ACCC report finds agency rebates are ‘not inherently a problem’, for now

Media agencies benefitting from rebates, discounts and incentives won’t face regulation or government scrutiny for now, the Australian Competition and Consumer Commission (ACCC) has preliminarily concluded.

While many agencies and holding groups will be relieved at the watchdog’s initial verdict, contained in the interim ad tech inquiry report, Thinkerbell’s general manager of media, Ben Shepherd, was unimpressed.

“I was surprised to see such an almost casual response to the significant issue of media rebates, hidden fees, incorrect reconciliation of fees, non-disclosed usage of related entities by agency groups, and the impact this has on advertisers and competition,” Shepherd told Mumbrella.

“This behaviour has a larger negative competitive effect on the ad market than likely anything else in the report as it distorts the playing field and also reduces the information advertisers have to understand and control their investment.”

The 222-page report noted that it is common practice for publishers, or digital platforms like Facebook and Google, to offer agencies rebates or other incentives in exchange for a certain level of spend.

“This is not inherently a problem, but could influence the agency’s decisions about where to direct advertiser dollars,” the ACCC wrote.

“This may cause concerns if agencies are directing spending towards publishers who provide them with the greatest profit margins (for example, where agencies can minimise their costs by achieving volume discounts), and the related impressions either are not the best value for their advertiser clients or are not being served to the most appropriate websites.

“This concern is exacerbated when the client is unable to effectively monitor decisions about how its advertiser dollars are spent.”

Agency share in Australia. Source: ACCC. Click to enlarge

The report also drew attention to deals holding groups and their trade desks might enter into, buying ad inventory and re-selling it to agencies within the group. Since advertisers often enter into contracts directly with the agency, rather than the holding group or trade desk, they might not know about these behind-the-scenes agreements.

But, the ACCC came to the preliminary view that such pricing and disclosure practices do not need to be regulated, since advertisers can mitigate the risks of such conduct through due diligence, robust contracts, conducting audits, and shopping around to find the best agency. The ACCC also encouraged advertisers to pitch their accounts via tenders, and ask questions about rebates, discounts, and incentives.

However, it is an issue the watchdog is going to further consider throughout the rest of the inquiry, and it has asked for submissions on whether rebates and discounts influence how agencies spend advertisers’ money.

A number of large advertisers have already told the ACCC they are satisfied with respective agencies’ performance, and confident that the agencies are acting in their best interests, since audits have not raised major issues. The watchdog now wants to hear from smaller advertisers with less bargaining power.

Holding groups’ agencies and trading desks. Source: ACCC. Click to enlarge

The report also delved into the diversity and competition of the local agency landscape. The holding groups –  Dentsu, Havas, Mediabrands, Omnicom, Publicis and WPP – could have a combined market share of around 65% of media spend and 40% of media agency revenue, according to submissions made to the ACCC. But despite this concentration, the commission said there is “evidence of competition” in agency land.

Some holding groups also own trading desks, and data service providers (for example, Dentsu’s Merkle, Mediabrands’ Acxiom, Omnicom’s Annalect and Publicis’ Epsilon). If an agency is both buying ad space and reporting on performance, “this may reduce the ability for advertisers to independently assess the performance of ad agencies’ services”, the report said.

But, the ACCC report added that it makes sense for agencies to have diverse functions, “particularly where these services are of a high quality and can be provided at a competitive cost”.

The inquiry, which focuses on digital display ads, began almost a year ago, after the ACCC’s digital platforms inquiry, and is running alongside an additional five-year inquiry into the platforms.

Yesterday’s report zoomed in on the power Google wields in the digital display ad process, and questions whether the search engine giant has so much dominance as to be anti-competitive. The ACCC estimated that Google’s share of impressions is 90-100% among publisher ad servers, 60-70% among supply side platforms, 70-80% among demand side platforms, and 80-90% among advertiser ad servers.


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