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Mediacom audit: Media agency ‘value banks’ move into the spotlight

Steedman

Steedman

Mediacom’s audit has thrown new light on the practice of some of the country’s major media agencies of operating “value banks”, using inventory given to them either for free or at a heavily discounted rate by media companies in return for putting a certain amount of business their way.

The revelations led to GroupM admitting for the first time that it operated ‘value banks’. It revealed that last year its subsidiary Mediacom charged four clients for using this advertising inventory rather than passing it on at no additional cost.

Mumbrella has learned that two of those companies which brought the discounted spots were Foxtel and Yum! Brands, two of the clients caught up in the misreporting of TV audiences which has embroiled the agency, leading to the audit which uncovered the malpractice.

Value banks are generally understood to be heavily discounted or free ad space given to media agencies by media owners in return for increased share of advertiser spend. These spots are either given for use by a particular client, or for the group as a whole to distribute as it sees fit.

In a media briefing on Friday GroupM chairman John Steedman said while what Mediacom had done “is not illegal” he admitted “it is against our ethics as a business,” confirming all four clients had been reimbursed.

Auditors: EY

Auditors: EY

Steedman was reluctant to answer questions about value banks, instead issuing a lengthy prepared written statement (which can be seen below in full).

In depth:

In the statement Steedman said: “In respect of ‘value banks’, GroupM Australia’s policy is it should never be monetised for the agency’s gain. Our initial review revealed that Mediacom had breached this policy on a strictly limited number of occasions across four clients and only during 2014.

“The clients concerned received the requisite airtime but it was in breach of our policy to charge them for it. As soon as GroupM discovered this had happened, the Mediacom clients were informed and full refunds were immediately made to them. New procedures and controls will ensure the policy breach does not happen again.

“All relationships with clients are confidential, so we are unable to discuss specifics.”

The revelations around value banks came on the same weekend GroupM in the US issued strenuous denials over allegations made by former Mediacom CEO Jon Mandel about widespread agency “kickbacks”.

In response chief digital officer Rob Norman denied it operates rebates and value banks in the US but said: “In other markets around the world, rebates are sometimes part of the buy-sell relationship between agency and vendor. GroupM returns those rebates to advertisers in compliance with and as required by our client contracts.”

Pejic

Pejic

In the media briefing Mediacom CEO Mark Pejic emphasised the clients were aware they were buying heavily discounted air time, adding the transactions were not authorised by himself or Steedman.

“Those clients knew in full disclosure what they were buying so this wasn’t a buyer putting rates on free spots – it is distinguished in terms of what they get from bonus,” said Pejic.

“This is packaged up airtime, that had a value to it, and the clients understood that that airtime was heavily discounted.

“It shouldn’t have happened but it did happen with the consent of those clients.”

Yum!_Brands_Logo.svgMumbrella understands that Foxtel was one of the clients, while Yum! Brands chief marketing officer Nikki Lawson confirmed they were also one of those affected.

But she told Mumbrella: “We knew about it. It’s not like we went into it with our eyes closed. At the end of the day we looked at what value was in it for us.“

She added: “We went with Mediacom because they got us good rates on our business, and as a group they negotiated rates as well and we got some of that advantage. We were never hung up on where that was coming from.”

Steedman confirmed the value bank issue emerged as a result of investigations into the misreporting of TV audiences.

Pejic was reluctant to be drawn on the detail of who did authorise the deal, but said it was done at a “senior level” by people no longer with the company.

“I certainly didn’t authorise it but it was authorised by former employees,” said Pejic. “They are no longer here. I didn’t authorise it, neither did John (Steedman). They were former employees who authorised those practices.”

Pejic also confirmed one of the 12 people who have left the company over the misreporting issues was involved in the deal.

“One of the 12 was involved, and then there were other employees which I’m not going to disclose, who had already left,” he said.

Asked how high the authorisation came from he confirmed “it was at a senior level.”

During the press briefing Mumbrella also asked about whether GroupM keeps money paid by clients for advertising if a media owner fails to correctly invoice it – known as media credits.

“There are contracts that clearly deal with media credits and there are contracts that do not,” said Steedman.

“Media agencies remain legally liable to media owners for the booking whether the media owner has invoiced the agency or not.

“Treatment of media credits will be dependent on the specific client/agency agreement.”

Steedman noted that in most cases that holding period was six years

Nic Christensen and Alex Hayes

John Steedman’s statement on value banks in full:

DEFINITION

Let’s make it clear what we’re talking about. Both the characteristics of individual clients (e.g. size of spend and brand equity) and the agency’s own negotiating leverage determine the final price a client will pay. It is economic reality that as a consequence, no two clients pay the same price.

One of the reasons media agencies exist is because they can leverage the media spend of multiple clients and use that as negotiating power with the media owners when negotiating media prices for and on behalf of its clients.

The value bank is the phrase coined to explain the mechanism by which additional discounts are secured, over and above the normally negotiated media rates, and are granted at the media owner’s discretion, delivering advantageous prices across selective clients and campaigns. These additional discounts may come in the form of an advantageous client price and / or client specific bonus airtime.

These advantageous prices are invoiced to clients at the price at which the Agency/GroupM will pay the media owner and any client specific bonus airtime provided by media owners is passed on to the respective client at zero cost.

RELEVANT FINDING

In respect of “value banks” (which we have defined above), GroupM Australia’s policy is it should never be monetised for the agency’s gain. Our initial review revealed that Mediacom had breached this policy on a strictly limited number of occasions across 4 clients and only during 2014.

The clients concerned received the requisite airtime but it was in breach of our policy to charge them for it. As soon as GroupM discovered this had happened, the Mediacom clients were informed and full refunds were immediately made to them. New procedures and controls will ensure the policy breach does not happen again.

All relationships with clients are confidential, so we are unable to discuss specifics.

THE FUTURE

As a reminder, the “value bank” is the phrase coined to explain the mechanism by which additional discounts are secured over and above the normally negotiated media rates and are granted at the media owner’s discretion, delivering advantageous prices across selective clients and campaigns.

These additional discounts may come in the form of an advantageous client price and / or client specific bonus airtime. Where these additional discounts arise we will – in conformity with our policy – make sure that these advantageous prices are invoiced to clients at the price at which the Agency/GroupM will pay the media owner and any client specific bonus airtime provided by media owners is passed on to the respective clients at zero cost . We will always continue to drive the best return-on-investment for our clients. We will continue to work with our media partners to identify opportunities that benefit our clients.

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