‘Data arbitrage is as big a problem as media arbitrage’: Confessions of a media exec

This article is part of our Confessions series, in which we trade anonymity for candor to get an unvarnished look at the people, processes and problems inside the industry. More from the series →

Arbitrage within programmatic trading has been under scrutiny for years, but other areas of digital trading are equally shady yet have dodged the spotlight: data arbitrage and murky attribution-modeling practices.

Both are damaging for both publishers and advertisers. In the latest installment of Confessions, in which we exchange anonymity for honesty, we spoke to a digital media veteran who has worked for international media owners and at ad networks about what’s happening.

Excerpts are lightly edited for clarity.

What areas of media transparency aren’t getting enough airtime? 
When it comes to media transparency, everyone talks about the media inventory, but attribution-measurement models are really murky, and data is one of the dodgiest areas, where massive margins are manipulated. No one talks about the arbitrage, margins and lack of accuracy within audience data.

Third-party audience data?
Yes, advertisers shouldn’t touch it. I’ve seen advertisers charged £10 ($13) for a data segment that I know cost that agency less than £1 ($1.30). I used to buy brand segments at £1.20 ($1.60) and would see advertisers charged £9 or £10 ($12 or $13) for the exact same segment. Advertisers need transparency on the media, but they also need transparency on the attribution-measurement models and the data. All the agency trading desks are now trying to be disclosed on media and have all launched their own proprietary data segments so you can now buy the agency group’s pooled data. How much of that data is advertiser data being reused? No one has thought to audit this agency data.

What can fix this?
The General Data Protection Regulation will have a very big impact on this [third-party data]. If you buy a segment from a DMP, how do you know it really is what it says? Everyone talks about transparency of media supply, but people are spending millions, if not billions, globally on data that they don’t know the source of, and it’s very hard to work out what it [the source] is.

What should advertisers do?
Advertisers should go direct to publishers and strike their own deals. Publishers have set up their own media-supply and data-supply offerings, so advertisers need to tell their agencies they’re in competitive conflict with the publishers [and] therefore shouldn’t be in the room when they’re doing negotiations.

Give an example of murky attribution modeling.
Advertisers are now being sold on metrics that are outcome-based, so sales rather than click-through rates. But even sales figures can be manipulated. It’s in the interest of a media agency to attribute a sale to its own performance as much as possible. I’ve known an agency to claim they should be credited with a sale based on one mobile ad being served, and a sale occurring on that client’s product 30 days later. That’s extremely unlikely; it doesn’t match to general consumer behavior toward mobile ads, but an agency can say whatever it wants.

Is nondisclosed media selling still causing damage?
In the U.K., most video inventory outside the broadcasters, YouTube and Facebook, is still sold on by the agencies in a nondisclosed fashion. So, the quality publishers who quote that inventory don’t get the recognition they want and don’t make as much money as if advertisers were to buy directly from them. These are direct deals agencies force publishers to sell to them. They then put [the inventory] into their video networks, which is powered by them or a third party, and then they sell that to advertisers. Clients are starting to get a whiff of it, but not quick enough.

So, they’re still making big margins.
When I was at an ad network, we would structure deals with agency trading desks where they would buy off us in a standard insertion order [direct sale] fashion but would tell their advertisers that it was a programmatic buy so they could charge extra service fees and margin on top, even though it wasn’t actually being delivered programmatically. In general, clients are charged anywhere up to 20 percent extra to buy programmatically, but when the agency wasn’t actually buying programmatically but buying direct, the agency was making 10 to 20 percent extra margin.

But this has improved, right?
All the big agency trading desks now offer potentially disclosed offerings. But it’s disclosed in terms of where it is running but not disclosed in terms of price. They can charge fees on top, or you never know what the rebate deals are behind it. One year, we had a rebate deal with an agency group, and the following year they changed that to a service deal. That’s because clients’ contracts would specify they would only get the money back if it was a rebate, but not if it was a service deal. That little change in paperwork meant they could still charge the publisher but without returning the money to the advertiser. Smart advertisers have started to change their contract terms to do that, but we are talking about millions and millions of pounds that agencies have withheld because their contracts changed from rebate fees to service deals.

Who’s responsible?
There’s a select number of senior people within media agencies who are structuring deals that are not in the interest of clients but the interest of their agencies. That then reflects badly on all the great people in the agency doing really good work for their clients. Generally, it’s those in the commercial functions with agencies.


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