The Looming Day of Reckoning for DSPs: Will the CTV Police Come Knocking?

 Connected TV (CTV) advertising was supposed to be the next big thing — the chosen one of digital media, the smooth operator sliding into the space left by cord-cutting millennials and Gen Zers. Instead, it’s turned into a free-for-all, a chaotic frenzy where everyone’s gunning for your ad dollars, but no one’s quite sure who’s watching the ads — or even if they’re human. You’ve got more fraud flying around than a three-card monte game in Times Square, and DSPs (Demand-Side Platforms) are quietly smirking behind the curtain.

It’s only a matter of time before the sheriff — or in this case, law enforcement and regulatory bodies — busts down the saloon doors. And when they do, a whole lot of people are going to end up with handcuffs and a subpoena.

So, who’s responsible for this mess, and when do the DSPs start sweating bullets? Let’s untangle the CTV ad fraud web and lay out just how deep the rabbit hole goes.

The CTV Gold Rush — And the Bots Who Followed

CTV ad spending exploded in recent years like a tech stock in the 90s. Advertisers, desperate to reach the 80% of U.S. households that have a CTV device, started throwing cash at DSPs faster than a poker player chasing a bad hand. By 2023, the U.S. market for CTV ads was worth a staggering $27 billion — that’s more zeros than a cryptocurrency whitepaper.

But here’s the catch. Despite the billions pouring in, the actual number of eyeballs watching CTV hasn’t kept pace. Growth has hit a wall — 80% saturation is about as good as it gets. And those who are tuning in? They’re often spread across multiple streaming services, which means the inventory that DSPs are so keen to sell doesn’t line up with the number of engaged users.

Enter the fraudsters. They spotted the gap between ad spend and actual engagement and pounced like vultures at a Vegas buffet. Bots, invalid traffic (IVT), and other delightful scams have been inflating ad impressions like a pump-up mattress, and advertisers are paying the price — literally.

According to Pixalate’s Q2 2024 report, a whopping 19.4% of CTV programmatic ad traffic was fraudulent. That’s not just a rounding error — it’s nearly 1 in 5 ads being served to bots, not real viewers. Even worse? Samsung Smart TVs and Apple TVs are leading the pack with over 20% IVT, which means that a significant portion of those “premium” impressions are as fake as an influencer’s Instagram followers.

So, why haven’t DSPs cleaned up their act? Because they’re knee-deep in the muck. They’ve been feeding this fraud machine, knowingly or not, by continuing to sell questionable ad inventory to agencies and brands who are all too happy to believe the inflated numbers — until they can’t.

DSPs: The Shadiest Card Dealer in the Game

Let’s call DSPs what they really are: enablers. These platforms have become the seedy underground of the digital ad world, peddling inventory like a street vendor hawking knock-off watches. They know the score. They know they’re selling junk inventory from the back alleys of the programmatic ecosystem, but the margins are too juicy to stop.

In 2024, DSP-bought inventory has become a hotbed for fraud. Bot traffic is up 69%, and unprotected campaigns running through DSPs are seeing fraud rates as high as 11.2%. It’s a digital grift, plain and simple. Contrast that with campaigns using advanced verification tools, which keep fraud at a minuscule 0.6%, and you’ll see just how bad it’s gotten.

Dave Morgan, CEO of Simulmedia and one of the rare insiders willing to talk about this issue, didn’t pull punches in a recent conversation. “It scares me... When you ask me the kinds of things I worry about, I worry about that. Yeah, if you talk about it, I mean, I think I can easily say I'm one of the few people that's visible in the industry that openly talks about the undisclosed rebates, the amount of money that are going to those.”

Morgan’s talking about the dirty little secret of the ad world: rebates, discounts, and backroom deals that make the whole system so rotten. And he’s not wrong. He recently heard of a CTV DSP that inked a 50% rebate deal with a major holding company for $20 CPMs. “You can't actually deliver real stuff at that price. $8, $10 net,” he said. So how do they make a profit? Simple. They don’t — unless they sell fake inventory. Morgan estimates that for DSPs to even break even on such deals, they need to fill two-thirds of the ad space with fraudulent impressions. Let that sink in.

Half of what you’re buying is fake, and DSPs know it.

