Four of five big media agency bosses silent on question of value banks in Australia
The local heads of four of the five major media agency holding companies have failed to answer questions about whether they operate ‘value banks’ and other controversial media rebate practices in Australia.
An ANA report released yesterday claims the US ad industry faces “systemic non-transparent business practices” in terms of media owners providing “kick backs” to agencies.
But asked whether they operate similar media rebate, media credit or value bank practices locally, the heads of major holding groups Dentsu Aegis, IPG Mediabrands, Omnicom and Publicis Media all refused to comment.
In March 2015 GroupM admitted its agency Mediacom had not only operated value banks but that it had charged four clients for advertising inventory that should have been passed on at no additional cost.
Value banks refers to 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. Clients are often concerned that such payments could be influencing the recommendations made by agencies on where to spend their money.
In the wake of the ANA report GroupM issued a statement locally stating that it was “the most audited media group in Australia”, claiming the company had substantially improved its processes throughout the past 18 months.
“GroupM are the most audited media group in Australia. Working with EY we have improved our systems and processes to even greater levels of compliance and quality assurance. We have the only dedicated compliance team in the country, which oversees a consistent national compliance process across all GroupM Australia agencies,” said the company, in a statement.
“Among a number of improvements implemented by the compliance team was the introduction of guidelines and a process that guarantees trading accuracy. In rare cases, any compliance concerns identified have been resolved totally to our client’s satisfaction.”
Dentsu Aegis CEO Simon Ryan, IPG Mediabrands CEO Danny Bass and Publicis Media CEO Matt James all declined to answer questions about the local implications of the ANA findings, pointing to their group’s global responses. At the time of publishing Omnicom’s Leigh Terry had not responded to a request for comment.
The industry group representing Australia’s major media agencies the Media Federation of Australia (MFA) has said it is reviewing the ANA report and touted its own one page “transparency framework”.
“The MFA is reviewing the report by the US based Association of National Advertisers and will assess any implications it may have for the Australian market,” said Sophie Madden, CEO of the MFA.
“The MFA has worked closely with the AANA through our joint AANA MFA Media Forum Group on the issue of transparency and fairness and this continues to be one of our top priorities. This resulted in the release last year of the MFA Transparency Framework, supported by the AANA.
“The MFA is unable to comment further until it has fully reviewed the ANA report.”
In November of 2015 MFA quietly released its “transparency framework” a one-page document for the first time acknowledges the existence of value banks and says:
Where value banks exist they are used at the discretion of the Agency or the Agency Holding Company and in accordance with the clients’ contract. Value banks are defined as space, time, impressions, awarded free of charge by media owners to agencies as a reward for volume commitments.”
But senior industry figures have questioned why the industry needs an overarching position on value banks when only one out of five of the major groups admits to having value banks, leading them to question if the practice is more widespread.
“We have been aware of value banks in Australia for at least four years,” said Darren Woolley, CEO of marketing consultancy TrinityP3. “It is interesting that people have not been willing to make any moves on this until the ANA brought this to a head.
“This is happening here. It was 2012 when we first became aware of this behaviour and it is across most of the groups.”
Globally a number of the major holding groups have sought to undermine the ANA report by attacking it’s failure to ‘name names’ of agencies acting unethically.
Jerry Buhlmann, Global CEO of Dentsu Aegis Network, which operates Carat, Dentsu Mitchells and Vizeum, attacked it as “an insubstantive report with subjective methodologies and anonymous input”.
“Our media buying process is robust and transparent for our clients, is subject to rigorous compliance processes and all our clients have the ability to audit us,” he added in a statement.
Publicis Groupe, owner of Starcom and Zenith Optimedia, put out a statement saying: “The ANA has failed its members, advertisers, agencies and the entire industry by releasing a report that relies on allegations about situations involving unnamed companies and individuals to make broad, unsubstantiated and unverifiable assertions.
“Despite repeated urging by Publicis Groupe and others in the industry to include names and sources in its report, the document hides behind suspicions and anonymity rather than encouraging real accountability.”
The full Dentsu Aegis, IPG Mediabrands and Publicis Media statements can be found below:
Dentsu Aegis statement:
“Today’s ANA Report (June 7th) is an insubstantive report with subjective methodologies and anonymous input. The business practices referenced in this report do not exist within our US business. Our media buying process is robust and transparent for our clients, is subject to rigorous compliance processes and all our clients have the ability to audit us. Furthermore, we pride ourselves on our focused and extensive efforts on compliance policies, practices and controls.”
