Media agency secrets exposed: Industry rocked by US report

Jun 10, 2016 | Online advertising

Media agencies in the US have come under fire after a new report has uncovered “a pervasive lack of transparency” when charging clients. But is the report “short sighted”, as some agencies have claimed? Gary Jones, marketing strategist at Digital Strategy Consulting, reports. The report, from the Association of National Advertisers (ANA), revealed ‘”numerous non-transparent” […]

Media agencies in the US have come under fire after a new report has uncovered “a pervasive lack of transparency” when charging clients. But is the report “short sighted”, as some agencies have claimed? Gary Jones, marketing strategist at Digital Strategy Consulting, reports.

The report, from the Association of National Advertisers (ANA), revealed ‘”numerous non-transparent” practices at some US media agencies, including cash rebates and hefty mark-ups in the $200bn market
This week saw the long awaited publication of an investigation by the ANA, a US trade body that represents the interests of advertisers and brands.
Regulated by the Security and Exchanges Commission, the US could have been expected to have been the cleanest of markets – but there were no holds barred in the headline findings that could also cast doubts on less regulated markets.
Key findings: “A pervasive lack of transparency”

  • Rebates and non-transparent practices are found to exist, and to be ‘pervasive’. Not isolated or rogue but ‘pervasive’, and that they have evidence that agencies “across the spectrum” have been involved.
  • Numerous non-transparent business practices, including cash rebates paid to media agencies earned on client spend, also in the form of free media that was then sold on was found to exist
  • The study said there were non-transparent business practices across media in digital, print, out-of-home and TV.
  • Senior executives across the agency ecosystem were aware of, and mandated, some non-transparent business practices.
  • Some advertisers told the ANA they did not receive rebates earned on their spend and were unaware of any rebates being returned
  • Evidence of mark ups on media of 30-90% in some cases, one source quoted an Adserver mark up from a major group of 250%
  • Dual Rate Cards – with the holding companies acting as both “agent” and “principle” – effectively “selling” media to one part of the group that is then “buying” the media using client’s money and accruing the margin (a particular concern in Programmatic).
  • Agency holding companies having equity stakes in media owners with whom client’s money was invested.
  • Agencies being paid to provide service to media owners, with whom their client’s money was being spent, described as ” consulting or research – are tied to the volume of agency spend. Moreover, these services were either of minimal utility, significantly overpriced, or not provided at all. “​ – the implication is clear.
  • A disconnect between Advertiser & Agency viewpoint – advertisers feeling an agency should always act in their best interest, Agencies feeling they need only be compliant with the agreed contract – a huge issue in the ever changing digital world.
  • The Wall Street Journal commented: “The report will likely fuel marketers’ concerns that agencies may be allocating ad dollars in ways that benefit their own businesses, as opposed to those of their clients.”
    Extensive investigation calls planning into question
    The investigation was wide ranging containing the results of 150 interviews conducted on behalf of the ANA with “marketers, media suppliers, ad tech vendors, current and former advertising and media agency professionals, trade association executives, industry consultants, attorneys, barter company employees, and post-production professionals”.
    All were conducted anonymously. Interestingly, 5 out of the top 6 Advertising & Media holding companies declined to let their current executives participate in the investigation – despite the ANA representing the largest clients & most significant ad spenders in the US.
    A number of ex-holding company executives did contribute, along with Interpublic.
    The implication that media agencies and their holding groups may be motivated more by generating “Trading Income & Rebates” and “Other Media Income” (dubiously priced Training/Consultancy to media owners), than the best interest of its clients and brands funded by fees must be a concern to all.
    Media agency response: ‘It’s all about the contract’
    The reaction of the media agencies’ own trade body, the 4Cs, has been equally telling – the response was from Maurice Levy EEE of Publicis no less in a letter reported by The Wall Street Journal.
    “The industry has been diminished and maligned by the ANA’s short-sighted and unilateral agenda of casting aspersions on an entire industry, rather than promoting trust and transparency, which should be paramount.”
    Lévy copied the communication to Michael Roth (chairman, chief executive of IPG), John Wren (chief executive of Omnicom) and Sir Martin Sorrell (chief executive of WPP). The perceived breach of trust illustrated in the report, according to the letter, could “have the potential to cause great financial and reputational damage.” 
    The battle lines have been drawn, this is not a conciliatory approach from the 4C’s to trade body of the clients, the ANA -in many cases the world’s biggest advertisers and the agency holding company’s largest clients.
    Client/ agency relationship – from partner to supplier
    The planning implications for the ROI on every brand dollar spent are significant enough, but the more seismic shift is the disconnect between the advertiser belief that an agency should implicitly always act in the client’s best interest and the agencies’ defence that they are only obliged to deliver what was agreed in the contract.
    In stating this, the agencies have unwittingly moved themselves from the position of “partners” to “suppliers”.
    Marketing and procurement in spotlight
    Agency contracts are often signed by Procurement, far from the Brand Teams who have everyday contact and place faith in their agencies.
    So the ANA report places the person who signs the contract under the spotlight. More so as, adding to the drama, this is being played out in the Wall Street Journal who leaked the report findings and received the letter from Maurice Levy on behalf of the 4C’s.
    The Wall Street Journal’s readership of CEOs and company investors will be less interested in agency fights, and more interested to know if the budgets they sign off are building their brands – they may well start asking uncomfortable questions, are agencies working to the client agenda or their own?
    And it is worth remembering many of those contracts were signed before digital transformed the communication landscape, with the rise of Programmatic for example & the conflict of agencies acting both as “agent” and “principle”
    The ANA recommendations to “pervasive lack if transparency”
    This is just the first report, with another to come, and the ANA conclusion that lack of transparency and its worrying consequences, is not the result of rogue actions, but pervasive both within media groups and their holding companies – led the to make specific recommendations to client

