Online advertising contracts involve a typically vast and complex supply chain, a significant amount of tech and potentially many intermediaries. In our earlier articles we have discussed the importance of data and security and also the vast array of regulations and regulatory agencies seeking to ensure that the data is used responsibly and end consumers are protected.
As well as the typical negotiations around liabilities and indemnities, there are several additional negotiation ‘hotspots’ in online advertising contracts. These include the need for quality control and ensuring that parties are paid for services provided. We discuss these topics further in this article.
If you are currently considering entering into a digital advertising arrangement, our team of experienced commercial technology solicitors can guide you through negotiations to reach a suitable deal.
Contents:
- Quality Control: what does it mean in an online advertising contract?
- What are the risks if there are no quality control provisions in an online advertising contract?
- How can you mitigate against these risks?
- What are the common payment terms and structures?
- What are the risks associated with these payment terms and how do you mitigate against them?
Quality Control: what does it mean in an online advertising contract?
In online advertising contracts, quality control means ensuring that the advertisements delivered through the ad tech platform meet certain standards, which are agreed upon between the parties involved. Reaching this agreement can take a lot of time and effort, depending on the parties to the contract and which of those parties has control over ad quality.
Parties to an online advertising contract can include:
- Ad tech provider: the person or organisation offering the advertising technology services.
- Advertiser/Client: the person or organisation seeking to promote their products, services, or brand through digital advertising.
- Publisher/App developer: the person or organisation, which owns and operates websites, apps, or other digital properties where advertising is displayed.
Ad contracts vary as to which party has responsibility for designing the ads, including in relation to their size, format and appearance. This may be the advertiser on a ‘self serve’ basis or the ad tech provider as part of a package of services offered to an advertiser. In order to ensure the quality of the ads and the integrity of the platform, the parties will wish to do the following in the ad tech contract and any related contracts in the ad tech supply chain:
- specify the content, size, format, and appearance of any ads that are displayed;
- define specific criteria for ad placement, such as targeting certain audiences and appearing on appropriate websites and not on inappropriate or irrelevant platforms;
- include performance metrics, such as click-through rates (CTR), viewability or conversions to ensure that the ads are achieving the desired outcomes;
- monitor the technical performance of the ad tech platform to ensure it operates smoothly and efficiently for an effective end customer/user experience.
What are the risks if there are no quality control provisions in an online advertising contract?
Failing to control quality in online advertising contracts can lead to various risks and negative consequences for all parties involved, including:
- Brand and reputation damage: if ads are displayed on inappropriate or low-quality websites, it can negatively impact the advertiser’s brand and reputation. Advertisers may be associated with content that conflicts with their values or could be perceived as misleading or offensive;
- Wasted ad spend and decreased ROI: without quality control, ad impressions and clicks might be wasted on irrelevant or fraudulent traffic, leading to ineffective ad spend and lower conversion rates;
- Loss of trust and relationships: advertisers may lose trust in both publishers and ad tech providers, if published ads are low quality and ineffective at generating results.
How can you mitigate against these risks?
Mitigating the risks associated with poor quality control involves including specific provisions within your contract. These provisions will cover the elements highlighted above in terms of content, placement, metrics and performance and also:
- Compliance with relevant regulations and industry standards;
- Transparent reporting to all relevant parties;
- Ad fraud prevention techniques;
- Regular auditing and monitoring;
- Take down mechanisms to allow the advertiser to remove any ads that do not meet the specified quality standards;
- Contractual remedies for breach of the quality standards including compensation and termination.
Including the above elements ensures transparency and accountability, which go a long way to building trust and fostering successful relationships in the ad tech industry.
Additional practical measures include carrying out due diligence into the other parties to ensure that they are reputable, not on any ad tech black list and that you have seen a track record of performance and delivery.
What are the common payment terms and structures?
Payment terms and structures within an online advertising contract can vary depending on the specific arrangements between advertisers, publishers, and ad tech providers. Some common payment terms and structures include:
- Cost oer mille (CPM): advertisers pay a fixed amount per 1,000 ad impressions/views regardless of the number of clicks or actions that result;
- Cost per click (CPC): advertisers pay a certain amount only when a user clicks on the ad;
- Cost per action (CPA): similar to CPC but the action may be a sale or app download or some other conversation event;
- Cost per view (CPV): often used for video ads, where the advertiser pays for a user viewing a certain duration of the ad;
- Revenue share: the parties receive a percentage share of the revenue generated by the ad campaign;
- Fixed fee: advertisers pay a specified fee for advertising over a set period and with specific services;
- Hybrid models: involving a combination of the above;
- Contracts may also include commissions, bonuses and performance incentives in order to encourage relevant parties to deliver an effective ad campaign
What are the risks associated with these payment terms and how do you mitigate against them?
As in all contracts involving payment from one party to another, the primary risk relates to non-payment for the services provided and how that can be avoided.
This is compounded in ad tech contracts where there are multiple parties and where non-payment in one contractual relationship, e.g from an advertiser to an ad tech supplier may result in the ad tech supplier not paying the publisher.
As a result, a publisher will require transparency and control over how their inventory is sold, the payment terms agreed with any advertiser and audit provisions so as to ensure that any and all payments are fairly passed on and distributed.
In order to mitigate against non- payment, it is essential that online advertising contracts are clear on campaign objectives, any milestones, statistics or data that justify payment being made and the contractual remedies that apply in the event that payment is refused.
