN.

While the study provided fascinating insights into programmatic media performance and costs at the transactional level, there was one particular item that stood out:

88% of the advertisers that were interested in and 75% of the advertisers that signed up to participate in the study could not or had to opt out.

Why was this? According to the study’s authors, “because of a myriad of legal, technical and process roadblocks put up by players in the ecosystem.” Long story short, those advertisers did not have contractual language providing them with clear data ownership or usage rights with their agency, trading desk and or ad tech partners.

The obvious question to be asked is, How can an advertiser’s programmatic media transactional data not belong to the advertiser? After all, it was their media investment that funded the buys. It was their agency partners who invested those funds on their behalf (or not). So, who could possibly own that data if not the advertiser?

What would you do if your agency partner denied your organization access to programmatic performance data that you had requested. Data that would shed light on your programmatic media performance and costs (i.e. third-party costs, agency fees, tech fees, data fees). It certainly seems short-sighted that an agency would deny their clients access to this data, both in the context of the ANA study and for providing transparency into how their programmatic investment is being stewarded to disclose what their true working media percentage is.

Sadly, this is but one example of Client/ Agency contract language omissions that create disclosure and accountability gaps, which can lead to legal and financial risks for advertisers. Other examples include:

  • No requirement for an Agency to disclose or competitively bid in-house production resources or affiliate companies.
  • Media arbitrage deals in which the Agency is marking-up media by an undisclosed amount on inventory that it owns stemming from principal-based buys it has made.
  • Agencies acting as principals, rather than agents, when investing the Client’s creative production funds. One example might be the Agency or its production studio filing for and retaining incentives offered by states and municipalities for shooting or post-production work completed in their geography.

Marketing spend is on the rise and is certainly considered a material expenditure, which can represent 12%+ of a marketer’s revenue base (source: 2015 CMO survey).

And yet too often, an advertiser’s contractual audit rights are not broad enough to ensure unmitigated access to the data files, records and reporting necessary to evaluate an agency’s compliance with the agreement and or their financial management performance. This can and should include:

  • An advertiser’s right to select an internal or external auditor of its choice (i.e. contract compliance, media performance, financial management).
  • The right to audit the agency and its related parties (i.e. holding company, affiliates, related entities, etc.).
  • Assertion of the advertiser’s right to limit or eliminate an agency’s non-transparent revenue (i.e. AVB’s, rebates, non-disclosed fees, mark-ups, float income).
  • The right to audit principal inventory and or mark-ups.

Contracts are also a great vehicle for communicating performance guidelines for items ranging from brand safety and viewability policies to fraud monitoring requirements and an advertiser’s policy on not paying for bot traffic, all of which are designed to safeguard an advertiser’s investment.

From our perspective, it makes sense for advertisers to engage in dialog with their agency partners to talk through contract terms and conditions, such as these, to secure their perspective and ultimately their buy-in. After all, the contract is a document that will govern most aspects of the Client/Agency relationship. Thus, open dialog that leads to a transparent relationship can form the basis for a trusting partnership that will last for many years to come.

As Stan Musial, the legendary baseball hall of fame member of the St. Louis Cardinals once said:

The first principle of contract negotiations is don’t remind them of what you did in the past – tell them what you’re going to do in the future.”

Has France Solved the Media Transparency Issue?

24 Feb

French Flag

Earlier this month the French government passed a new edict extending the coverage of Loi Sapin, their anti-corruption law passed in the early 90’s which made the process of buying media more transparent. 

There are two key tenants of Loi Sapin, which afford French advertisers a level of protection related to certain non-transparent revenue sources which the Association of National Advertisers (ANA)/ K2 2016 media transparency study showed were prevalent in the U.S. (and elsewhere around the globe). Specifically, we are referring to the practice of media owners and publishers paying rebates to the agency and the use of media arbitrage, where agencies purchase inventory on their own to be resold to their clients at a higher rate.

Loi Sapin prohibits agencies from selling media to their clients that the agency had purchased in its name. In today’s parlance, it prohibits media arbitrage or “principal-based” media buys. Secondly, the law clearly stipulates that the ad agencies cannot derive revenue from a media owner, stating that agencies can only be paid by advertisers.

