Ad Tech Tax For Converged TV? Not So Fast.

Lance Neuhauser headshotOn TV And Video” is a column exploring opportunities and challenges in advanced TV and video.

Today’s column is written by Lance Neuhauser, CEO at 4C.

TV’s transformation is often measured by all the ways it has adapted elements of digital media buying. Granular people-based targeting, outcomes measurement and real-time transactions are the signs of growth and progress.

But there are other elements of digital buying that may be worth leaving in the past, namely ad fraud, opaque measurement, brand safety and the ever-present ad tech tax.

That tax is the price of maintaining aging infrastructure at the core of the open-web digital ecosystem. That infrastructure – in the form of stand-alone demand-side platforms (DSPs) and individual point solutions – was critical for years and deserves credit for the growth of digital as a business. But today it can be seen as more of a steppingstone. Closed ecosystems now dominate digital media, and brands work hard to eliminate every extra step in the supply chain.

Converged TV and video is experiencing the first brushes with issues such as fraud and brand safety, supply-chain transparency and trust – pitfalls of programmatic media. Many see an opportunity for an explosion of new innovation (read: shareholder value) in stand-alone companies that ease these growing pains. In solving for these problems, major TV networks should heed the lesson of just how rapidly such companies can become obsolete.

DSPs lose relevance

Take the demand-side platform as an example. DSPs emerged at a time when the fracturing of the open web became unmanageable for brands looking to purchase online inventory efficiently. Multiple categories of middlemen appeared, DSPs among them, to make digital media buying simpler and more accountable. Unfortunately, as middlemen proliferated within the supply chain, DSPs lost their ability to represent competitive inventory, and today they add little value as part of the media supply chain. Between January 2016 and April 2018, advertisers reduced the number of DSPs with which they work by 40%, from 6.9 to 4.2 on average.

As an extra step in the supply chain, today’s DSPs represent a large part of the ad tech tax, while also exposing advertisers to risk of ad fraud and data loss. Every handshake along the digital supply chain layers on greater cost, delivery lag and opaqueness into the life and performance of advertisers’ campaigns. Today’s brands might continue tolerating such challenges were it not for a simple truth: These middlemen aren’t helping them reach consumers where they spend the most time anymore.

These days, nearly every consumer is reachable via closed online ecosystems, and it’s within these ecosystems that they’re spending more than 80% of their time. The open web is no longer the place to target them as efficiently. Increased restrictions for third-party data use and cookies, coupled with regulations such as CCPA and GDPR, exacerbate this trend.

The open web still has valuable inventory, which will increasingly be bought on a contextual basis, but it doesn’t make sense for advertisers to anchor their spend there.

Open vs. closed ecosystems in the converged TV era 

DSPs were built for the open web programmatic ecosystem, where media plans spanned thousands of inventory sources. Now that consumers spend most of their time in a handful of vertically integrated closed ecosystems, such as Facebook, Google and Amazon, DSPs are becoming less relevant.

However, in TV advertising, where linear is expanding to OTT inventory and premium video platforms continue to proliferate, the supply chain has grown increasingly complex. Will the space repeat the pattern that emerged in online display? Will a vast layer of middlemen become necessary, inevitably resulting in added costs, decreased performance and increased opaqueness?

No. In the short term, the complexity of the converged TV supply chain may increase, but a landscape of middlemen is unlikely to stick around, much less thrive, for very long. The nature of today’s converged TV landscape is fundamentally different than the open web of a decade ago. It is rapidly evolving, yes, but its inventory and trajectory of fragmentation are nothing like what we saw with digital display.

In the converged TV space, premium viewing and ad experiences remain the expectation among consumers. Today’s traditional TV players are few: They’re relatively if not exceptionally mature, and they know that their advertisers are highly averse to inappropriate content, fraud or otherwise inferior advertising experiences. As such, they’re keeping their environments closed –and that will fundamentally shape the trajectory of the converged TV landscape and block many spaces into which middlemen might have sought to squeeze.

Hindsight in the year 2020

When it comes to media, emerging channels have the benefit of hindsight, and the evolving converged TV landscape is advancing so quickly toward maturity that it is not likely to repeat the rise and subsequent fall of a complex layer of stand-alone tech companies. Although media buying will advance to serve the growing opportunity for targeted cross-channel, data-driven converged TV campaign execution, the space will continue to be defined by what has always made it special: premium content and stellar ad experiences.

With digital display, marketers needed DSPs to aggregate inventory and provide a mechanism for targeting audiences and executing buys across disparate sources. As TV makes the jump into OTT, there’s hardly a need for such a mechanism. There is less inventory from fewer players, it’s almost all premium, and those that provide it offer sophisticated segmentation and buying options.

Intermediaries such as DSPs were a steppingstone in digital, from an aggregation of open web inventory to the closed ecosystems that dominate the channel today. The next generation of TV won’t need that steppingstone. It’s already there.

Follow Lance Neuhauser (@LanceNeuhauser), 4C (@4Cinsights) and AdExchanger (@adexchanger) on Twitter.

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  1. Melissa M

    Very insightful piece and it helpful as we work towards reworking our stance on the DSPs we work with today. I’m curious if you have a POV on programmatic direct. I agree with your points on the open exchange and how the middlemen have devalued the programmatic space, however, I see an opportunity for programmatic to continue down a growth path by changing the way it buys programmatically. Instead of real-time bidding, we go back to the days when we buy directly, but do so via a programmatic ecosystem for easier management, while still staying ahead of these issues. This would include video buys as you’re mentioning, but also primarily mobile.

  2. Thanks for the feedback. Indeed we should not throw away the programmatic baby with the open exchange bathwater. Depending on how you define programmatic direct, that could very well work within the Converged TV market. The key is anchoring on a platform built for addressable audiences within closed ecosystems not a DSP built for impression-level bidding using cookies and other non-persistent identifiers.