‘Non transparent practices pervasive’: transparency report lashes media agency practices
The highly anticipated US advertisers association report into media rebates, credits and value banks has found that the practices are “pervasive” across the United States.
The report, written by intelligence firm K2 on behalf of the US ad association ANA, was released overnight and is expected to have major ramifications in global advertising.
It states that major media agencies not only received non-transparent rebates, often referred to as “kickbacks”, from media owners but also deliberately directed client spend into those businesses where they received a benefit or had a stake.
“Advertisers and their agencies are lacking ‘full disclosure’ as the cornerstone principle of their media management practices,” said Bob Liodice, president and CEO of the ANA in a statement.
“Such disclosure is absolutely essential if they are to build trust as the foundation of their relationships with their long-term business partners.”
Liodice: the report is likely to be a global conversation around transparency.
Among the major findings of the K2 investigation are:
- Systemic non-transparent business practices with top media agency executives aware of, and/or mandating them. The report found: “Contracts for rebates and other non-transparent business practices were negotiated and sometimes signed by high-level agency executives. In addition, K2 Intelligence found evidence of potentially problematic agency conduct concealed by principal transactions; as a principal, an agency (or its holding company or associated company) purchases media on its own behalf and later resells it to a client after a markup.
- A disconnect in the client/agency relationship. Advertisers believe agencies are “duty-bound to act in their best interest”, while agencies executives arguing their relationship to advertisers was solely defined by the contract between the two parties. The report found: “evidence of a fundamental disconnect in the advertising industry regarding the basic nature of the advertiser-agency relationship”.
- Cash rebates from media companies provided to agencies with payments based on the amount spent on media with marketers interviewed indicating they did not receive rebates or were unaware of any rebates being returned. Plus other rebates in the form of free media inventory credits.
- Rebates structured as ‘service agreements’ in which media suppliers paid agencies for non-media services such as low-value research or consulting initiatives that were often tied to the volume of agency spend. The report found: sources told K2 Intelligence that these services “were being used to obscure what was essentially a rebate.”
- Markups on media sold through principal transactions ranged from approximately 30% to 90%. The report found: “media buyers were sometimes pressured or incentivised by their agency holding companies to direct client spend to this media, regardless of whether such purchases were in the clients’ best interests.”
- Dual rate cards in which agencies and holding companies negotiated separate rates with media suppliers when acting as principals and as agents.
- Non-transparent business practices in the U.S. market resulting from agencies holding equity stakes in media suppliers.
- The study revealed that non-transparent business practices were found across digital, print, out-of-home, and television media.
A second report from media auditing firm Ebiquity and Firm Decisions, which will give marketers guidance about how to avoid such practices will be published in the coming weeks.
“From the beginning, this has been a study designed to shed light on certain non-transparent practices in the media-buying landscape — not an investigation or an audit,” said Richard Plansky, executive managing director of K2 Intelligence.
“At the ANA’s insistence, this has never been about pointing a finger at any individual or company.” Plansky said the documentation cited in the report included, among other things, emails between agency executives and media companies in which rebates were specifically discussed in detail.
The report has been highly anticipated globally and is expected spark a global conversation about transparency.
In a statement the ANA report findings were welcomed by world advertising body the World Federation of Advertisers (WFA).
Stephan Loerke, WFA CEO, said: “Transparency has long been considered a critical issue by WFA and remains a priority for its members. We welcome the findings from the ANA and will continue to address the challenge globally, not least in emerging markets where transparency problems can be more acute.
“Advertisers should take the lead in addressing the challenge but WFA also believes in, and calls for, global cross-industry collaboration to find answers. That’s why we have been conducting systematic dialogues between media agencies and clients around the world to better understand the issues and ultimately try and engender greater trust in the marketplace.”
Major multinational holding groups have in recent days been increasingly frustrated with the ANA report.
Lawyers for both WPP and Omnicom sent the ANA legal letters demanding it back up any claims in the report with direct evidence, while Interpublic’s global CEO Michael Roth was critical of the body for what he warned is a risk of undermining marketer confidence by tarring media agencies with a “broad-brush”.
The biggest preemptive attack has come from Publicis Groupe CEO Maurice Levy who yesterday lashed out at the ANA describing the pending study on transparency in the ad business “unfair and an unwarranted attack on the entire industry.”
Mumbrella will have ongoing coverage of the report and its local implications locally.
Hi Nic,
Should you not be clear up front that this report was only looking at the US market?
Phil
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Having worked at an agency at each of the holdings group I can confirm that this is 100% correct. Although they haven’t even scratched the surface when it comes to digital. There is so much churn at media agencies not because of excessive pitches but because staff are all realising they are part of something that is just not right and are moving to find a better, cleaner agency that does the right things by their clients, although not sure this exists. Always intrigued me how agencies went from constantly moaning about the race to the bottom on agency fees and yet they seemed to all of a sudden (last 10 years) be making millions in profit. And all of a sudden the porsches and ferraris started to appear in the carparks! About time this murky industry is exposed.
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Hi Phil,
Is the first line which ends “across the United States” not clear enough?
Cheers,
Alex – editor, Mumbrella
I’m personally looking forward to the comments from agencies like Group M, on the back foot, desperate to defend themselves and say these practices are limited to other markets.
Accurate report on the state of the agency – client relationship. Corrupted.
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From experience this report corresponds to the Australian market. I have first hand experience in approving payments for “research” with the fee being a direct % of the spend commitment by that agency. No commitment to the “research” project resulted in significantly reduced revenues (and I mean significant – how does 17.5% sound)! But let’s not all get hysterical, now the agencies should be provided the same opportunity to provide a detailed view of their side of the argument. Maybe KPMG, PWC could provide the level of independence required, what about Mark Ritson! The brief needs to look into value banks, make goods, volume discounts, etc, etc.
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At what point do agencies hold their hands up and say “we haven’t been upfront enough about what we do with your money mr client.” Lots of vague statements by group CEO’s, and no comments from those same CEO’s condemning rebates / dual rates / value banks. The only condemnation is for the ANA which speaks volumes. If your agency is clean – come out and 100% guarantee it instead of condemning the whistle blowers.
Thank you ANA. Please keep writing about this issue Mimbrella. Perhaps you could ask each Australian media agency CEO to give one word answers to “Does your agency: Accept rebates from publishers; Run value banks; Run double rates” aka Oprah vs Lance Armstrong!
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