Inquiry into ‘opaque’ media agency pricing recommended in ACCC Digital Platforms Report

The Australian Competition and Consumer Commission (ACCC) has taken issue with the “opacity” of media agency pricing in its Digital Platforms Report, recommending an inquiry into the “black box” process of buying and selling ad space.

The regulatory body zoomed in on holding groups and large agencies that negotiate discounts with publishers and may be incentivised “to act in ways that benefit their own interests, to the detriment of advertisers”. The inquiry would directly look into the share of ad spend media agencies retain, including “any potential excessive margins”.

The report cited Google’s submission to the preliminary report, in which the search engine noted that agencies pool their purchases on behalf of all clients to get discounts, only to resell that inventory to clients without disclosing the original purchase price. These discounts or rebates influence agencies as to where they direct client spend, which could be inconsistent with the client’s interests, the ACCC proposes in its 623-page report.

The recommendation for an inquiry into media agencies is one of 23 recommendations the report makes

“There may be an incentive for agencies to not pass on any cost savings, discounts or refunded payments received by the agency or holding company from the relevant website or platform to advertisers,” the ACCC said in the report.

It named WPP, Omnicom, Publicis, Interpublic and Dentsu as the five major international holding companies, suggesting that agencies sitting within holding groups like these are even more opaque because the holding groups negotiate with suppliers such as Google, Facebook and publishers to buy ad inventory, and then sell that inventory to their agencies.

“However, clients of the advertising and media agency typically have a direct contractual relationship with the agency, rather than the holding group. As such, they have no visibility or control over the relationship between the agency and the holding group, or the contractual relationships between the holding group and suppliers of advertising services,” the report reads.

“Accordingly, while a client may receive full transparency in regard to its dealings with the contracted agency, it may not have a similar level of transparency over the relationship between the agency and the holding group, or the relationships between the holding group and suppliers of advertising services. It is in this space that a holding company can potentially increase their profit margins, to the detriment of the advertiser.

“Advertisers are unable to determine whether the services they purchase offer ‘value for money’. Competition is undermined if advertisers are unable to compare and select the most efficient ad tech partners and publishers with whom to place media spend.”

The report includes this diagram of how media agencies make money

The opacity is driven by the use of multiple services in a single transaction (and the resulting accumulation of fees), the lack of transparency regarding the algorithms that facilitate media bidding and auctioning, and the structure of agencies, according to the report. It also stated that, while such opacity exists in other advertising contexts, such as TV advertising, it is magnified in online advertising because of the number of intermediaries involved.

The ACCC acknowledged that the process of media agencies negotiating volume discounts is “complex” and that its experience throughout the Digital Platforms Inquiry “suggests that advertisers and others may be unwilling to publicly identify their concerns”. This, the regulator said, reinforces the need for a separate inquiry into media agencies.

The inquiry, which would be conducted by a specialist digital platforms brand – the creation of which is another recommendation within the report – could also deal with whether advertisements on digital platforms are actually served to their intended audience, which the preliminary report raised as a concern.

The Australian Association of National Advertisers (AANA) welcomed the report, with CEO John Broome saying: “We will engage fully with the government during the forthcoming consultation process and participate in the proposed inquiry into the operation of ad tech services and advertising and media agencies.”

Treasurer Josh Frydenberg added that the report is “groundbreaking” and “world-first”, with the government set to provide its response to the report by the end of the year.


Get the latest media and marketing industry news (and views) direct to your inbox.

Sign up to the free Mumbrella newsletter now.



Sign up to our free daily update to get the latest in media and marketing.