While the advertising and media industries try to figure out how to operate in this new reality we all live in, sell-side ad tech is taking measures to ensure buyers can make their payments as ad budgets are being pulled and memories of recent clawbacks linger.
U.S. economic activity could contract by as much as 24% next quarter, according to Goldman Sachs, with some comparing the impact of the coronavirus pandemic to the Great Depression of almost a century ago.
Even before the Goldman Sachs forecast, eMarketer had downgraded its ad spend forecast from $712 billion to $692 billion for 2020, and each tier of the market is readying itself accordingly.
For ad-tech companies, the coronavirus crisis is a black swan that compounds an already pressurized sector still trying to negotiate the impact of data privacy legislation, such as the General Data Protection Regulations and the California Consumer Privacy Act.
All this comes as the industry also prepares for the demise of the cookie, the cornerstone of programmatic media trading, following Google’s announcement that it would prohibit third-party cookies before 2022.
Recent history taught valuable lessons
The uncertainty has prompted an unparalleled degree of caution among supply-side platforms, which effectively resell ad inventory publishers don’t monetize directly. They’re now more sternly examining which demand-side platforms they trade with and extend lines of credit to.
This austerity contrasts starkly with the early to mid-2010s, when freewheeling hyper-growth was the order of the day. Although some contend this somber mood was augured last year after the Sizmek bankruptcy introduced the terms “clawback” and “sequential liability” to ad tech vernacular. Sizmek was the second high-profile DSP to file for Chapter 11 protection in consecutive years after Videology did likewise, a misfortune that was subsequently emulated when Eyeview and Netblaster went the same way as 2019 drew to a close.
The net result: DSPs cannot meet their payment obligations to SSPs, which ultimately means publishers are left out of pocket, leaving legal action their only recourse in many cases. The extent of some of the debts that DSPs can rack up was revealed after Sizmek’s bankruptcy papers showed that it collectively owed its five biggest SSP trading partners more than $31 million.
A ‘terrifying situation’
Sources agree that credit management is now among the top three priorities of publishers and SSPs, alongside the fight against ad fraud and managing auction mechanics. In the current climate, a number of SSPs are questioning whether certain DSPs—in an already squeezed market—will be able to survive the accompanying reduction in ad spend.
In certain cases, they are seeking extra assurances that trading partners can make their bills, and cutting lines of credit if their requirements are not met, according to sources.
The sensitive nature of the matter prompted several senior SSP sources to request anonymity when approached by Adweek, as most are still assessing the increased level of risk with one source describing the prospect of mass defaults on payment as a “terrifying situation.”
Joanna O’Connell, vp and principal analyst at Forrester Research, said concerns over whether or not second-rung ad-tech companies could stay around long enough to honor their payment obligations were likely well founded given the impact the coronavirus crisis is having on ad spend.
“I have a general expectation that the market will go from one with 8,000 little players… to contract,” she said. “This would have happened anyway as a result of the other major market forces going on, such as the depreciation of the cookie and the privacy data crunch.”
Another SSP source who requested anonymity was more forthright in their opinion. “The writing is on the wall for third-tier DSPs: We need to look at everything day by day, and make sure we are working with the most viable players.”
Precautions and protection
Jeff Hirsch, CCO of PubMatic, told Adweek that his company’s management of credit risk involved CFO-to-CFO conversations in many cases in order to verify the financials submitted by DSPs.
“We do work closely with our publisher partners and of course they’re asking us many questions along those lines, and we’re giving them as much information as we have available,” he said.
Hirsch further explained how PubMatic introduced a payment protection product to its suite of services where publishers could be assured of payment for an additional cost in the wake of last year’s Sizmek bankruptcy.
Similarly, an additional source at a separate SSP told Adweek their outfit was assessing the financial health of DSPs. This is in addition to securing payment insurance when it comes to a large number of their trading partners—a process that had been taking place since the final quarter of last year.
Will Doherty, evp of global marketplace development at Index Exchange, added, “We are furthering our due-diligence to ensure DSP partners meet their payment expectations to minimize any risk for our publisher partners. We are doing this in a myriad of ways, including tightening our payment terms.”
Encouraging hope in an era of uncertainty
However, regardless of the creditworthiness of their trading partners, publishers are universally witnessing a slowdown in ad spend, despite their traffic figures peaking. Data from Ezoic notes that publishers are already witnessing a significant slowdown in ad spend with budgets 20 points below what they were in late March last year.
These somber figures are exacerbated by the loss of tentpole sporting events in basketball, hockey and soccer, not to mention the recently announced delay of this year’s Summer Olympics in Tokyo. However, SSPs are trying to coax ad spend from their partners as vast swaths of the population migrate indoors for the foreseeable future.
“We don’t have enough data yet, and we’ll have to wait until April to see how budgets shape up, but you’ll be surprised at what categories [of advertisers] grow,” said John Gentry, CEO of OpenX.
Mike Evans, svp of demand facilitation at SpotX, explained how his outfit was seeing an uptick in ad spend from its trading partners given the unforeseen changes in consumption patterns.
“We’re working with our media partners to find compelling strategies for clients that need to reallocate budget given the current climate,” Evans said, adding that his company is seeing an uptick in spending from alcohol, delivery services and exercise equipment brands.