Tag: EY

Study Shows Piracy Losing Premium Ad Revenue

Among the standard responses to any proposal to mitigate online piracy is an insistence that it just cannot be stopped.  Perhaps not entirely. But it can be starved.  That was the underlying goal of SOPA, but people decided the criminal sites deserved the money they were making because freedom.

As many readers know, the piracy universe is still largely supported by advertising.  The majority of the ads on many sites are “non-premium,” which is a polite way of saying sleazy.  These are usually promos for snake-oil products, VPNS to hide your identity so you can pirate more, and “dating” services offering men the opportunity to spend hundreds of dollars to exchange sexy emails with Sabrina in Odessa, who is more likely to be Todd in Duluth.

Research varies with regard to how much premium vs non-premium advertising supports particular sites, but major advertisers have been working for a few years now to bring their own contribution closer to zero. Although the total amount of premium advertising on pirate sites represents a small fraction of the US digital ad buy of over $60 billion/year, the advertisers view the presence of their brands on these sites as generally bad for business.   In addition to representing waste and lack of transparency in the digital advertising ecosystem; appearing on pirate sites associates their brands with criminal activity and spammy advertising; and it associates their brands with the increasing risk that visitors to pirate sites will stumble into malware.

In February of 2015, the major advertisers launched the Brand Integrity Program Against Piracy, led by the Trustworthy Accountability Group (TAG). As described in this post written at the time, the program was designed to establish protocols to certify suppliers and partners that work to mitigate exposure to risky entities with the ultimate aim of keeping premium brand dollars out of the pockets of pirate site owners.  A new report released today by EY indicates that these efforts seem to be working. From the report …

“If the industry were taking no quality-control steps and digital piracy operators served only premium advertisers, we estimate those operators could earn $213m annually from digital ads. In actuality, they earned an estimated $111m from those ads in 2016. The difference of $102m is a strong indication that quality-control efforts are having a significant effect.”

The study is based on analysis of 672 websites with a “high degree of infringing content that also serve advertising.”  Again, these numbers are fairly small as a portion of overall digital advertising, but they are more significant relative to revenue estimates for the piracy market overall.  For instance, this post from May 2015 cites a Digital Citizens Alliance study of just under six hundred infringing sites earning total revenue of $209 million of which $149 million came from major brand advertising.  So, if these quality-control efforts by the advertisers have legitimately denied over $100 million to piracy sites, that’s significant enough to begin to have a market effect.

If this trend continues, I suspect a few things will happen in the relatively near future.  The site operators earning well under a million dollars in revenue will probably get out of the piracy business because these sites represent fairly low-level investments designed to pick up the easy money of advertising “remnants” that fall through the cracks in the digital advertising system. The more entrenched and higher-yield sites will presumably become more dependent on spammy ads and malware, both of which are designed in one way or another to fleece users.

While it’s true that many committed pirate site users are sophisticated enough to avoid these hazards, it must also be true that plenty of users are unsophisticated enough for the scammers and hackers to be on these sites at all.  Thus, if pirate sites are further delegitimized by starving them of premium ad dollars and, as a result, they become more hazardous in the minds of, say, parents who think their teens are engaged in a harmless activity, there is decent chance the sites may lose their less-sophisticated user base.  At that point, the value to the snake-oil advertiser disappears.

If every pirate site user were savvy enough to avoid malware and sleazy ads, the only revenue model left is direct payment.  Many sites do receive subscription and donation revenue; but then of course, the lion’s share of more casual users who access these sites do so because they’re not in the habit of paying for the media they consume.  So, maybe it isn’t possible to stop piracy, but it does seem quite possible to starve it down to a more manageable size.  In the meantime, these efforts by the advertising industry should help reveal piracy for what it is—an illegal business, not a social movement.

IAB Report Reveals Flaws in Internet Supply Chain

Internet companies and digital rights activist organizations have spent considerable resources over many years promoting the idea that we should think of the Web as an extra-legal territory.  From Barlow’s  evangelical Declaration of the Independence of Cyberspace in 1996 to current debates over the relevance and meaning of an “open” Internet, one recurring theme that still holds sway among many people is the idea that these networks should operate beyond the boundaries of public or private regulation.  Digital rights proponents—many of them funded by Silicon Valley corporations—at times come rather close to describing the Internet as a religion—as though it runs on esoteric virtues like freedom, good intentions, and the human spirit rather than, y’know, money.

