'A blow to the fight for a fairer programmatic industry': the inside story of how KPEX fell apart
On Tuesday (August 20), the Kiwi Premium Advertising Exchange (KPEX) sent shockwaves throughout the industry when it released a statement announcing it would be closing due to “changing market demands and shareholder priorities”.
MediaWorks, Stuff, NZME and TVNZ formed the publisher co-op in 2015 as equal shareholders as they wanted to establish an independent business outside of their organisations and give publishers the freedom to move fast and innovate in New Zealand.
Four years later, the alliance, which has 74 sites in its network, has ended after Stuff exited the ad exchange.
The publisher co-op was seen by many as a way to break the monopolisation of advertising dollars by digital behemoths Facebook and Google by allowing publishers to have greater transparency to track and control the inventory, as well as eliminating the need for agencies to do traditional direct buys with multiple publishers.
The Drum understands that Stuff pulled the plug because it was not keen to continue sharing revenues with its competitors in KPEX as it contributed to a majority of KPEX's ad supply, which stands at 60%.
This led Stuff's commercial director Josh Borthwick to believe that his sales team could monetise Stuff’s inventory better than KPEX and that the publisher would be better off going it alone.
Speculation is rife that Stuff's new parent, Australia’s Nine Entertainment, which attained full control of Stuff through its acquisition of Fairfax Media in January 2019, influenced Stuff's decision. However, The Drum understands that the decision was made by the Stuff leadership team based in Wellington, Auckland and Christchurch.
Stuff was also reportedly unhappy that it was cross-subsidizing the whole organisation and did not have control of its own inventory.
There are also allegations that some other publisher members had been making some of their inventory available through other programmatic channels, which went against the original agreement of the formation of KPEX.
When contacted by The Drum, a Stuff spokesperson confirmed its decision to pull out of KPEX and said it supported the KPEX board's decision to close the exchange.
“Since KPEX's inception, programmatic revenues have become increasingly core to our business. In recent times, our advertising partners have told us they want a closer relationship with us as a publisher, regardless of whether they book advertising programmatically or through traditional methods,” says the spokesperson.
“We believe our in-house programmatic team will better serve the needs of our customers and therefore our business."
The Drum understands that after Stuff notified KPEX's board of directors of its decision to exit, the shareholders' agreement provided only a 10-day window for the other shareholders to decide whether to buy out Stuff's shareholding or shut down the business. Stuff's decision was positioned as final and non-negotiable.
The only other option on the table was to continue operating without Stuff, with KPEX charging a higher fee to remaining publishers to cover its operating costs while seeking an alternative publisher to replace Stuff.
Trade Me, one of the largest auction websites operating in New Zealand, was approached to replace Stuff in the alliance but showed little interest in joining KPEX.
This meant that without a replacement of the revenue from Stuff, the business was no longer commercially viable. The remaining shareholders also decided they were not prepared to accept the higher fee option, even though this would still be competitive in the market and allow them to retain their current revenues and KPEX’s value proposition.
That left KPEX with no choice but to close, with all six employees working in the ad exchange, including Simon Birkenhead, the chief executive, being made redundant.
The Drum understands that as the decision was made quickly and without any notice, this came as a huge and unexpected shock to the team as they were under the impression that KPEX has been hitting revenue targets and growing both revenues and market share.
What does this mean for industry?
KPEX will stop selling ads after September 17, according to a document to buyers about the closure, seen by The Drum. KPEX said it would continue to match ads with demand while it continues to receive ad supply from its publishers.
For those who have campaigns already set up to target KPEX alliance deals or KPEX open market supply, these will continue to bid against its ad supply.
However, over the next 30 days, it said it publishers will be reducing the ad supply made available to KPEX, which will result in a declining volume of ads served.
All ad monetisation through KPEX across both alliance and open market will cease after the deadline.
The first publisher to prepare for life after KPEX is NZME, which announced on Wednesday it has built a full in-house programmatic sales team, led by NZME group investment director Andy Taylor, dedicated to serving its ad agency partners.
