The news: As the share of online video ads began to chip away at TV ad revenue, reports surfaced that fraud is rampant in programmatic advertising.
At the end of 2013, online video advertising made up about $4.15 billion of all advertising in the U.S., and that percentage was expected to grow.
That figure looked like a golden opportunity for companies that are in place to take advantage of it--something that AOL Chairman and CEO Tim Armstrong emphasized to investors at a conference in March.
"I think you have to be excited about where the market is right now," he said at the Deutsche Bank Media, Internet and Telecom Conference. "Most businesses, if you are in front of an $80 billion market and only $5 billion of it is digital, I think that is a very significant opportunity."
However, as traditional networks cranked up their advertising upfronts in early May, the New York Times dropped a bombshell on this shiny new advertising medium. Citing a study by research firm Vindico, the NYT said that less than half of all online video ads are even seen by viewers: Some 57 percent of video ads never reach those intended audiences.
Another report by The Wall Street Journal in the same week revealed that thanks to some automatic ad-buying services (aka programmatic ads), many major advertisers were unwittingly supporting websites that offer pirated movie and television content. The article cited a study by the Digital Citizens Alliance (DCA), which estimated that some of these pirate sites could be seeing profit margins of 80 to 94 percent based on ad revenue alone. The top 56 pirated content sites combined brought in $227 million in ad revenue.
Why is it significant? Online advertising reached an important inflection point in 2014, and fraud concerns could dampen growth, particularly that of more expensive online video ads.
The effect of fraudulent ads has yet to be seen. Online video ads still don't make up a significant chunk of digital advertising. While eMarketer predicted in October that the programmatic ad market will top $10 billion in 2014, online video ad spending will total only $71 million of that market, or about 12 percent.
But as programmatic grows, a lack of confidence by brands could affect how many online video ads they buy. Online video ads are considered high-value, with brands paying more for them. And questionable placement problems now include autoplaying of video ads, which annoy consumers and can be used as another questionable way to collect money from advertisers--the videos only need to be visible for 2 seconds in many cases to count as a view.
In any case, the DCA said in its report, advertisers have to get serious about combating the problem, largely by working together to reduce programmatic fraud.
"The online advertising industry knows this is a problem," the DCA said in its report.