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 programmatic private marketplace (PMP) 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 PMP, which has 74 sites in its network, has ended after Stuff exited the ad exchange.
The PMP 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 because 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 Network, 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 was made by Nine 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."
A source familiar with the situation tells The Drum 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,” says the source.
Trade Me, one of the largest auction websites operating in New Zealand, was approached to replace Stuff in the PMP 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.
“In reality, the business was absolutely still viable but the remaining publishers were not prepared to accept a lower margin on their KPEX revenues, thinking (in my opinion, wrongly) that they could generate the revenues themselves using existing resources,” says the source.
“However, each publisher will now have to build their own programmatic sales teams (adding cost) and they will not be able to benefit from the revenues generated by KPEX's audience targeted PMPs and floor price optimisation (lowering revenues).”
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 source claims 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 PMP 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 PMPs 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 serving to 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.”
The source says the biggest winner from the closure of KPEX will be Google, as most of the smaller publishers and shareholders will now choose Google as their default sales channel for PMPs.
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.
Agencies feel this is a terrible decision for both the publishers and the wider NZ media industry, claims the source, as before they could buy campaigns across 80% of NZ population through a single PMP deal, they will have to negotiate with each publisher individually now.
“They aren't resourced or equipped to do this, so their spend will likely default to the open market on Google,” adds the source.
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 PMP 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 as PMPs are back with publishers. 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.
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 PMP, while two PMPs 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."
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 PMPs. This means publishers, whether they are part of PMPs 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.
Looking ahead, Powers reiterates the need for the industry as a whole to be educated on PMP deals as PMPs 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 PMPs 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 PMPs."
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.