  • Examine all media agency contracts, especially ensuring they are “ fit for the digital age” (especially Programmatic)
  • Implement and accelerate internal media capabilities to ‘take control’
  • Reaffirm the basis on which your media agency is acting – as “agent” or “principle”
  • Ensure your contract allows full accountability & transparency to “follow the money”
  • The Digital Strategy Consulting view
    “Brands need to be making smart choices about how they engage in digital, and the tools and channels selected for their digital marketing ecosystem”, explains Danny Meadows-Klue, President of the Digital Training Academy who has been campaigning for greater transparency in this space since.
    Meadowes- Klue went on “To act in a client’s best interest has to be a belief, a philosophy, you cannot be both the advisor on how budget is spent, and the recipient of that budget – it crosses a line”
    “As the media budgets have grown to rival television, it’s clear that choices can be biased based on the agency’s model: Social agencies see a social campaign as the solution to most challenges, a media agency offers the simple ad buy, Google is bound to offer search and programmatic, Facebook will come back with a targeted media campaign solution. Now allocation based on the financial gain of the agency and its holding group, rather than the benefit to the client, casts a cloud across the agency industry. The ANA is right to stress the importance of independent advice and raising internal capabilities to ‘take back control’” 
    “We’ve been coaching leading global brands on digital marketing and digital strategy development since 2000, and it’s an all too familiar pattern. And the “free” advice from the big media groups always comes with a heavy price tag.”
    Key questions to ask your agency

  • “Are there rebates you receive or could receive on the media or production spend in a campaign?
  • If so, what % of those rebates comes back to the brand?”
  • “Are there mark-ups you make on third party services to media owners?”
  • “Are you recommending a service from one of your group’s companies? Particularly relevant in programmatic where agencies may be using an associated company’s platform at an inflated price”
  • Do you supply consultancy or training services to media owners who receive my brand budget? What types of sum of money is involved for these services (look out for false pricing of $5k per person as a fee that’s “waived” because of a wider deal)
  • Read the full report here (registration required)
    A report summary can be found here
    By Gary Jones
    Marketing strategist
    Digital Strategy Consulting

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