To France’s credit, the new decree, which will take effect in January of 2018, expands the coverage of the anti-corruption law to include digital advertising and digital advertising services. Of note, this includes agency trading desks, which sometimes buy and resell digital media to their clients. Yes, agencies will still be able to provide programmatic media buying services through their trading desk operations to advertisers, they will simply have to disclose to their clients, upfront, those affiliates or entities where they or the agency holding company have an ownership interest.

Interestingly, the decree will also require the media owner to direct bill the advertiser and compels them to provide detailed information about the services that they provided to the advertiser. This particular aspect of the law will further enhance advertiser transparency and virtually eliminates the ability of an ad agency to blindly mark-up said services.

As U.S. advertisers and the Association of National Advertisers (ANA), continue to evaluate the most effective means of improving media transparency, France’s anti-corruption law and its new decree covering digital media services certainly provides some interesting food for thought.

 

 

 

Seeing Their Way to Digital Media Growth

21 Mar

visionDigital advertising spend will surpass television in 2017. This according to eMarketer, which is forecasting that digital ad expenditures will grow to $77.3 billion, while spending for television will increase to $72.0 billion.

This growth comes in spite of continued advertiser concern regarding transparency and the fact that 40% to 60% of their working digital media dollars are being absorbed into inventory margin.

With this as a backdrop, we have noted a couple of interesting trends in the digital media space, that directly and positively addresses these concerns.

First and foremost, there have been a number of agencies that have embraced a more transparent model when it comes to digital media planning and placement. They are looking to directly appeal to advertisers’ opacity-busting inclinations and their desire to improve working media ratios.

What are they offering? In short, they are structuring their service and financial management models to eliminate the hidden fees, double charging, rebates, kickbacks and media arbitrage practices employed by a host of traditional media agencies operating in the digital space.

The common link among these progressive agencies is to take more of a consultative approach to working with their clients to solve for the best method to drive brand engagement and to improve consumer experiences. These shops fundamentally understand the importance of integrating customer relationship management (CRM) and online media to create personalized customer interactions across each stage of the marketing lifecycle.

Recognizing the rapid advances occurring on the data analytics and ad tech fronts, they are agnostic when it comes to their role as a full-service or managed service provider. These agencies have come to realize the importance of integrating first, second and third party data and that from a privacy and data governance perspective advertiser ownership of such data may be a more appropriate path forward.

Additionally, they are open to working with their clients to help facilitate direct relationships between advertisers and technology providers to eliminate duplicate costs and boost transparency. They have a comfort level with direct-bill third-party media payment processing models which afford advertisers the opportunity to see exactly what the net media cost is.

For advertisers’ who are comfortable using the agency’s technology stack, no problem. For those that are interested in migrating that ownership in-house, they will consult and work to design and implement an approach that will work best for their clients. This could include everything from identifying DMP, DSP and ad server options to suggesting viewability optimization, fraud prevention and modeling tools. This new breed of agency recognizes that cutting out the middlemen from these areas can greatly enhance an advertiser’s working media ratios.

The benefit of this approach is profound when one considers that according to a recent survey by Technology Business Research (TBR) among 240 ad technology users in North America and Western Europe, they found that “only about 40% of digital advertising budgets are currently going toward working media” and that “the second biggest allocation – 31% of budgets – was going to pay for technology” with the balance being applied to “pay for agency services.”

The second trend that is having a meaningful impact in the digital advertising space is the continued expansion of services offered by technology consultants including IBM, Deloitte, Accenture and McKinsey. These firms have made strategic acquisitions and or built resource bases in the creative design area which allow them to complement their technology integration offerings and provide comprehensive end-to-end solutions. These firms’ gains will likely be to the detriment of traditional advertising agencies as the roles of data management and digital media continue to grow in the coming years.

As Jon Suarez-Davis, Chief Marketing and Strategy officer for Krux recently stated: “Marketers want absolute transparency across the value chain.” Mr. Suarez-Davis’ opinion, based upon his experience on both the ad technology and client-side, where he managed digital media for the Kellogg Company, is that advertisers “would like to have the technology and other non-working costs (that aren’t related to impression delivery) separated.”

As the comedian Bill Hicks, so accurately opined:

We are the facilitators of our own creative evolution.”

The agencies and consultants that understand this dynamic and have a willingness to morph their service delivery and compensation models to address advertiser desires in these areas will be well positioned to boost their relevancy and revenue growth potential in the coming years. Those that don’t may struggle to keep pace as advertisers take a more proactive approach to optimizing their digital media investment.

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