Why one newspaper's reporting could change the face of digital media

Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.

Proper investigative journalism is, in these straitened times for newspaper publishers, sadly something of a rarity.

There have been exceptions – including the Guardian’s expose of phone-hacking, the Telegraph’s campaign on MPs’ expenses and Private Eye’s often fearless investigations into corruption and incompetence – but carefully researched stories and campaigns that really change things are a comparative rarity these days.

Kudos to The Times, therefore. The Murdoch-owned paper’s investigation into online advertising has really shaken up the world of marketing communications. Over the past couple of months, ‘the Thunderer’ has been living up to its nickname, publishing a series of articles pointing out that the largely automated processes of ad buying and placement in the digital space have led to brand messages being placed next to some (let’s put it kindly) rather unsuitable content; principally, extremist political and Islamist videos, as well as more racy (ie sexually explicit) stuff.

Putting aside the more cynical views as to the timing of the big news coverage on the YouTube ad placements coinciding with Advertising Week – Murdoch has made no secret of his desire to challenge YouTube owner Google on its advertising dominance as reported in The Drum – it was good to see this serious issue being brought into the public domain rather than just being talked about in agencies and by brand owners, which has been going on for some time.

The result has been both an advertising boycott of YouTube by some very big blue-chips – M&S, Royal Mail, the BBC, Mercedes-Benz, the Guardian, L’Oreal, Honda, the UK government and many more – and a good deal of soul-searching among digital media agencies.

What’s more, the problem isn’t confined to the UK, which is Google’s second-biggest market outside of the US. It has now spread across the globe, with the likes of Australian pay-TV giant Foxtel, Nestlé and Vodafone all withdrawing advertising from the video channel. It’s said that at least five of the top 20 US advertisers have also followed suit in the past couple of weeks. According to the Times this week, some 250 companies have now pulled their advertising for YouTube and Google’s display ad networks.

Given YouTube’s vast reach and near-ubiquity in the west, a decision to withdraw can’t have been taken lightly by any of these brands. But they are concerned – after all, who wants their brand associated with white supremacists, Islamist extremists or porn films?

What’s interesting is that the furore (and more likely, the boycott) has forced Google and its parent company Alphabet to act; as well they might – last week a note from analyst Nomura Instinet calculated that Google could take a $750m hit as a result. Given that’s about 7.5% of its revenues (which are predicted to top $10bn this year), even mighty Google, one of the wealthiest and most cash-rich firms on the planet, has to sit up and take notice.

Let’s be clear – even if the boycott continues, this isn’t going to put Google in any financial jeopardy: the vast majority of its revenues still come from search, which is unaffected by this controversy and its revenues are expected to be around $110bn this year. But a $750m hit, while comparatively small change as well as damage to the brand, is still too big to ignore.

What Google will actually do is unclear, but one suspects in the short term it will deal with the problem. It has already said that it will employ more staff to review content (this can’t be automated – at least not yet), introduce more controls for advertisers and update its ad policies.

This may calm things down – although I suspect some of the more image-conscious brands will demand much greater direct control of ad placements; this is likely to put strain not only on the resources at Mountain View (where Google is based) but also the digital media agencies.

In the long term, the effects may be much more profound. This recent controversy has made many wonder whether algorithms are all they’re cracked up to be. Sometimes you just can’t beat a bit of good old-fashioned human judgement and intervention – automated placement cannot determine between ‘good’ and ‘bad’ video content across a site.

It’s also bought brand owners’ concerns over lack of transparency and accountability back to the top of the agenda. In the good old days, a brand owner knew that his ad would be appearing in the middle of Coronation Street, on page six of the Mail, at Green Park Underground station or on LBC. Now, who really knows where your brand message is going in the vast wild west that is cyberspace?

Last week Michael Higgins, the chairman of Ebiquity, a media auditor and pitch consultant which advises about 80 of the world's top 100 advertisers, sounded a warning at his company’s annual results.

He said: "It is a striking fact that today only about 40% of digital programmatic advertising investment reaches the consumer, with value being eroded by the multiple links between advertisers and publishers, fraud, lack of viewability and non-human traffic.

"I don't envy any business leader who has to tell his board and shareholders that they're investing in anything that suffers up to 60% wastage. The trouble is, that's what many CMOs should be saying."

Higgins, a former partner at KPMG, said the rise of technology "has helped make the broad marketing ecosystem ever-more complex, inevitably more confusing, and often less transparent than one might expect".

Ebiquity advised the Association of National Advertisers in its investigation into "non-transparent" business practices at US media agencies last year.

The annual results show the company spent £285,000 of its own money on "the transparency work performed for the US Association of National Advertisers".

Higgins added that advertisers “need more help than ever from an independent firm with the necessary knowledge and expertise to navigate their way through this".

Higgins obviously has a stake in this, but he’s right. I think we will see a change in media agencies’ behaviour – they will focus more on judgement, experience and understanding rather than automation, programmatic buying and algorithms. This will add to the workload and inevitably, increase costs as more humans may have to be hired and trained. For those who move quickly, there may be an advantage, but others either may find themselves dropped by clients demanding trust, transparency and accountability.

And if digital media agencies’ costs increase, we may see more consolidation, as shops and holding companies attempt to make savings. We may see agencies merge, or be bought out by others, or even – as Havas did recently – bring them back into the creative agency fold.

And to finish: there is another, even deeper – almost existential – issue that both Google and society have to address. Google, along with the likes of Facebook, Twitter, WhatsApp and Snapchat, were forged in a very singular and contradictory California culture: part-libertarian, part-hippy, part-ruthless capitalist and part-technocratic.

Even though these firms view themselves as technology companies, the rest of society (including the legislators) increasingly see them as broadcasters or media channels. And of course, being a broadcaster implies a modicum of responsibility. This many of the tech giants refuse to do.

While the technological excellence of these companies’ products cannot be doubted (Google is a marvel of the modern world, both in its simplicity, ease of use and effectiveness), their attitudes towards what they do look increasingly out of step with law-makers’ brands and, most importantly, the public. The spat between the government and WhatsApp over encrypted data following the Westminster attack last week is a good example; in this one, virtually everyone outside Silicon Valley (even the most passionate free-speech advocates) would side with home secretary Amber Rudd I suspect.

How this issue will be resolved is anyone’s guess, although if Google and co do not “clean up their act” then governments may well try to do it for them.

Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector

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