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‘There’s an enormous lack of trust’: Agencies need to clean up their acts, warns former Carat boss

The way major holding companies have been treating clients’ media money without their knowledge is the key factor in the loss of trust by marketers in their agencies, a senior industry executive has claimed.

In a hard-hitting panel at Advertising Week New York, Martin Cass – who ran Carat in North America until 2013 – suggested that the big agencies had been engaging in arbitrage behind their clients’ backs, and that they still need to “clean up” their acts.

Cass: The top five holding companies need to clean up their act

Cass, who is now CEO of independent media operation MDC Media Partners and was a few months ago named executive of the year by MediaPost, told the debate on adtech and transparency that media agencies have been capitalising on marketers’ lack of understanding of the complexities of digital media.

In many cases, agencies have been able to take for themselves significant slices of media budgets through arbitrage, where they effectively buy ad slots for one price and then charge the client a higher price, Cass suggested.

Cass said of clients: “They don’t understand it. We’ve become experts on the top of a pinhead. There are probably a thousand people operating on the top of a pinhead. It’s so utterly bewildering and confusing.”

Referring to the global chairman of WPP’s media arm GroupM, Cass said: “I think it was Irwin Gotlieb who said ‘Where there’s confusion, there’s opportunities to make money’.

“If you sat down with a CMO and really asked him what most of the adtech does, they wouldn’t have a clue.

“This is about trust and transparency. There’s an enormous lack of trust. Three or four years ago, clients were starting to say ‘There’s something going on and I don’t know what it is.’

“Now they know what it is, or they think they know what it is. That’s created a larger degree of angst. And that angst is manifesting itself in clients voting with their feet.”

Video of the full panel debate session can be viewed here:

A major turning point in the transparency debate came at the beginning of the year, when P&G’s chief marketing officer Marc Pritchard went public on his concerns about the need for “a transparent, clean and productive media supply chain” and gave his agencies a 12 month deadline to deliver it.

Earlier this week Unilever’s Keith Weed warned of a “murky” chain along all stages of the digital advertising system, including the publishers and agencies ranging from ad fraud to viewability.

Meanwhile, Cass said that since clients have started to become aware of what agencies were doing, some have tightened up contracts so such arbitrage tactics are now specifically outlawed. Cass said that evidence of this came in holding companies’ quarterly profitability being down.

He said: “Just take a look at WPP results, take a look at, for example, Dentsu’s results in North America. They’re both driven heavily by media and they’re both down. That’s because they’re taking money away from those places . They’re saying ‘I’m not allowing you to do those things you were doing, I’m stopping you right there’.

“I don’t buy the argument that ‘Oh, CPG [consumer packaged goods] stopped spending, so we don’t make any money and that’s why our numbers are down’. I’m not buying that.

“If you look, 2.7 to 3.7%, I think WPP’s numbers were down, Dentsu was down 6.7% in north America which is basically Carat. Yet they’re winning new business. So the question is: If you’re winning new business and yet your numbers are going down. That must mean the money you were making before wasn’t out of the effective commission. Where was it coming from?”

“I’m nervous about making a direct causal link with arbitrage, but it’s not difficult to make that leap.”

“If… you are making your money by driving cash through your system, you’ve got a huge problem if that cash that was generating money that wasn’t straight commission or fees dries up.

“Because what it means is you’re running a business that isn’t profitable unless you’re able to make it on the side.

“So the question becomes what should a client really be paying for those services and that’s a challenging question because they’ve got used to paying not much.”

The panel featured speakers only from North America, and no reference was made to the media landscape in other parts of the world.

Later in the discussion Cass was asked who the “bad actors” are. He said: “How about the top five holding companies? Until they get their act cleaned up, you ain’t going to get anywhere, because that’s where the trust problem is. It’s the arbitrage situation.

“The problem comes when I’m taking client money, I’m then arbitraging that client money to my own benefit, not to the benefit of the client. That’s where clients get pissed off.

