Roku has yet again found itself at the center of an ad fraud scheme that likely cost premium brands and political advertisers upwards of seven figures, according to new research from Pixalate.

Marketers were led to believe their ads appeared against brand-safe content on the streaming service, such as The Three Stooges, when in reality they were buying ads in screensaver apps or apps for lonely pets when their owners aren’t home, Pixalate has found. A spokesperson told Adweek the scheme netted “at least a seven-figure dollar amount.”

This is the second time in three months that Pixalate has discovered an apparent ad fraud scheme running on Roku. The streaming service said it was not aware of the report until Adweek reached out, as Pixalate had not contacted the company before releasing its report.

“We recommend that OTT ad buyers buy directly from Roku or trusted publishers on the platform. When buying from other sources, and especially open exchanges, the buyer may be better served to use technology that can help with verifying the source of the ad requests,” a Roku spokesperson said.

Joe Barone, managing partner for brand safety in the Americas at GroupM, said CTV is still a relatively immature medium that struggles with transparency issues and a lack of standardization. While it’s a fast-growing business, he said, it still doesn’t compare to the scale and trust that come with traditional linear TV.

“Right now, we’re looking at a big bucket of invalid traffic,” Barone said. “It’s not just fraud. There’s content that’s emanating from outside of U.S., redirects to user-generated content, and straight fraud like spoofing. … There are a number of different things adding up to [problems] we don’t want to pay for.”

Consequences for three players

Pixalate found spoofing, or misrepresentation of inventory, occurred on over a dozen apps from at least four different developers. All of these apps listed Monarch Ads as one of their monetization partners.

Marketers including brands like Lexus, Geico and Jaguar apparently thought they were buying within apps filled with content from the public domain, such as episodes of The Three Stooges or The Andy Griffith Show, which were built by developer Aragon Creek.

Instead, their ads were being placed in passive-experience apps on Roku CTV devices, such as screensaver-like apps, like a virtual fireplace or fish tank, or apps to help entertain lonely pets, like Relax My Dog.

Pixalate also found that spoofed inventory was passed through several ad-tech companies, including Rubicon Project, FreeWheel, The Trade Desk, SpotX and Amobee.

Monarch Ads is a subsidiary of Barons Media. Aragon Creek and Barons Media have the same owner: Jim Larkin.

Pixalate did not explicitly point blame at Larkin or his companies. Larkin said that while his two companies share Monarch Ads as an ad server, Barons Media and Aragon Creek operate independently. He added that he’s suspended operations at Aragon Creek while he investigates the matter.

Roku said the apps from Aragon Creek have been removed from its platform.

The scheme started around October of last year and, as of last week, is apparently still active, according to Pixalate.

Barone said a big issue in CTV is a misrepresentation of inventory and ads running in opaque environments.

“Very often with CTV buys, you’re basically… buying blind,” he said, since marketers don’t get granular, show-level data when buying CTV programmatically.

Jalal Nasir, CEO of Pixalate, said CPMs on CTV average $25, meaning the margins are higher for fraudsters than they are on desktop and mobile.

“Connected TV also lacks measurement guidelines, technology, and experience, especially on the buy-side,” said Nasir. “The opaque supply chain and high CPMs make CTV a breeding ground for fraudsters to exploit.”

A September report from Pixalate found that 22% of CTV traffic was invalid. A separate report last year from AdLedger found that 20% of over-the-top impressions are fraudulent.

The risks of doing business on CTV

The ad industry is facing the fraudulent reality of CTV as some marketers start channeling more spend into the medium while people stay home and watch TV during the coronavirus pandemic. This means ad-tech companies have to do even more policing of their platforms, as fraudsters figure out inventive ways to pull the wool over marketers’ eyes.

“Misrepresenting inventory and monetizing passive CTV apps like screensavers violate our exchange policies. We have terminated two sellers on our exchange for violation of these policies,” said Tom Kershaw, CTO of Rubicon Project. “We have investigated both sellers and determined the financial impact is small, but regardless, we are following standard policies and are in the process of refunding buyers for spend transacted on the implicated apps.”

Nick Frizzell, vp of inventory quality and planning at SpotX, said the company doesn’t have a direct partnership with Barons Media, Aragon Creek, or Monarch Ads, and that the three companies attempted to become SpotX platform customers but none passed their inventory quality requirements.

“The case was isolated to a single platform customer that transacted their own private deals where they source, negotiate and sell their inventory directly with their buyers,” Frizzell said. “The platform customer is a reputable company, and this portion of inventory was small in comparison to their overall business. To confirm, this inventory was not eligible for purchase in the SpotX public marketplace, nor was it eligible for purchase via deals the SpotX team helps to facilitate, as the inventory does not meet SpotX’s inventory quality standards.”

Amobee said the media that passed through its system amounted to 20,000 impressions on four apps per month, year-to-date at a spend of less than $388.43. The company said it’s committed to a clean supply chain, but didn’t say whether it cut off or suspended Barons Media, Aragon Creek or Monarch Ads from its platform.

The Trade Desk has yet to respond for comment. FreeWheel declined to comment on the record.

Roku’s developer guidelines prohibit screensavers from running video ads, but the exploited app developers didn’t label their screensaver-like apps as screensavers, effectively working around the policy.

“When buying directly from Roku or trusted publishers, we can assure buyers that their ads will appear on channels certified for monetization on our platform. Furthermore, we developed our operating system and own the ad-tech stack and the first-party data that ensures that we offer a best-in-class ad experience and meet industry best practices,” a Roku spokesperson said.

Bad timing

In January, Pixalate found DiCaprio, an ad fraud scheme running across Grindr and Roku. Nasir said Roku may simply be a victim of its size.

“Roku is currently the top platform in CTV in terms of scale. Our research showed that in 2019, 59% of all programmatic OTT/CTV ads went to Roku devices. While others are gaining ground, like Amazon at 19%, “Roku remains the top platform by quite a bit,” Nasir said.

For marketers, they’re trying to balance the potential of CTV with its poor safety record as they reevaluate budgets in the wake of market fluctuations caused by the coronavirus pandemic.

According to eMarketer, CTV spend is expected to reach nearly $9 billion by the end of 2020, and the total number of households in the U.S. without a subscription to traditional pay TV services is expected to jump from 44.1 million to 48.9 million by the end of the year.

Those numbers have yet to be updated as eMarketer evaluates how coronavirus will impact global ad spend, however multiple platforms have noted a recent rise in CTV ad requests.

Viamedia, a monetization platform for cable TV groups, saw a 30% increase in OTT revenue between March 9 and March 19. Beachfront Media, a video-focused SSP, said it saw a 92% increase in CTV requests during the week of March 12.

The pitfalls of CTV advertising are also coming to light in an election year. Diana Anderson, who leads local digital activation at Carat, said she’s encouraging advertisers to include CTV in their mix upfront, which she said likely won’t see the same spike in pricing that linear TV will during the election year.

“If [local advertisers] didn’t put in… a lot of money [upfront], once we’re actively in the campaign, if things are being preempted, we’re looking to CTV to replace it,” Anderson said.

Eventually, media buyers want CTV to bridge the targeting of digital with the brand-safety and scale of premium linear TV.

“What we’re looking for is the ability to understand and manage the inventory we’re buying in CTV to the same degree we’re buying in linear TV,” said Barone.