“We know our audiences better than anyone else and now with direct interaction from our in-house programmatic sales teams and their expertise, we can offer a complete end to end service that will empower agency buying teams to deliver the best possible results for their clients,” said Laura Maxwell, the chief digital officer at NZME.
“The best way to reach and activate audiences is through direct conversations, but the ability to then create and execute a successful campaign through efficient trading and delivery mechanisms has been the missing piece of the puzzle – until now.”
Like NZME, the other publishers like Stuff, MediaWorks and TVNZ will now have to build their own programmatic sales teams, which means adding costs and they will not be able to benefit from the revenues generated by KPEX's audience targeted alliance and floor price optimisation.
Google could be the biggest winner from the closure of KPEX as most of the smaller publishers and shareholders will now choose Google as their default sales channel.
This could potentially drastically lower the margins for each publisher, as Google's platform fees are double what KPEX's partners were charging, and Exchange Bidding levies a 5% fee versus a 0% fee for KPEX's header bidding.
The closure of KPEX has seen mixed reactions from agencies in New Zealand as before they could buy campaigns across 80% of NZ population through a single deal, they will have to negotiate with each publisher individually now.
With some agencies not resourced or equipped to do this, their spend will likely default to the open market on Google.
In a newsletter sent to clients by Nick Paschalis, an agency sales director at the programmatic trading desk, Acquire Online, seen by The Drum, he said the closure of KPEX will see the platform lose out on targeting multiple publishers across single audience overlays as it now has to set up individual alliance deals across publishers.
He noted that video inventory costs through KPEX were very cost-effective, especially for completed views. The closure means there will also be no more audience data across the KPEX publishers and Acquire will need to rely on second-party data from the likes of Trade Me, Real Estate, or on third-party data sources, to target audiences.
On the other hand, he pointed out the upside is that all the KPEX publishers will now make their inventory available via the open exchange, which means Acquire might have 'first look' priority.
He suggested this could result in better collaboration with publishers to execute targeted buys across innovative rich media units. This is because, during the KPEX reign, publishers could only work on unreserved fixed-rate deals and programmatic guaranteed deals.
A tweet by John Baker, the managing director of New Zealand-based Lassoo, a digital media agency, suggested that unlike Google or Facebook, KPEX struggled to deliver quality programmatic to consumers at scale as New Zealanders were consuming international news on sites like The Guardian, CNN and The New York Times.
He noted that NZ publishers were also holding back premium inventory.
“Another factor is the effect the NZME paywall has had on available impressions and finally, Nine signalled two weeks ago they intended to change the ad sales model,” he wrote.
They struggled to deliver quality programmatic consumers at scale. One elephant in the room, is not Google or Facebook, but the scale of New Zealanders consuming international news on sites like The Guardian, CNN, NYT, etc. NZ publishers were also holding back premium inventory.
— John Baker (@JohnEdwardBaker) August 20, 2019
What can other PMPs learn from this?
The KPEX model has long been held in high regard in Asia Pacific, with its claims of delivering 1.3bn ad impressions per month and a 75% audience reach in a country with a small population like New Zealand.
In a roundtable organised by The Drum, the one-year-old Singapore Media Exchange cited KPEX as one of the reasons behind Singapore Press Holdings and Mediacorp coming together to form a publisher co-op, while two alliances have been formed in Malaysia.
The Malaysia Premium Publishers Marketplace (MPPM) is made up of eight publishers in Malaysia that includes Star Media Group, Utusan Malaysia, China Press and The Edge, as well as the Asia’s by-invitation marketplace for premium inventory (AMP), made up of seven publishers.
In Thailand, the Online Premium Publishers Association (OPPA) was launched in May 2017 and consists of 12 of Thailand’s publishers including BEC-TERO, Dek-D, Kapook, MThai, OTV, Pantip, Post Today, Sanook, SiamSport, and Thairath.
Dominic Powers, the chief executive of CtrlShift, which runs AMP, tells The Drum the closure of KPEX is a blow for the movement towards a fairer and more transparent programmatic industry where publishers have an opportunity to get the financial rewards they deserve.