“Until that gets sorted out, you’ve got a real problem.

“When you get your agent who is supposed to be managing your money for your best benefit, but when they’re actually really acting like a bank on behalf of the holding company, that’s a problem.”

Cass also suggested that digital was just one area where clients may not have the whole picture. He said: “Programmatic is just the top of the iceberg. You wait til you get to TV and start digging into that.”

Cass is not the first former boss of a major media agency to speak out on issues around transparency in the US. Jon Mandel, former US CEO of GroupM’s Mediacom, triggered a storm of controversy in 2015 when he spoke out about the issue of “value banks”, where media agencies effectively take an undisclosed payment in kind from media owners which the clients are unaware of.

Referring to his own history leading Dentsu Aegis’s main media agency Carat, Cass said: “I ran Aegis, so I’m not completely whiter than white.

“At least WPP said ‘we’re transparently untransparent’. At least they’re upfront about it.”

Cass also warned that distrust is leading bigger brands to take their media in house. He said: “That’s where you start to dig into the agency business and the clients say quite rightly ‘Well I don’t trust them and I think I’ll do it myself.’

“I’ve never seen so many pitches. Last year they were calling it Pitch Palooza. Forget about that – that was a sideshow compared to what’s going on at the moment.”

He called for clients to demand that agencies use technology such as that provided by AdFin which tracks an ad through every stage of its purchase from brand, through the ad tech stack and up to publishing, and confirms the price paid for it at every stage.

He said: “They can see that the publisher charged this to the agency, the agency charged this. But there’s only one agency in the country who will do that on every buy, and it’s us.

“If the numbers are right, 60% never sees the publisher. That’s crazy.”

He added: “You will end up on the right side of history and reap the rewards by not behaving in a way that is counterintuitive to what a client needs.”

At the end of the session, Mumbrella asked Cass about his use of the word “counterintuitive” and where on the spectrum this lay between cutting corners, and criminality. He replied: “Somewhere between the two.”

Meanwhile, fellow panellist Scott Gifis, retargeting platform AdRoll’s VP for north America, told the same session that there were other issues in the digital chain outside of agencies too.

He said: “It’s being called armageddon for some of the ad tech shops and I think that’s a good thing. Arbitrage is a piece of the pie, but I don’t think it’s the only piece of the pie.

“There’s a lot of cleaning up to do, but I am optimistic that it can be done.

“Marketers want to know where they’re running. They want to know where their ads are showing. They want to know if there’s fraud. They want to know if their ads are seen by humans.

“There’s a general lack of trust and potentially a lack of understanding. What they really need are partners who will show them all the stuff, good and bad.”

And Jason Fairchild, chief revenue officer for advertising exchange platform OpenX, told the audience: “We’ve reached a tipping point where the full value chain needs to be exposed.”

“This will be the year of reckoning for the swampy adtech players as transparency is injected. Once we weed out the wild west players, I think the future is really bright.

“It’s arbitrage players taking the content, reselling it three times.

“We need to take responsibility for shining a light on the bad actors and getting rid of them.”

Meanwhile, a separate panel earlier in the day also saw concerns raised about the behaviour of ad exchanges, including the practice of “domain spoofing” where ad exchanges fake where an ad is appearing to charge higher rates.

Jess Barrett, global head of programatic for the Financial Times, said that the brand had discovered 15 different ad exchanges were offering video ads on FT.com, despite the fact that the media brand does not even sell its video ads programatically.

The scale of the fraud was reportedly so large across ad networks that more fake ads on the FT were being offered in a single day than actually run in a month.

She said: “To see the actual numbers was alarming and shocking… We don’t even make our video inventory available in programatic but there were 15 exchanges across 300 accounts that were saying that they did. Domain spoofing is a huge problem.

Barrett: The numbers were alarming and shocking

“These exchanges were all names that you would know. These are the same companies who are coming up and saying ‘We’re fighting fraud’.”

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