SSPs Are Taking Extra Steps to Assure Publishers They’ll Get Paid

Media owners want to avoid the impact of another sudden DSP bust, just as ad spend is plummeting

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PubMatic is paying publishers earlier and introduced a payment protection plan. Getty Images

Key insight:

The number of media buyers pressing pause on ad spend increased from 24% to 37% between mid-March and mid-April as lockdown measures to combat the Covid-19 pandemic devastate economies, according to IAB research.

As a result, some are calling the health of the independent ad-tech ecosystem into question with even Google—by far the largest player in digital advertising—feeling the squeeze on its ad businesses. “We anticipate that the second quarter will be a difficult one for our advertising business,” Alphabet and Google CFO Ruth Porat told analysts in an ominous warning last week.

In a recent poll of publishers, 16.1% cited challenges with “accounts payable” as their biggest barrier to conducting business as normal in a time when liquidity is hard to come by, and now supply-side platforms are doing all they can to endear themselves to parties with such concerns.

Tighter scrutiny with memories of bad debts

SSPs have already been scrutinizing their demand-side partners over fears that current financial constraints will spur another high-profile DSP collapse. Now, SSPs are going a step further to ensure payment to publishers.

Jeff Hirsch, CCO of PubMatic, said publishers are more concerned than ever about being paid and the health of DSPs. As a result, the company recently announced it will be guaranteeing payment to publishers three days in advance to ease their worries.

“PubMatic went into this pandemic with a very strong balance sheet and we have looked to find new ways to support our publisher partners who may be experiencing cash flow issues, hence our decision to pay all global publishers three days early throughout Q2,” said Hirsch.

PubMatic also offers a payment protection plan that lets publishers nix their sequential liability agreement with the company in exchange for a monthly fee of roughly 3%. So if a DSP goes bust, PubMatic would still cover payment.

Publishers are already facing a dip in CPMs and fill rates as the buy-side pares down ad budgets during the pandemic. That drop in ad spend has put added pressure on demand-side tech companies, forcing the sell-side to brace for another Sizmek-like event where publishers are ultimately left unpaid.

Alternative finance solutions

Bernard Urban, CEO of Silverblade Partners, a financial solutions or “factoring” firm, said the company mainly served the ad-tech sector when it launched last August. However, many publishers have started coming his way in search of liquidity since the outset of the pandemic.

“We’re in an environment where money moves at an average of 60-90 days, so [a lot of] money moving through the system is before-Covid-19 money. I don’t think the full impact of the liquidity crunch has hit yet,” said Bernard Urban, CEO of financial solutions company Silverblade Partners.

Earlier this month, OpenX said it had taken insurance out on many of its DSP partners, covering 87% of projected US spend for 2020. Euler Hermes, the insurance company in contract with OpenX, would pay out 90% on a claim in the event of a default.

“Our strong advice to you is to only work with exchanges that can indemnify you from clawbacks due to a DSP’s nonpayment, otherwise, you risk losing your earned revenue. Simply looking more closely at a DSP’s creditworthiness is not an insurance policy,” Tish Whitcraft chief customer officer at OpenX, said in an email to clients.

OpenX had to cut staff and salaries due to the economic impact of Covid-19 and a spokesperson confirmed that the company still kept its insurance policy despite the costs associated with it.

The financial pressure of the Covid-19 pandemic has also kickstarted the trend of supply-path optimization, which reduces the number of intermediaries between publisher and advertiser. SSPs essentially adding a financial services layer on top of their tech offering could act as a noteworthy differentiator.

“In a world where SSP differentiation is increasingly more difficult and more important, the ability to pay your clients on time and in full is ever more important,” said a publisher executive, who requested anonymity due to their company’s PR policies.

However, Urban noted that purchasing insurance on DSPs “isn’t inexpensive.” Building in that extra layer of protection could mean added fees and lowers margins to a supply chain that’s already bloated with costly take rates and expensive infrastructure costs.

SpotX is also in early talks with Euler Hermes on a similar insurance policy, though an agreement has yet to be made.

Josh Cariveau, president of North America and APAC at SpotX, said there aren’t any buy-side partners notably late on payment, but that SpotX has upped its due diligence given the current state of the economy.

“We’ve upped our efforts in communication, in general. Our CFO is staying close to CFOs within our various DSPs to understand their cash flows, understand their payment cycles, and understand if they’re hearing from agencies or buyers that they’re going to be late,” said Cariveau.

The goal is to avoid another sudden bust that sees millions of dollars disappear.

“Anytime you have a problem, I always think that you should have some learnings from it, and it was to be as upfront and transparent as possible [with media owners]. I think we were doing that before Covid-19. We’re more alert now, given the economic impact of the pandemic,” said Cariveau.

@andrewblustein Andrew Blustein is a programmatic reporter at Adweek.