Despite the exponential rise in programmatic advertising, late payment has become an area of increasing concern. In fact, it’s so contentious that a lot of companies – certainly at the smaller end of the market – seemingly don’t want to get dragged into the debate for fear of raising their heads above the parapet and upsetting their bigger partners.
So how bad are things really? In a recent article for AdExchanger, Jed Simon, CEO at FastPay, summed things up saying, “Since the economic crisis in 2008, marketers have slowed down payments to vendors and agencies to as long as 120 days after a transaction. Ten years later, the economy has bounced back, but the trend hasn’t let up.”
In an industry that measures change in terms of hours and days, four months is a long time to wait to be paid.
Late payment affects everyone in the chain. Demand-side platforms (DSPs), where agencies place ads on behalf of their brand advertisers, are getting squeezed as they wait for ad validation and transparency assurances to filter through. Supply-side platforms (SSPs), who help publishers manage their ad inventory, suffer similarly by often having to pay publishers long before they’re paid.
Yet the people hurt most by this back and forth are the publishers who typically find themselves at the bottom of the food chain. That adds to the huge sense of irony, as the entire industry is effectively shooting itself in the foot by putting the biggest burden on the smaller content producers and publishers.
The problem has become so acute many publishers are having to self-fund and practically bank roll their sites because payments terms are so long. This in turn is stifling growth and handicapping the production of further content. In short, the cash flow simply isn’t there with some participants having to seek equity or debt financing to stay solvent.
Unquestionably, complexity is a problem – selling an ad programmatically is not a straight-forward process. There are multiple layers between advertiser and publisher where payments can be slowed down or derailed.
In the meantime, there’s understandably a lot of finger pointing and accusations of financial smoke and mirrors. Vendors accuse agencies of sitting on client money to make interest, to make their balance sheets look better and improve their cash flow, while DSPs are often forced to meet SSPs’ and exchanges’ terms or risk being barred from the party.
However, with programmatic trading already accounting for 80% of digital display advertising – a figure set to rise to between 85-95% in 2020 – a solution is urgently needed.
What can be done now?
Some vendors are targeting technology as a solution to the problem. Blockchain, for example, could be used to address late and slow payments by allowing every player in the supply chain to agree on costs at the same time, and so dramatically reduce the lead time between brands paying and the money flowing through to suppliers.
Advances in header bidding, adoption of first-price auctions and supply path optimization should also ease current constraints.
Other players are putting in place their own innovative solutions. Publishing technology platform, Sovrn, who work closely with a lot of independent premium publishers, are taking the hit themselves by guaranteeing their publishing partners 30-day payment terms. This requires a strong balance sheet to work, and isn’t something that could be easily rolled out across the industry.
Another solution is factoring, or invoice discounting. This is problematic because of the possibility of ad fraud and transparency issues reducing the value of an invoice later down the line. Still, it’s a solution that is being looked at, with some participants offering their publishers shorter payment terms via invoice discounting.
The harsh reality for the smaller publisher is that all the power sits further up the chain. If a publisher wants to work with a big SSP because they have access to a bunch of buyers that not everyone else does, then that puts the SSP in the driving seat in terms of their financial relationship. Similarly if that SSP wants to work with a specific trade desk they find themselves facing the same problem.
The industry has gotten itself into a nasty vicious circle that needs to be broken or it will stifle innovation and growth, which ultimately benefits no one in the industry.
The only viable route forward is for all participants in the programmatic chain to meet and work together to iron out the issues, not just in terms of late payment but also fraud, viewability and brand safety.
Last week’s Digiday Programmatic Marketing Summit Europe in Estoril, Portugal, was a case in point and whilst the event raised as many questions as it answered, getting everyone together in a single venue can only help push things forward for the better.
As one brand advertiser admitted, “The best meeting I ever had was understanding how the supply chain worked for the company I worked for,” before adding, “In paid media, there may be one or two people who get it, and the rest are scrambling around trying to understand the ecosystem. If you just understood how your supply chain worked and took the fundamentals, speak with the publisher, understand who gets paid, ensure the publisher is getting paid a fair fee.”
And at the end of the day, he’s hit on the crux of the matter – making certain the publisher gets paid a fair fee, on time. After all, it’s in everyone’s interests.