For better or worse, the Internet most of us use every day is one vast, complex media platform designed to attract advertising dollars, which means the major Silicon Valley firms and their shareholders have more than a vested interest in a sustainable digital adversing ecosystem.  As such, it’s worth noting that their own anti-regulatory rhetoric often used to lobby for a laissez faire approach to all things Web can potentially backfire and threaten the viability of their own existence, like unfettered deforestation in the Amazon.  (I mean the real Amazon).  And according to a new report released last week by the Interactive Advertising Bureau (IAB), conducted by EY, the digital advertising ecosystem in the U.S. is currently losing an estimated $8.2 billion a year in value due to “fraud and flaws in the Internet supply chain.”

Without working in digital media planning and buying, it’s tough to fully understand the advertising ecosystem, but this video created by IAB is a helpful overview that at least gives one a pretty good idea as to why it’s called an ecosystem.  Media buying and selling in a market with billions of pages in constant motion is naturally a complex universe of interdependent functions, which are necessarily automated and, therefore, not entirely transparent to all parties. Available online inventory is purchased through a semi-automated exchange where the available inventory of impressions is bought and sold, functioning much like any other commodities exchange.  At the most basic level, advertisers are paying for impressions, which are supposed to be based on real human traffic to the sites and pages where they have directed their ads. But because the system is complex, partly opaque, and because any site owner can serve ads to his page, there is tremendous opportunity to exploit imperfections in the system for profit.

As complex as the system may be, dishonest brokers have developed a variety of equally sophisticated methods for either siphoning ad dollars away from the intended market or for using the advertising ecosystem to deliver malware or conduct scams and theft. For instance, the IAB report estimates that Invalid Traffic is costing the industry $4.6 billion.  One example of Invalid Traffic would be an advertiser paying for ad impressions based on a volume of non-human traffic to a given site or page.  Serving ads to bots or generating false impressions via clickfarms are among the growing problems for the advertising industry. Additionally, this type of Invalid Traffic is interrelated with the two other corruptions in the supply chain identified by the IAB report—Malvertising+ and Infringed Content.

Infringed Content (e.g. piracy sites) is estimated by the report to be draining value from the advertising ecosystem to the tune of $2.5 billion. The lion’s share of that number represents a combined estimate of either paid-for content or ad-supported content that would be legally consumed if Infringed Content could instantly be made to disappear from the Web. I have written in earlier posts about advertisers losing brand value when their ads appear on sites dedicated to infringed content, but this report identifies specific ways in which Infringed Content is related to Invalid Traffic. For instance, a user who visits a pirate site is increasingly vulnerable to malware, which can then slave the user’s device to generate Invalid Traffic for ads in a variety of ways unbeknownst to the user.

Malvertising+ is estimated in the report to be costing the industry $1.1 billion in value and is described thus:  “Malvertising+ refers to the potential distribution of malware across a larger population of consumers by compromising a single advertisement or script than would be possible through compromising a single website or content source.”

In a nutshell, Malvertising+ includes various methods by which bad actors are using the advertising ecosystem to deliver malware that may either be used to generate fraudulent revenue via Invalid Traffic or to attack individual users with scams like ransomware, which installs a virus to seize control of a user’s system so the hacker can then charge a fee for its release.

Suffice to say the IAB report cites too many examples—and they’re fairly technical—to describe in this post, but to put that $8.2 billion in lost value in perspective, this article by TechCrunch, citing ZenithOptimedia, states that the projected U.S. ad spend for all Internet advertising—which includes more than the portion relevant to the report—in 2015 was expected to have been approximately $51 billion.  That means just about 16% of the total domestic spend on online advertising is being poured into what the IAB report calls an “untrustworthy supply chain.” Presumably, there is a tipping point at which advertisers can lose confidence in the digital advertising ecosystem, which seems to me the kind of outcome one might expect from an entirely unregulated Internet.

Because each of the various types of corruption identified in the report represents criminal activity, it seems likely that the remedies necessary to maintain confidence in the advertising supply chain will comprise some combination of both law-enforcement efforts and voluntary measures on the part of key players in the advertising ecosystem. And it is interesting that the second largest corrupting force identified in this report happens to be Infringed Content.  After all, the Internet industry—particularly Google—has spent such vast resources devaluing the relevance of copyright in the digital age and claiming that ISPs cannot “police the Internet” whenever the copyright holders have sought voluntary measures to mitigate mass infringement.  But if the ad buyers cannot have confidence in the market, then the ad sellers may suddenly find both the will and the ability to stifle the opportunity of pirates and thieves to leech off legitimate trade.