Ad Fraud, Pirated Content, Malvertising and Ad Blocking Are Costing $8.2 Billion a Year, IAB Says

Situation Will Only Get Worse Unless Industry Leaders Step In, IAB Says

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Ad fraud is costing the U.S. marketing and media industry an estimated $8.2 billion each year, according to the Interactive Advertising Bureau's first study on the cost of the problem.

More than half of the money lost each year derives from "non-human traffic" -- fake advertising impressions that advertisers pay for but don't represent contact with real consumers, the IAB said in the report, which was conducted for the group by Ernst & Young.

Such traffic represents the largest portion of dollars lost to ad fraud, the IAB said, with some $4.2 billion is pilfered annually, according to the report. About 72% percent of the losses come on desktop campaigns while 28% occurs on mobile.

An estimated $169 million is spent each year fighting invalid traffic, the IAB said.

Meanwhile, "infringed content" -- which includes stolen video programming, music and editorial content -- takes another $2.4 billion bite out of the ecosystem.

Infringed content is primarily made up of pirated music, movies and TV shows posted on sites like Kick Ass Torrents or The Pirate Bay.

While the IAB said it couldn't estimate how many of those who pirate content would pay for that content otherwise, it estimated that eliminating piracy would generate an additional $456 million advertising around legitimate content and another $2 billion for the TV, movie and music businesses.

Without "significant" action, more people will consume stolen content on digital platforms in the coming years, the IAB said, noting that the industry now spends $33 million each year to combat infringed content.

Some $48 million is lost by subscribers to services like Hulu sharing their passwords with nonsubscribers, according to the study.

Meanwhile, about $1.1 billion is lost to malvertising-related activities each year, the IAB said. Malvertising includes redirection to sites consumers did not mean to visit and downloads that consumers did not seek, often to help form the bot nets that enable traffic fraud, as well as spyware.

But the $1.1 billion also includes $781 million lost when consumers use ad-blocking software, according to the IAB, which said it groups ad blocking with malvertising because it is "instigated due to security and malware concerns."

Costs associated with investigating, remediating and documenting direct incidents of malicious advertising total $204 million, the IAB said, while $17 million is spent annually fighting it.

"To help the industry reclaim some of the $8.2 billion in costs, EY believes that improving some fundamental business practices is critical," said Nick Terlizzi, partner at Ernst and Young. "Some basics include knowing your supply chain partners and investigating new potential relationships using address information, tax IDs, and background checks."

The IAB also issued a "call to action" Tuesday, asking industry leaders to step in and contribute to fight corruption in the digital advertising supply chain ecosystem. A detailed outline of what that entails was not immediately available.

"No other report in the market today captures the full range and scope of the illicit activities identified and quantified in this study," said Sherrill Mane, senior VP, research, analytics and measurement at the IAB. "Its findings should mobilize the entire ecosystem to rally around collective solutions that will protect businesses and consumers."

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