The Rise of Programmatic Creates a Breeding Ground for Fuzzy Pricing

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The booming practice of buying digital ad inventory with advanced technology is creating another zone where marketers have low visibility, or worse. When media-agency networks secure digital inventory using programmatic platforms and use it for clients' campaigns, for example, those clients often have no idea how much the ads cost in the first place. They just know what they are billed.

That can be fine with many marketers, who know what they're paying in the end and can weigh that cost against their results. Many agencies also promise full transparency on the whole process. But for those that don't, markups have reached as high as 400%, according to one company that audits agency contracts. The company requested anonymity. Markups of that size would be hard for an agency to defend with the traditional justification for premiums -- that the shop added value to the inventory by applying layers of data and exerting other expertise.

Agencies are "running on fumes" and trying new tactics to gas up, one senior TV ad sales executive said. "So you'll see things like programmatic, where it's an arbitrage, and if the agency doesn't disclose the original price, the client has no idea what the markup is."

Sometimes media agencies receive bonus inventory as an incentive from the seller, but don't see a reason to mention that to marketers. "If I run $10 million for a client, I'll get an extra million in media value," a former U.S. media agency executive said. "That sits in the trading desk. So the trading desk can arbitrage that $1 million. In a fully transparent world, if I'm your agent, shouldn't you get the money back?"

Some would argue not, because media agencies are buying oceans of digital inventory for potential use by a variety of clients, unlike a specific TV campaign for one brand or another. And marketers with the sophistication and the desire can take steps, like setting up proprietary buying units where they see everything -- including the initial cost of online ad buys. Others, however, will remain in the dark.

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