Daily Mail admits to paying $52.5m in cash and discounts to agencies and clients last year
The issue of media agency transparency has come to the fore again after the Daily Mail revealed it gave away $52.5m (£25.6m) in cash and discounts to agencies and advertisers in the last financial year.
Details of the “discount and rebate provisions” by parent company of the UK-based publisher the Daily Mail General Trust (DMGT) are revealed in its annual report, noting its rebate payments were down from £26.2m in 2014.
While media owners often provide rebates to media agencies and clients it is rare for them to reveal the size of these payments. Some media agencies use these rebates to create ‘value banks’, an practice which hit the headlines this year after Mediacom admitted it had misused them with four clients.
The Daily Mail operates in the UK, US and Australia, with its website locally a joint venture between the DMGT and Nine Entertainment Co. Both parties have been approached for comment about the size of its rebates in the Australian market.
The annual report describes the rebates as follows: “dmg media segment enters into agreements with advertising agencies and certain clients, which are subject to a minimum spend and typically include a commitment to deliver rebates to the agency or client based on the level of agency spend over the contract period. These rebates can take the form of free advertising space, cash payments or both.”
That figure of £25.6m in rebates comes as the financial reports shows the Daily Mail media segment reported an overall revenue of £730.9m and an adjusted operating profit £96.1m.
Internationally the issue of rebates hit the headlines after former Mediacom CEO Jon Mandel alleged they were widespread in U.S. agencies.
Domestically Mediacom also put the issue front and centre after its investigation into the misreporting of TV figures by staff also discovered the agency had charged four clients for the free ‘value bank’ inventory, in breach of GroupM policy.
The admissions around the use of ‘value banks’ by GroupM’s also shone a light on the issue of transparency in Australia.
Last month the industry body representing the major media agencies the Media Federation of Australia published a new transparency framework which for the first time acknowledged the existence of ‘value banks‘.
Three of the major holding groups IPG Mediabrands, Dentsu Aegis and Publicis have refused to comment on whether they use such ‘value bank’ structures in Australia.
Nic Christensen
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Maybe it’s been a long year and my brain is addled, but what exactly does this story mean?
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Of course it goes on in Australia.
The bigger the ‘share’ the bigger the ‘value’ the Media Owner will provide the Media Buying Agency
This has been going on since the beginning of time.
Agencies on slim margins have been propped up by favored media suppliers in the form of cash rebates for guaranteed share.
What we need is a system of transparency from the agencies as to how this cash or ‘value bank’ is passed onto clients.
My prediction: Won’t happen in either this or the next decade. Watch them all, Media Owners & Agencies, run for cover.
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Or maybe we just go back to selling as per “rack-rate” – discounts are based on commitment and for all to acknowledge upfront. Then there’s going to be no more issues, everything is transparent and nobody (agency included) get’s into “trouble”..
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@Buyer – actually the reason it wont happen is clients are unwilling to pay a fair fee for resources used. “Procurement Consultants” are also helping everyone get to the bottom of the barrel faster. How many times have internal or external procurement asked you to “sharpen your pencil”.
Its pretty simple:
If clients wont pay fairly for agency staff + overheads + 20% profit, then agencies will try and find it in other ways.
This rebate/value bank scam is over now, the issue is a year old and all large clients have over the last 12 months resolved the issue with their agency / done an audit / whatever. Transparency and passing back rebates is now the norm.
Whats not been reported is how the agencies are now making money that is NOT in the form of value banks / rebates. Still some clever people in media agency holding company land… much cleverer than the consultants and auditors..
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@IDK this story is around fifteen yeas old as that’s when the seeds were sown. And it has a fair way to run me thinks..I think you pose an interesting question ‘ ..how are agencies now making money..’ and one simple answer is that they continue with the aforementioned practices in one form or another. When you refer to ‘..holding company land..’ surly you are not suggesting that payments are being made to related holding companies, some of which could be based offshore in an atempt to disguise such payments and their purpose ?
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