IPG Mediabrands statement:
IPG has been a leader in terms of media transparency since 2005 when we proactively confronted the types of non-transparent practices raised in today’s ANA report. We eliminated these practices from our organization, issued public disclosures and strengthened our governance controls.
Since that time, we have continued to modernize our transparency practices for an increasingly digital and complex media landscape. Here at IPG we do not accept rebates in the U.S., nor do we believe rebates should be part of U.S. market practices. Additionally, IPG does not buy “inventory media,” where we pre-purchase media on our own account and re-sell it to clients – this decision has been a point of differentiation for our company.
As a result, we have a high degree of clarity in our contracts with clients and media owners regarding our respective roles and interests. Our practices have been reviewed in numerous audits conducted at clients’ requests by a variety of firms, including ones that participated in creating the ANA report, and we are very proud of our track record.
The broad and anonymous nature of the report’s allegations is unfortunate and inflammatory. The picture the report describes is not consistent with our actual business practices.
Publicis Media’s statement:
We fully understand that clients need to be certain that their investments are managed in a professional way and according to the contracts they have signed. Mutual trust has been a pillar of our Groupe for decades.
Had the ANA been willing to have an open dialogue with our industry we would have been immediately ready to cooperate, as we did last year, and that is reflected in our engagement with the 4A’s.
By refusing such a dialogue and choosing a sensational approach, it seems clear that the ANA is not trying to find a solution to the alleged problems, and instead is acting with other goals in mind.
The ANA has failed its members, advertisers, agencies and the entire industry by releasing a report that relies on allegations about situations involving unnamed companies and individuals to make broad, unsubstantiated and unverifiable assertions.
Despite repeated urging by Publicis Groupe and others in the industry to include names and sources in its report, the document hides behind suspicions and anonymity rather than encouraging real accountability.
As a result, the report fails to achieve a constructive outcome of encouraging change that can assure advertisers and agencies are well-equipped to work together in a rapidly evolving media environment.
The various highlighted practices distort the picture of the marketplace by suggesting that they are pervasive.
These allegations are too serious for the ANA to act in such an unhelpful way. If the report’s authors have evidence of wrongdoing by specific agencies, they should come forward and state their case, so that the appropriate action can be taken.
The unsubstantiated claims are already causing serious damage to the reputation of the industry and endangering the most valuable component of the agency-advertiser relationship: trust. Trust is a key tenet at Publicis Groupe.
We are committed to understanding and respecting our clients’ transparency requirements in all situations, and this is a standard part of our client contract negotiation process.
Publicis Groupe has strict internal rules, including a code of conduct that serves as important controls on our practices and public reporting.
In addition, we continually examine our processes and procedures to ensure we are following best practices, and our people are expected to meet these high standards. We are crystal clear: we are committed to full compliance with the terms of the client-agency agreements we sign.
We always want to hear from any client that has concerns about the delivery of our services and how we are compensated, so that we can address those directly with them.
We also recognize that some alleged practices under question may not be egregious transgressions but rather outmoded practices that have not kept pace with the fast changes in the media landscape that require more engagement and dialogue between agencies and clients, and better alignment to assure comfort and consensus.
Consistent with our strong advocacy for the industry and our clients’ best interests, we were active participants in discussions last year with the ANA and the 4A’s toward the shared goal of enhancing media transparency. We were on the verge of announcing a broad set of principles when these efforts were unexpectedly abandoned by the ANA.
We remain strong advocates of developing industry guidance now. Our letter sent to the 4A’s on May 30, before the report was released, outlined our concerns about the ANA’s approach, which went unheeded.
Ultimately, the industry has been diminished and maligned by the ANA’s short-sighted and unilateral agenda of casting aspersions on an entire industry, rather than promoting trust and transparency, which should be paramount. We are continuing to review the ANA’s report, and will comment further as appropriate.
anybody in their industry worth their salt knows that this is widespread but what we need to discuss is the root cause of the behavior not the symptom.
agencies are screwed down to low single digit margins and sometimes at loss making positions by prospective clients. This is frequently in full knowledge by clients and their procurement teams and places loads of commercial risk onto the agency. The clients motivation is simple extract as much value as possible to to prove to their managers and board of their ability to show savings without compromising quality ‘because they have just ‘RFP’ed’.’
This client behavior (and there are some brilliant exceptions) has so many unintentional consequences. One is the the agency must look at alternative revenue possibilities ‘value bank’ would be of those. But more worrying is that quality of work, investment in staff , and experimentation are all completely lost. These are the things that have significant and long lasting negative impact on our industry.
