The dust has largely settled from MediaMath’s bankruptcy, but the fallout still has publishers questioning SSPs’ obligations to their partners.
“There needs to be a retrospective on all SSPs and how they claim to understand risk management,” said one publisher who asked to remain anonymous, citing ongoing business with SSPs that clawed back revenue. For some SSPs, “clearly, their risk management is to pass [responsibility] off to the publisher, which is insane,” they added.
Publishers are adamant that SSPs are solely responsible for vetting demand partners.
But not every SSP agrees that it’s their responsibility to assess the risk of doing business with DSPs.
“We provide [self-service] tools for publishers to decide who buys their inventory,” said Steve Pantelick, CFO at PubMatic, an SSP that has instituted clawbacks. “The ultimate credit decision or risk decision lies with the publisher.”
While some SSPs like PubMatic are standing firmly behind sequential liability protections that insulate them from responsibility in the event DSPs can’t pay their bills, other SSPs see an opportunity to stand out in a commoditized SSP market by eschewing sequential liability agreements. Those SSPs take sole responsibility for evaluating DSPs’ creditworthiness and pay publishers even if the DSP goes belly up.
Who’s responsible for what?
Sequential liability clauses are commonly – but not always – included in contracts between SSPs and publishers.
SSPs have every legal right to shield their businesses from lost revenue using these contractual protections.
But they also have a responsibility to make sure they don’t have to invoke those protections, said Adam Schenkel, EVP of global platform strategy and operations at GumGum, an SSP that did not do clawbacks.
“We operate knowing we have an out with publishers … but our goal is never to enact that situation because it’s not in the best interest of publishers or the ecosystem,” Schenkel said.
Instead of defaulting to sequential liability, SSPs should ensure they are not extending too much credit to problematic DSPs, according to Schenkel.
MediaMath stood out as problematic, which led GumGum to limit the credit it extended the company. Over the past couple of years, there were several instances where MediaMath came just short of failing to comply with GumGum’s standard payment terms, which would have gotten them cut off, Schenkel said. The company also frequently asked for longer payment terms. The last time GumGum was paid by MediaMath was around January, he added.
If a buy-side client is frequently late on payments, asking for changes to its contracts or looking to extend its repayment terms, as MediaMath did, GumGum considers seeking more transparency into the partner’s financial health its responsibility.
Risk management
The 2019 Sizmek bankruptcy should have been a wake-up call that SSPs needed to take more measures to protect publishers from clawbacks, said Andrew Casale, CEO of Index Exchange, another SSP that declined to pursue MediaMath-related clawbacks.
“My assumption was that every company in ad tech [would take action to] clamp down their processes, their collection procedures, their tolerance for risk, their willingness to extend outside credit, so that we would never again experience a failure like that,” he said.
Based on Index Exchange’s risk assessment for MediaMath, which Casale declined to offer specific details on, it had MediaMath on a shorter leash than other DSPs when it came to extending credit for ad buys. “As a result, our ability to push ad spend was limited to that line of credit, but we believe, in this circumstance, we sized the risk correctly,” Casale said.
Other SSPs appear to have made the same calculations. Most of MediaMath’s top creditors were owed roughly between $1 million and $2 million, which would be a manageable revenue hit for major SSPs to absorb without being forced to pass the bill to publishers.
Even Google hovered in the sub-$2 million range, when its dominant market share means it easily could have taken on much more MediaMath demand than that, Casale added.
Meanwhile, some SSPs with large market shares, like Magnite and PubMatic, extended more than $10 million in credit to MediaMath.
PubMatic’s Pantelick pushed back at the idea that PubMatic’s relatively larger credit outlay was due to a failure to assess risk. Rather, it was more a result of PubMatic’s close partnership with MediaMath, which meant MediaMath directed more spend through PubMatic’s pipes than other SSPs.
Most SSP repayment terms with DSPs allow for a 30- to 90-day grace period, but within the last few years, PubMatic had taken steps to place MediaMath on a stricter payment plan, Pantelick said. As a result, MediaMath was allowed the same 90-day grace window as other DSPs, but MediaMath had to make payments against its outstanding balance every two weeks.
Other than the period surrounding the collapse of Silicon Valley Bank earlier this year, when MediaMath couldn’t access its account, the DSP made its payments on time up until its bankruptcy filing on June 30, Pantelick said.
Still, compared to PubMatic’s overall portfolio, MediaMath was an unfortunate outlier, Pantelick said. Over the past several years, PubMatic’s DSP partners have made payments for ad buys within 30 days 96% of the time, and for the past three years prior to the MediaMath bankruptcy, PubMatic had zero bad debt, he added.
What publishers pay for
PubMatic stands by its ability to avoid extending risky lines of credit despite the MediaMath situation and believes the choice of which DSPs to work with is solely the publisher’s, Pantelick said. PubMatic provides publishers with tools to assess the financial health of DSPs, and it has “reinforced” to publishers the presence of those tools in the wake of MediaMath’s bankruptcy.
Because PubMatic sees itself as a tech provider, risk management – especially taking on bad debt instead of passing it to publishers – is beyond its scope, Pantelick said.
“The economics don’t justify taking on the risk relative to the fees that we generate,” he said. “That’s a different business model.”
But publishers argue that taking on such risk and ensuring partners are in good standing is exactly the business model of an SSP.
“SSPs get large amounts of the total spend coming from an advertiser,” said Dave Edwards, CRO at music streaming app Audiomack. “And what are those fees for if you’re not looking at who’s in your bidding mix and making sure that you’re on top of their payment schedules?”
Besides, publishers don’t have direct contacts at DSPs or contractual relationships with buyers, so they can’t evaluate these partnerships as effectively as SSPs can, Edwards added.
A publisher’s ultimate responsibility is to create monetizable content, not vet demand partners, “which is a whole different side of the industry and not the skill set that we’re trained for,” said Charlie Castell, founder of publisher consultancy PubRev+.
Some SSPs have begun offering liability insurance in case a demand partner fails to pay. This insurance often carries an additional rev share fee on top of the SSP’s usual fee, which Castell described as SSPs asking publishers to “give us a bit more money to do our jobs.”
Going forward, Edwards said, publishers need to take a harder line with SSPs.
For example, Audiomack has been removing sequential liability from its deals with SSPs wherever possible. In situations where the SSP insists on sequential liability, Edwards tells them they’re welcome to invoke that clause, but Audiomack will terminate the relationship as a result.
The need for publishers to have accurate assessments of their demand partners’ financial health will grow in importance over the next few years as the ad tech industry normalizes and consolidates following years of inflated startup valuations, he added.
“You’re going to see so many growth-stage startups implode over the next year to 18 months,” he said. “And when these companies go out of business, they don’t pay their bills.”