However, he says this does not signal a grim outlook for the industry as publisher alliances, wherever they may be in the world, need to continue to bolster their efforts to educate all stakeholders of the market - marketers and agencies, and other publishers.
"The move away from third party cookies will see the need for publisher first-party data and audiences becoming stronger," he explains.
"For publishers in APAC who are already, or considering participating in such alliances, there ought to be clarity around their objectives, long and short-term, and an understanding that this is a medium-to-long-term play given the relative immaturity of our market."
Hari Shankar, the chief executive of SMX, believes KPEX as a business was still viable and feels it is extremely unfortunate that Stuff pulled out leading to a closure.
"I personally do not think it means anything for other alliances because all other alliances have their own business model - unique or otherwise - attached to them. In the end, success depends on how strong the publisher collaboration and commitment is towards the common objective of creating scalable, successful marketplaces away from the duopoly," he tells The Drum.
"As far as SMX is concerned, our trajectory is very much aligned with a clear business model and also has the strong support of both the publishers. Continuous experimentation is key for such a business to be able to evolve the model in response to market dynamics and that is one of the cornerstones of our strategy."
Powers does not believe this is not an outright win for the walled gardens of Facebook and Google, noting that the walled gardens are also under heavy scrutiny as regulators, marketers and publishers are putting them on notice.
He points to the recent tightening of regulations on Google and Facebook by the Australian Competition and Consumer Committee (ACCC), which he believes is potentially good news for publisher co-ops. This means publishers, whether they are part of an alliance or not, ought to continue to invest in their programmatic offerings.
"In addition, marketers are starting to weigh up the benefits of 'GooFace' with the lack of transparency and the benefits that come to the industry as a whole. We work with a number of large brands that, for their own reasons, are not spending on Google and experimenting successfully with other providers," he explains.
Sharing the same sentiments was Zane Furtado, the programmatic director at Acquire, pointing out that KPEX was not designed to skew budgets away from Google and Facebook.
"KPEX was formed to give buyers a platform to reach a targeted audience at scale, across multiple publishers using a single deal ID. Publisher benefited by getting an additional layer to their waterfall," he explains to The Drum.
Shankar also agrees, noting that it will be always advantageous to the walled gardens if the rest of the industry is not able to come together with all seriousness in order to make premium programmatic market places a reality.
He says he hopes that the with more publisher co-ops emerging across various markets like in Japan and South East Asia, a new form of KPEX emerge in the future.
"I personally believe the industry should continue to experiment towards creating strong independent alternative market places that will eventually level the field," he adds.
Looking ahead, Powers reiterates the need for the industry as a whole to be educated on publisher co-op deals as they are essential for freedom of choice because instead of relying on the dominant Google and Facebook platforms, marketers can have additional avenues to pursue verified and high-quality audiences.
He also urges publishers to have the willingness to invest in their own futures, warning that the future for many publishers is not bright if the status quo continues.
"I believe there is a need for publishers to continue with co-ops for the sustainability of their own businesses, and for more control over their revenues such that they are being fairly compensated based on value," says Powers.
"Publishers are ultimately the gatekeepers of the audiences that marketers desire, and it's a win-win situation for both publishers and advertisers to have co-ops."
Shankar highlights the need for a strong commitment from publishers with clear agreements around tech, supply, formats, pricing and go-to-market strategy. He says it is also important to have clear rules of engagement and role definitions for the consortium versus rest of the sales machinery, along with robust tracking, monitoring and issue resolution process agreement.
"Needless to say, there should be a very clear definition of the expectations from the marketplace for each of the investor publishers. I personally also think that such a situation can be avoided if the consortium has a board of directors constituting of individuals who are themselves strong and enthusiastic proponents of independent and collaborative alliances," he explains.
The Drum will look at the topic of publisher collaboration and innovation at the upcoming Programmatic Punch APAC, where a panel will discuss the challenges facing publishers in a world of automated media buying.