Publisher reveals it gives cash and bonus ad inventory to media agencies in exchange for spend

The Guardian has revealed it gives “cash payments” and “free advertising space” to media agencies in return for a certain spend, the publishing company’s financial accounts has revealed.


Within Australia the rebate system has come under scrutiny in the past year with the industry body representing Australia’s major media agencies, the MFA, issuing a “transparency framework” in November last year which aimed to govern how they interact with clients on  issues such as agency rebates/commissions, so-called ‘value banks’, disclosure of margins on agency trading desks and ethics training. The move came in the wake of last year’s misreporting and ‘value bank’ scandal involving GroupM agency Mediacom.

An ongoing point of contention is that many major clients argue that any cash bonuses or free inventory should be passed on to them, as their budgets delivered the benefit in the first place. Critics of the media agency system claim that bonuses to agencies based on spend can incentivise them to advise clients to allocate budget in a direction not necessarily in their best interests.

The Guardian said in its annual report: “The Group enters into agreements with advertising agencies, which are subject to a minimum spend and typically include a commitment to deliver rebates to the agency 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.

“The rebate provision is calculated using the forecast spend over the contract period and the rebate entitlement set out in the trading agreement. Calculating the required provision therefore requires an estimate of future period spend in determining what tier of spend the agency may reach over the agreement.”

The references to the rebates were contained in The Guardian’s financial statements for the year ended April 3, 2016, under the heading “critical accounting judgements and key sources of estimation uncertainty”.

It is the first time The Guardian Media Group, which publishes and the Guardian and Observer newspapers, has referenced rebates in its annual accounts. Although it did not disclose which countries it was referring to, The Guardian only has three main markets: Australia; the UK; and the USA.

The financial update revealed the group’s strategy will be focusing “on a growing a far deeper set of relationships with our audience that will result in a reimagining of our journalism, a sustainable business model and a newly-focused digital organisation that reflects our independence and our mission”.

“This will include enhancing the Guardian’s membership offering, international growth in the US and Australia and better data management,” the report said.

The Group will look to “boost revenues and reduce its cost-base” with a plan to cut 250 jobs globally and to restructure “the less profitable parts of the company in a bid to break even within three years and support future growth”.

For the year ended April 3, the Guardian Media Group reported revenue of £209.5m, down from £217.5m in 2015. Digital revenue for the year was £81.9m, down from £83.8m in 2015.

The group attributed the revenue decline to the declines in UK print and digital advertising revenues, which “proved greater than revenue growth from the membership offering, the US and Australia”.

The digital growth in the US and Australia was offset by digital advertising decline in the UK.

The company reported profit of £83.7m, up from the 2015 profit of £39.8m.


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