You can argue that agencies need to show benefit and value over price but this is void of any real market insight, clients have the whip and use it, especially in a highly competitive small market like Australia
It is imperative that companies must start to realise the link between the way the remunerate, the quality of the work and the long term consequences.
so i ask Mumbrella please start digging into what clients pay and their behavior and start truly revealing the root cause that is killing our brilliant creative industry.
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There is obviously an industry problem here, and it needs to be addressed. But I do get the sense that it’s the media agencies that continually get portrayed as the bad guys. They may well be, but it feels to me that we need a holistic solution that includes procurement departments, media suppliers, pitch consultants etc in order to understand the full value chain. Well done Mumbrella for keeping this on the agenda.
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No comment on this issue from the media sellers (whose inventory makes up the value banks presumably)?
Why is that I wonder?
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Having worked in media agencies for many years, I can tell you that the practise of certain media agencies demanding kick-backs in the form of either cash or free inventory to on-sell to clients existed at a time when agencies were enjoying very healthy commissions (i.e. the 90’s). So to say that the cause of this is clients demanding unreasonable terms is bare-faced nonsense, media agencies did it because they could and the owner proprietors (as most of them were then) wanted the money.
That said, the current astonishing ubiquity of the practise has come as a result of 3 forces in the market. One, the globalisation of ownership has seen the universal introduction of the practise as it is seen as ‘Business as Usual’ by Head Office. Two, the explosion of media availability has introduced both the means and the motive to scale it up. In digital, it is utterly endemic. Three, yes, procurement practises have turned the heat up on agency margins, but agencies themselves have chosen to respond to the pressure by seeking recompense elsewhere. Believe it or not, they could have actually refused unprofitable business, God forbid!
No one is innocent in this sorry situation: advertisers turn a blind eye to it at best (in fact, I have seen some clients who demand a disproportionate ‘share’ of the agency value bank and/or use its existence to justify a zero profit remuneration scheme); and media owners feel obliged to ‘pay-to-play’ so keep the whole charade ticking along. But, without question, it is the agencies who have driven this phenomenon and value banks are just the tip of the iceberg. Yes, just the tip.
The piss-weak position taken by local leadership (see the Danny Bass’ whining attempt to rebut the fact-based case put by Mark Ritson recently) and the MFA (‘Nothing to see here’) on the issue would be laughable if it wasn’t for the fact that the practise is doing irrevocable harm to quality thinking, content, value creation and the media ecosystem in general.
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Yes. I bet 4 out of 5 agency heads were silent on this topic.Yes, there is a role played by clients screwing down agencies and a role by media by being willing to engage in these practices. However the truth to me is plain and simple; if you had a service or product differentiated enough and valuable enough for clients to pay for then you wouldn’t have to resort to this type of practice. No one said it was easy, but that’s the truth.
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@Mr Corbett – Facebook is differentiated enough, but its spectacular rise in share of adspend isn’t attributable to product – it rewards agency groups in a very generous, sophisticated manner for their adspend, particularly when it comes to video spend. Google’s efforts to swing budget to its display network works in a similar fashion. Until these practices are ripped apart, local publishers are forced to deal with subjective media assessments on the part of agencies, no matter how competitive their product is. This is the ultimate tragedy.
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And another thing…wake the fuck up people.
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They are still at it.
A major agency group are offering “booking incentives” to publishers to move to the tech company they hold a major investment in.
“Switch to them and we’ll guarantee more revenue” Same group used exact same incentive to push their content recommendation engine and kill X [Edited under Mumbrella’s comment moderation policy]
I find it gob smacking after all the revelations and protests of innocence they continue to use their clients billings as leverage.
nothing has changed.
you probably won’t publish this but email me if you want to know who to ask.
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We just lost a pitch. We played straight. But the procurement team took a lower % elsewhere. The client CEO is happy. He thinks his team just saved a bunch of cash. Next year his ads will end up in crappy slots and his team will be full of juniors. But who cares? Marketers just want their boss to know how important they are and the consumer is 99% bored. So Head Office gotta make payroll and that means publishers need to keep stocking up on brown paper bags. Thats just how they stay alive these days. And when procurement analysts negotiate us down to zero because we all look the same, then they can take some credit and get a holiday in before the next fake RFP.
I guess I’m wondering if it matters that the other agency is skimming value from the top of a group rate. Seems to me like we all work for free now anyway. Value banks pay the bills and I don’t see marketers offering more money or asking less service. Just faux outrage. Bah. Screw your industry scandal. I wanna get paid next time.
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