Double Dealing and Undisclosed Discounts: The Elephant in the Room

Speaking of shady, let’s talk about double dealing. Agencies and DSPs are in bed together, swapping rebates and cutting deals like they’re playing Monopoly, and no one’s watching the bank. Agencies routinely buy ad inventory at one price and sell it to their clients at a marked-up rate — without ever disclosing the difference. In the CTV space, where 68% of ad spend is still done manually, it’s easy for agencies to slip these little extras into the deal, all under the guise of “helping” their clients.

Major holding companies are also getting sweetheart deals from DSPs — under-the-table discounts that the average advertiser doesn’t even know exist. And while advertisers are busy trying to figure out why their CPMs are skyrocketing, these holding companies are pocketing the difference.

Morgan points out that this isn’t just a U.S. problem. “One of the things that changed in digital from the way that advertising and media was handled in the United States is that there are a lot of structural, legal, structural, and cultural ways of doing media outside the United States that 100% include those kinds of dealing... And then it becomes the practice. And everyone's like, well, I guess that's how we do it, and that's the business.”

It’s a system built on self-dealing, fraud, and inflated numbers, and it’s making everyone a whole lot of money — except the advertisers who are paying for the mess.

When Law Enforcement Comes Calling

But this isn’t going to last forever. The question is no longer if law enforcement and regulators will step in, but when. And when they do, DSPs are going to have some serious explaining to do.

Let’s break down the legal quagmire they could be walking into:

Fraudulent Misrepresentation: If DSPs knowingly sell fake inventory, they’re guilty of civil and criminal fraud. Advertisers could sue for damages, and the FTC might swoop in with enforcement actions under consumer protection laws. Selling non-existent inventory isn’t just a bad business practice — it’s illegal.

Breach of Contract: Advertisers sign contracts with DSPs that guarantee transparency and performance. If DSPs knowingly sell junk impressions, they’re violating those contracts. That could lead to class-action lawsuits, damages, and a whole lot of ugly headlines.

Antitrust Violations: Price discrimination and secret discounts to select clients could land DSPs in hot water with antitrust regulators. Under the Robinson-Patman Act, selling inventory at different prices without justification is illegal if it harms competition — and that’s exactly what’s happening.

Consumer Protection: Misleading advertisers about the quality of their inventory is straight-up deception, and consumer protection laws in the U.S. and EU could bring the hammer down hard. Fines, sanctions, and even criminal charges could be on the table.

A Transparency Revolution? Don’t Hold Your Breath

So, what’s the solution? Can DSPs ever clean up their act? Morgan thinks it’s possible but highly unlikely without serious intervention. He’s called for a “Transparency Bill of Rights” that would give advertisers full insight into where their ads are running, who’s profiting, and how much is being skimmed off the top. In his perfect world, every buyer and agent of media would have full transparency on content placement, intermediaries, and all financial transactions.

But the truth is, this mess is too profitable to fix — at least for now. DSPs and agencies are making a killing off fraud and backdoor deals, and they’re not about to stop unless someone forces them to.

As Morgan puts it: “How can it possibly be smart business to pay so much to acquire revenue that is hollow and empty, knowing that every single quarter you've kicked it down the road, it gets harder and harder and it dies? It is such short-termism of self-dealing...”

And yet, here we are. A bloated system propped up by fake inventory and shady discounts, waiting for the day when it all comes crashing down.

The Bottom Line

If you’re an advertiser, you need to wake up. The bots aren’t going anywhere, and neither is the fraud. DSPs will continue selling you garbage until you start demanding transparency, verification, and accountability. Because when law enforcement finally does show up, the party’s over — and a whole lot of people are going to jail.

I've had some pretty interesting conversations with folks who know their way around a courtroom and a badge—law enforcement, FTC officials, even a few sharp lawyers—about what all this could mean long-term. My friend, the same guy who cuffed Madoff, and I go way back to when I trained him in computer forensics, and he's not shy about saying this could easily cross the line into criminal territory.

 We're not talking just some civil fines; this could mean real legal trouble. The consensus? If these DSPs keep pushing fake inventory, it's only a matter of time before they’re facing something a lot more serious than a slap on the wrist.

And if you’re a DSP? Well, you might want to start lawyer-shopping now.

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