Ever since Sizmek’s bankruptcy, publishers have been wary about getting paid on time. This is especially true now that we’re in a pandemic-laden economy, where an ad-spend slowdown fueled a trickle-down effect forcing publishers to furlough and layoff staff just to stay afloat.
As we get deeper into Q4, we’re starting to experience a rebound but publishers are still concerned about payments nonetheless. Pubs are looking for assurances (and insurance) from their SSP partners that they won’t be the ones left holding the bag when there’s a default somewhere along the chain that links the relationship between advertiser and publisher.
“A distinction between SSPs, if they have demand or not, is how likely are they going to pay on time, and is there a risk that they would default? Because if you’re an SSP that doesn’t really have their own demand, that’s just one more middleman that could fall through the chain with delayed payment,” said one publisher speaking with us at a recent Think Thank with Sovrn.
Publishers need more transparency into their partner’s financials to better determine who they should do business with. And they need contracts that won’t leave them out to dry once they’ve already filled their end of the contractual obligation.
Transparency is Key
If the pandemic causes a DSP to go bankrupt or default on payments, it could leave an SSP in a very tricky spot since many are mitigating risks by fronting payments to their publishing partners for booked inventory. Here’s where we find an SSP having to make an arduous decision between taking an L on those payments they already fronted or demanding clawbacks from publishers
In this particular climate, it’s becoming increasingly important for publishers to credit check all of their partners, especially the ones that are privately held. There’s no transparency into a private DSPs’ financials, which is very problematic for publishers when their SSP isn’t guaranteeing payment.
While it might be common practice for a publisher to run a credit check on new partners, not many are going back and looking deeper into their financials. Having been stiffed quite a few times on payments, one publisher explained that their financial team consistently credit checks all of their existing partners every quarter.
This credit check practice probably wouldn’t catch something like the Sizmek fiasco, but it’s a method that helps pubs keep confidence in their partners, especially those whose financial information isn’t public.
But should the onus fall on the publisher’s shoulders when the SSP is next in the chain linked to the DSP?
Clawbacks Make a Comeback?
More often, pubs find that their SSPs are protecting themselves from a DSP who defaults but not the publisher.
When an SSP includes language in a contract with a publisher like sequential liability, it provides a buffer throughout the supply chain should the advertiser fail payment to the agency, who then fails payment to the DSP, who then fails payment to the SSP, which ultimately rests the burden on the publisher. As you probably already guessed, sequential liability is no friend to a publisher.
“We try and understand if we can negotiate that. Because our legal team is going to redline that,” shared one publisher about sequential liability clauses in SSP contracts.
And with the sequential liability, clawbacks are now being called out more prominently in the contractual language, which pubs view as empowering the SSP to clawback as they see fit.
“I’ve noticed clawbacks have come into the contract language a lot more recently,” said another publisher. “It wasn’t there two or three years ago and now it’s like a lot more prevalent and pretty vague and somewhat scary.”
Publishers want SSPs to do a better job of vetting their DSPs so that clawbacks and sequential liability won’t even be an issue in their agreements.
“We rely on our partner for that. So if the SSP chooses to clawback and not insure against their receivables, that damages our relationship with them,” explained one publisher. “We don’t know if the DSP is paying the fees on time. We don’t know which fees are getting paid preferentially by The Trade Desk or by DBM. We have no transparency into that.”
Does Your SSP Have Insurance?
With the decreased scalability of revenue teams making it impossible for publishers to fight for every penny they’re rightfully due, publishers are turning to their SSP partners to fight the good fight on their behalf.
SSPs like OpenX, TripleLift, and Sovrn have begun to alleviate publishers’ payment concerns with the addition of insurance policies that would cover defaulted payments by DSPs.
But publishers are cautious about going into these types of arrangements with their SSP partners. Pubs fear that either the comprehensive service protection just won’t be there or the insurance companies won’t be able to formulate a viable plan that would enable them to cover their bottom line if there was a default.
On the whole, third-party insurance does not provide publishers with 100% comprehensive protection. Typically, due to limitations of credit insurance, only about 90% of demand sources are covered, meaning a portion of publisher’s earnings will not be insured. . For this reason, Sovrn takes extra measures to reduce the exposure of their publishers..
“We are constantly mitigating the risk from demand-side defaults on behalf of our publishers,” says Brian Bouquet, Senior Director of Product Management, Sovrn. “We continuously perform thorough credit reviews of all our current and prospective demand partners. We only work with those partners who meet our strict criteria and we establish strict credit limits for all of our active demand partners.”
While some SSPs offer fee-based insurance programs that guarantee 100% coverage against DSP default, publishers aren’t jumping at the opportunity, especially when many SSPs aren’t transparent about revenue share and how pubs might be paying for these services through hidden fees.
In the end, what publishers don’t want is for clawbacks to be a sequential liability for them. They want SSPs to do a lot more, whether it’s removing the sequential liability from their contracts once the SSP has identified an at-risk DSP or turning the DSP off from being able to bid in the exchange.