In 2019, Sizmek and Ignition One/Netmining (two major ad tech firms) went bankrupt and didn’t pay for ad impressions that were served — ad impressions that we had already reported to AdThrive publishers and even paid AdThrive publishers for.
Ad providers were able to recapture some of that revenue, but not all. Many ad management companies simply didn’t — or even couldn’t — pay their publishers for those ad impressions.
We didn’t get paid for nearly $1 million in revenue because these ad tech firms went bankrupt — yet we paid our publishers every penny.
We were able to absorb the financial loss and shield AdThrive publishers from these bankruptcies because we believed it was the right thing to do!
How does something like this happen?
The way that payments flow across the digital advertising ecosystem is complex: not only with who pays whom, but also with the timing and liabilities that exist through that chain.
In very simplified terms, advertisers and ad agencies work with Demand Side Platforms (DSPs) to buy publishers’ ad inventory through Supply Side Platforms (SSPs).
There are thousands of publishers who work with AdThrive, and we work with around fifteen SSPs, who in turn work with dozens of DSPs, who in turn work with dozens of agencies, who in turn work with tens of thousands of advertisers.
Every step of the way, there can be different terms for payments
An advertiser might pay an ad agency on a net-90 day schedule, but the agency might have to pay the DSP net-60 days. Often, one company is paying another company before they get paid. And they are taking on the risk of not getting paid themselves.
Normally, that’s okay because companies have financing or cash on hand to cover these payment timing issues.
In times of financial distress, this becomes more difficult.
Companies that aren’t financially strong may lose access to credit and see their payments delayed, but still have a lot of clients to pay. Some will try to push their clients for longer payment terms. Some will reduce payments in general. And this will increase stress down the chain.
Sequential liability passes the financial losses on to the publisher
In all of this, there is an important component of advertising called “sequential liability”, an old concept that still exists today. Sequential liability means that if an advertiser doesn’t pay the advertising agency, the advertising agency doesn’t need to pay the DSP. This can happen between any partners and is structured the same way in contracts across the industry.
In theory, if you’re an SSP and you don’t get paid by a DSP, you can go after the advertiser who didn’t pay the agency, who didn’t pay the DSP. In reality, it’s nearly impossible to recoup money that isn’t paid to you because of sequential liability.
There are lots of reasons why a company might not pay, but one of the main reasons is if they go bankrupt. As companies deal with today’s financial crisis, they are less likely to be able to pay and are more likely to ultimately go out of business — not paying their partners and passing those costs down the chain.
Some firms offer partial protection or insurance, but they represent less than half of the open web digital advertising ecosystem of today.
Most of the time, when an advertiser goes bankrupt or a DSP fails, everyone in the chain will end up unpaid. Even the publisher who already ran the ads on their site.
What can a publisher do?
In times of financial crisis (and in the event of bankruptcies), all bets are off about who is going to get paid and when. As an individual publisher, it’s almost impossible to negotiate away this risk.
AdThrive is one of the few ad management firms that has historically covered sequential liability and unpaid ad dollars for publishers. In the past, this has meant hundreds of thousands of dollars. In today’s financial world, if an increasing number of ad tech companies go out of business or can’t pay, this could become tens of millions of dollars.
It’s impossible for all but the most financially-strong companies to offer this sort of protection.
We have always protected AdThrive publishers and believe we have a great responsibility to continue to do so.
We’re thrilled that AdThrive is able to commit to paying publishers whether we get paid or not — no matter what.