Well-known CPA network Mundo Media effectively closed down last week, going into receivership by order of the Ontario Superior Court of Justice (the Receiver says they will be “continuing certain critical operations”). Court documents show that Mundo owes Royal Bank of Canada over $25 million, with a further $6.5 million owed to a variety of other creditors. This represents a big comedown for the previously high-flying network and for its CEO and founder Jason Theofilos who led a buyout of the company back in 2016. That buyout was partially funded via private equity together with senior and mezzanine financing from RBC, which may be the source of some of that $25 million debt.

The documents submitted to the Court and online reporting reveal a number of details about the problems that Mundo Media ran into, particularly last year when Facebook undertook the mass deletion of fake accounts which appears to have hit very hard.

From the Court Application Record:

In mid-2018, the Borrower experienced a substantial and sustained decline in its revenue as a result of, among other things, increased scrutiny in the online advertising industry and the deletion of over 1.5 billion fake accounts on Facebook. This decline in revenue, combined with the acquisition of another online marketing company, 36 Labs, created long-term liquidity issues for the Borrower.”

There have been sustained rumors this year that Mundo Media has been looking for a buyer but nothing materialised. Ernst & Young will now attempt to realise whatever value there is in the remaining assets. With RBC probably having seniority in the debt, it seems unlikely that other creditors will see much of what they are owed.This is sad tale with which we are unfortunately too familiar: CPA grows fast, gets big, goes bust. I believe there are three major reasons for this pattern repeating itself:

1. Financial Backing

Running a network takes a ton of money, to the point that I have had more than one network owner tell me that trying to manage the cashflows is akin to effectively running a bank. Affiliates want paying with a week or two, while advertisers prefer to pay in six or eight weeks, and while a lot of networks do their best to get advertisers to pay up front, there is still a lot cash swilling around. And that’s when times are good. When things get tight, then it all gets proportionally harder. Deep pockets are required, much deeper than most people think.

2. Risk Management

Network owners are typically super-smart, and amazingly good at multi-tasking. They know online marketing inside-out. But guess what? Nobody teaches them risk management. Risk management is a complex discipline that lies at the root of the operations of every bank and financial services  company, but most people in performance marketing have never heard of it. Risk management is the what saves a company from taking money from one campaign to support another failing campaign, or from chasing crappy traffic to cover a downturn in legitimate traffic (no suggestion that these hypotheticals are drawn from or connected to Mundo Media). Here’s a test for network owners reading this: do you know what ISO 31000 is? If not, you need to go read it! I’ve helped bring risk management into three or four companies over the years, and every single time it has paid dividends.

3. Regulation Leads To Consolidation

There are three big trends that are tightening up media currently: 

  • online regulation is starting to bite in Europe vis GDPR;
  • political pressure in the USA is mounting on Facebook and Google;
  • increased awareness of the fraud in programmatic media is leading to financial waves throughout the adtech sector.

In combination these trends are putting networks of every stripe under more stress. The importance of high quality traffic is greater than ever, which means that those publishers and networks able to deliver it will command increasingly premium rates at time goes on, and it turn these trends will drive further industry consolidation.

As Olivier Bourque, VP of Business Development at CrakRevenue told me yesterday, “This shows the absolute importance of a strong and sustainable business strategy. The role of CPA networks is evolving and theycan no longer just be simple “middlemen” in the relationship between publishers and advertisers. At CrakRevenue, we made a choice rather early on to become full-fledged partners with regard to all our affiliate and advertiser relationships alike. This is the key to sustainable success and growth in the performance marketing industry.”

In the meantime, we wish Jason and his team the best for the future.