Video ad fraud grows alongside rising video ad spend
The video ad industry needs a tool like ads.txt to combat the rising tide of fraud in the industry, according to Justin Festa, CDO of publisher LittleThings. He said bad actors exploiting the "byzantine" ad supply chain were preventing premium publishers from achieving decent rates on open exchanges. Meanwhile, DoubleVerify COO Matt McLaughlin warned Q4 would see an increase in fraud, as advertisers scrambled to hit year-end goals. Video accounts for 64% of all ad fraud, despite making up 45% of ad spend, according to Forrester.
This is the second article in an occasional series on ad fraud. The first entry examined why old fraud tactics won’t die.

Fraudsters are pivoting to video, which is bad news for publishers looking to siphon cash from the growing pot of video ad spend.

The ad industry’s massive growth in video ad spend has simply created a strong incentive for fraud. As BuzzFeed’s recent ad fraud exposé showed, the demand for video inventory is so great that hucksters can still depend on old schemes like sending traffic to garbage sites and domain spoofing to trick big brands into forking over some of their money. The distrust that these ad fraud operations create could potentially slow down growth in programmatic advertising.

Here’s what you need to know about the state of video ad fraud.

The key numbers

Ad spend on video in the U.S. nearly doubled in just a few years from $7.7 billion in 2015 to $13.2 billion in 2017, according to eMarketer. By 2020, video ad spend is expected to exceed $18 billion.

Video is associated with a disproportionate amount of fraud. While video accounts for 45 percent of total ad spend, it is tied to 64 percent of all ad fraud, according to Forrester.

Among different types of video inventory, fraudsters go after the most premium stuff. Bots drive just 4 percent of mobile web video traffic. But for over-the-top video — where CPMs are much greater than the mobile web — 20 percent of traffic is from bots, according to Pixalate.

Fraud is roughly twice as common in video as it is in display. About 10 percent of the video impressions that DoubleVerify scans in North America are fraudulent, while only about 5 percent of display impressions are tied to fraud. White Ops estimates that fraud accounts for 22 percent of video spend and 9 percent of display spend.

Why this matters for publishers

Since it is the money of advertisers that fraudsters are gobbling up, ad-fraud conversations are usually couched from a buy-side perspective. After all, no marketer wants a fourth of their ad budget going to waste. But video fraud also strains publishers by diverting money from them and lowering ad rates.

To entice ad buyers, fraudsters sell bot traffic and impressions tied to masked URLs at a discount. This creates a perception that buyers can obtain video inventory on the cheap, said Josh Cariveau, svp of global operations at video ad platform SpotX. But in reality, quality video inventory remains expensive.

“My concern is that because of fraud, premium publishers do not get the rates they deserve through the open exchange,” said Justin Festa, chief digital officer of feel-good publisher LittleThings.

What it means for the industry

Engineering programmatic platforms to have as deep of a pool of advertisers as possible has led to a byzantine ad-supply chain that provides fraudsters plenty of nooks to hide in. Although digital advertising is more than two decades old, its fraud problems still persist. For video specifically, fraud appears to have gotten worse over time.

“We have definitely seen a growth in video ad fraud,” said Matt McLaughlin, COO of ad-verification firm DoubleVerify. Since ad budgets grow in the fourth quarter as advertisers try to reach their annual goals just before the year ends, fraudulent activity will be higher than normal during the next two months, he said.

One ad buyer, requesting anonymity, said he only buys video through private marketplaces where he can work directly with publishers. Limiting buys to PMPs significantly reduces the amount of available inventory, but the fraud concerns on the open exchange aren’t worth the trade-off for more scale, the buyer said.

On the sell side, LittleThings has found that advertisers prefer PMPs for video, so they can get more transparency, Festa said.

“PMPs don’t fully solve the problem, though,” he said. “Long term, we need to clean up the open market and bring more transparency to video with initiatives like ads.txt.”