May 06 2021
Media Coverage

AdExchanger: The Ad Tech Tax, Coming Soon to a TV Buyer Near You

by Oscar Rondon, VP of Product Marketing for AdExchanger

Linear TV and digital buying teams historically lived in different worlds. Teams were separate within organizations and made up of talent with different skill sets and experience. In recent years, TV buyers were slowly being exposed to the ease of programmatic buying and how it might relate to the connected TV landscape, but COVID-19 certainly accelerated the collision of the two worlds.

One of the perceived differentiators that still exists for how the two do business is the so-called “ad tech tax.” Digital buyers are very familiar with the tax while TV buyers are just starting to get acquainted with it.

We see the ad tech tax as the cost associated with the technology vendors, software, platforms, etc., that are used when executing a digital or programmatic buy. The ad tech tax is simply the cost of doing business.

But what about the linear TV folks?

While many argue that linear TV buying has long evaded the ad tech tax, in reality, traditional currency providers have always baked in a “tax” … again, simply the cost of doing business. TV buyers, brands and publishers have always paid a fee to gain an understanding of an audience based on age and demographics.

Fast forward to 2021, and this way of looking at audiences and measurement is undergoing a sea change. Primarily, as advertisers are catapulting past age and gender demographics and looking for deeper connections with their consumers. As buying silos disappear and advertisers look to reach advanced audiences across linear and digital channels, more parties come into play, which could also mean more fees. There are several vendors that offer services to make TV buying more precise and scalable, including:

  • Data companies that supply valuable audience segments and identity resolution for finding advanced audiences across all TV touchpoints. These companies also help onboard first party data for activation.
  • Demand side platforms enable the buying of inventory across multiple exchanges, via programmatic pipes.
  • Supply side platforms allow publishers to expose and control inventory access, particularly on CTV.
  • Measurement companies track specific advertiser KPIs, including metrics like visitation, sales and foot traffic.
  • Ad servers get a portion of the revenue for serving the creative content in the stream.

All of these players are what comprise the ad tech ecosystem and, due to the fees collected, are known as the ad tech tax players.

While trends like cord cutting and cord shaving accelerate, the ad tech tax is now permeating TV, especially in the CTV space, as audiences jump among platform options available to them, looking for the next binge-worthy program. If linear buyers want to keep pace and reach these migrated audiences, they’ll need to pay for it. CTV impressions are bought using the same infrastructure that exists for digital today. That means TV buyers will need to use the same types of platforms that serve impressions on digital channels.

Of course, this isn’t to say that all facets of linear TV buying must adopt the ad tech tax. There will continue to be pockets of TV that remain untouched by tech vendors. For example, if an upfront deal is negotiated for the sole purpose of awareness, you likely wouldn’t need any additional measurement parties or players to execute successfully — avoiding any additional “taxation.”

In the instance of CTV buys, however, the tax is inevitable. And when considering issues like fraud and brand safety, avoiding the additional fees that will keep your brand in good standing, will be hard to avoid.

A few things that tell us the TV world is already accepting (or dare I say, embracing?) the ad tech tax:

  • On the demand side, a growing number of agencies and brands already have advanced TV teams in-house that are buying, building or partnering with ad tech players to reach advanced audiences and help maximize client objectives. There’s no turning back to traditional demos now.
  • Publishers and networks are seeing the value of precision as they achieve higher yield on their inventory with the help of technology and advanced data sets.
  • With both the demand and supply-side benefiting, the ad tech tax is shared. The goal of advertising is client KPIs. In order to meet those goals, everyone needs to share the costs. With TV becoming more sophisticated and measurable, the old way of reporting back to clients won’t cut it, no matter which side of the field you’re on.

For some, the ad tech tax may carry a negative connotation, but it should not be feared. The good news is that the tax won’t fall on a single party.

Now that TV has moved to advanced audiences requiring identity solutions and advanced data sets, everyone will share the costs for enhanced identity. We’re also ushering in a new age of precision on TV, making it a more measurable medium in all of its forms.

The best part? TV can truly compete with the digital giants again. So the ad tech tax, while inevitable, will usher in a new level of precision for convergent TV which will benefit all the players in the space. A new way of doing business as people find new ways of consuming content.

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