6 Financial Transparency Challenges Facing the Advertising Industry
CFO’s are facing an increased number of challenges regarding financial transparency when it comes to the advertising industry particularly digital advertising. This is mainly due to the way the market has developed in recent years.
Historically, media owners only had a stronghold on a single market meaning localized trading resulting in a small number of ways in which media agencies and companies could charge for media space.
With the introduction of digital media, the industry became globalized and borderless with the potential of unlimited reach and footprint. As the medium matured, advertisers were encouraged to invest in digital advertising which ultimately increased the risks and realities of more obscure, non-linear and automated supply chain ultimately reducing the transparency of media trading in the digital ecosystem,
Multiple technologies now exist between advertisers and media owners meaning that advertisers have shifted from buying ad space on websites due to brand affinity to targeting niche groups based on their online behavior. With automated, programmatic media buying continually growing, by the end of the year it is estimated that two-thirds of all digital display advertising will be bought programmatically equating to $85 billion of advertiser spend.
Changes in the ad industry have made it challenging for advertisers to be confident that their agencies recommendations are correct, ultimately piquing interest for attentive and vigilant CFO’s.
We have identified 6 key challenges of financial transparency in the advertising industry. By understanding these challenges, CFO’s can navigate the media ecosystem and improve transparency levels.
1. Ensure Contract Content Framework
Advertisers should ensure that contracts with their media agencies contain strong provisions to deliver complete transparency. Separating the digital media investment from the broader trading contract is vital. Reviewing terms and conditions annually is vital in order to stay up to date and in line with the way the advertising market operates. Staying ahead ensures more detailed invoice reconciliation thus better control of the way in which agencies manage digital spend resulting in increased transparency, particularly via an audit.
2. Reduce Non-Transparent Models Used
It is important that non-transparent models currently used with a media company are reduced in order to minimize financial risk. CFO’s must push back on contract clauses in order to reduce transparency levels. This ultimately means monitoring the proportion of advertising space bought programmatically in each market.
Advertisers should have robust and far-reaching audit rights to allows full tracking contract compliant and measure value delivery. Contracting parties should commit to contract compliances so that the intended outcome of the contract is both delivered and seen to be delivered. Advertisers who have a greater proportion of spend means that this auditable and as a result as they have increased media transparency into their net cost.
3. Media Inventory Quality Control
Cost transparency can be difficult to obtain, as CFO’s need to monitor fraudulent ad space in order to ensure they are not paying for non-human traffic i.e ads “seen” by bots. Writing verified appearance of ads into contracts and having regular contract compliance reviews will determine and identify if there are any financial issues regarding ads which may have been delivered fraudulently.
4. Ensure Transparent Partners
With the rise in trading desks, affiliate, search and native outsourced specialists, this has resulted in a large number of transactions which are either non-auditable or out-of-scope transactions. By eliminating these from your media supply chain this can increase transparency levels. If an agency is reluctant or unable to provide this for your organization, it may be time to identify a reliable transparent partner you can work with for the long term.
5. Establish In-House Suppliers
Although there may be risks to be weighed up, there are also many benefits of delivering commercial deals with advertising technology suppliers in-house. This requires CFO’s to restructure fees to ensure that the organization only pay net for the technology and a fee for agency services for work carried out. Auditing all invoices for ad tech ensures that agencies only pass on the net cost of the advertisers. With this new financial processes in place, transparency can be improved.
6. Reject Non-transparent Trading Models
Although there are many independent solutions currently available in the market from trading desks to demand-side platforms. It is important that advertisers treat agency-owned solutions in the same way in which they would treat all other media vendors. This includes testing and questioning to identify that this is the correct decisions for the organization to deliver a satisfactory level of transparency.
Financial Transparency is Essential to Maximize Advertising Revenue
It is evident why and how media trading lacks transparency. With multiple players in the ecosystem and the increase in automation and artificial intelligence, there has been a reduction of human oversight of the currently complex advertising environment.
It is relatively straightforward for advertisers to take control and this is best achieved when both finance and procurement partner to tackle the lack of transparency in advertising systems together.