The Mediacom furore: the questions facing the industry

Nic ChristensenToday saw GroupM release details of the EY audit of Mediacom examining years of misreporting in its TV buying and also sees the group make fresh admissions about the use of so-called ‘value banks’ in Australia. Nic Christensen assesses the initial impact these revelations could have, not only on GroupM, but on the wider industry.

“I don’t understand it to be quite honest, there is no financial reward,” says John Steedman, chairman of GroupM, Australia’s biggest media buying agency group. “In my 40 years in the business, I was a buyer, and I have never seen this.”

As the industry learns the details the EY audit of Mediacom on what can be characterised as the deliberate faking of campaign reports for three multi-million dollar clients over at least two years, and the numerous revelations that have emerged in the wake of the discovery of this practice, one thing is clear: right now we are left with many more questions.

How media agencyland’s biggest scandal came to light

It is just over three months since that Friday night in late November when we revealed Australia’s second biggest media agency Mediacom had seen 12 staff departures and had been forced to bring in external auditors amid allegations of misreporting on TV audience reports on major brands Foxtel and Yum! Brands. Another, IAG, was soon added to that list.



We now know those issues had come to light the evening before the Melbourne Cup (November 3rd) after Foxtel asked for an audit of its business.

Mediacom CEO Mark Pejic told a media briefing on Friday that a audit in itself was “not uncommon”, but what was discovered as it was being prepared by chief investment officer Nicole Turley, was.

While that helps explain why there were contradictory statements from Mediacom and Foxtel that first evening as to who had uncovered the issue, we’re still left with the question of why staff would do it? And why did it take so long to be uncovered?

How and why did misreporting happen?

If any one part of this should ring alarm bells for the industry it is this – the whole shemozzle appears to have been started by one junior.

That staff member appears to have been deliberately misreporting audience figures on Foxtel and Yum! accounts upon which they worked. It is understood they were fired upon the discovery of their misreporting.

In Friday’s media briefing Pejic expanded upon previous statements about this firing, and the eleven departures (note: not all were firings) that subsequently followed it, saying:

“In the discovery process, early on, we obviously asked a lot of questions of our staff and as a result a number of people were terminated and throughout this process there were 12 people who have left this company, as a result in one way or the other as a result of this practice.”

Sources contest this account of events with some in the agency saying some of the series of resignations that followed came about amid a climate of “distrust and recrimination” that emerged within Mediacom, as both internal and external auditors swarmed, and the extent of the long term misreporting across Foxtel, IAG and Yum! Brands quickly became clear.

While it was far from a perfect crime staffers were able to get away with misreporting for at least two years, and probably more, because of a flaw in external auditing which relied on the agency to provide planned targets which could then be matched with the results.

In the aftermath, Mediacom says it now made it harder for staff to edit the campaign targets later while Ebiquity is now asking clients, rather than agencies, to provide the promised ad buy targets.

GroupM and Mediacom deny that they benefited financially from this misreporting, but clients believe they were disadvantaged and one could argue this misreporting could have helped them retain the business.Mediacom-Signage-700x438

Pejic and GroupM chairman Steedman seem genuinely baffled as to why staff would have done this.  Pejic said:

”I think it comes down to the root of the person’s behaviour and whether they think it reflect positively on them to get good reviews. It could be a motivator.

“We obviously spoke to our staff and ‘we didn’t want to let the client down’ was a common response.”

The prospect of promotion and a desire not to ‘let clients down’ are two obvious drivers but I personally don’t believe they fully explain why this practice went on for years.

Other factors which could and arguably would have played a bigger role include tumbling TV audiences and a sector under continual margin pressure  employing cheaper junior staff and entrusting them with millions of dollars of client money to spend – putting them under significant pressure to deliver.

Statistics bear out the first point. According to ratings body OzTam, last year there was a four per cent drop in overall viewing in total people, and a 7.4 per cent drop for people aged 25-49. Then there’s the massive 14 per cent for people decline for those aged 13-24, as compared with 2011.

Some of these key demographics are central to clients like Yum! and Foxtel, who are among the most demanding when it comes to TV buying.

Of course that doesn’t excuse what happened – the misreporting was wrong and is likely to have profound impacts on the whole sector – but it follows that this structural pressure could well have been a factor.

In the trade press we often talk about the pressure on margins and the race to the bottom but rarely do we look at how that plays out at the bottom of the agency structure.

One detail which hasn’t come out is that all of those who have departed Mediacom are aged below 30.

While that doesn’t excuse these actions it suggests as an industry we need to stop and ask:

Are we putting too much trust and not enough oversight on 22-year-olds, who are buying millions of dollars worth of television on behalf of big brand name clients against what are possibly unrealistic or unachievable performance targets?

If that is the situation, then where does the blame lie? I don’t profess to fully know the answer, however, I am prepared to guess the people ultimately responsible for creating this situation probably, aren’t 22-years-old, and are in senior roles across the whole media industry.

Value banks & media credits

groupmWhile the revelations of long term misreporting at Mediacom will be troubling to many, nothing in the EY report is likely to shock the industry as much as GroupM’s admissions around value banks.

To my knowledge GroupM is the first major media group to publicly acknowledge the existence of value banks. So their admission that four clients, among them Foxtel and KFC, were sold this TV inventory contrary to GroupM’s own policies – is startling.

There has always been some confusion over value banks and what they are: In simple terms they are heavily discounted or free ad space given to media agencies by media owners in return for increased share of advertiser spend.

They are usually negotiated on a group’s overall spend rather than on an individual client basis, making the question of who is entitled to how much a challenging one.

Especially when you throw in discounted ad rates, or bonus spots, or a levy to be paid for any agency produced programs the network might run, or of course free airtime.

It is fair to say that GroupM had led this space when it introduced the idea of agency volume bonifications or bonuses (AVBs) into their network negotiations in 2008, for the 2009 year.

GroupM insists its policy is that this inventory should “never be monetised” to the agency’s gain and always rebated back to the client. The problem is it’s incredibly hard for a group handling $2.4bn of client spend across dozens of clients of varying sizes, where exactly it all goes.

Former Mediacom US CEO Jon Mandel

Former Mediacom US CEO Jon Mandel

The Australian value bank revelations have come on the back of a weekend when the US trade press has lit up with allegations of widespread “kickbacks” in the US spread being made by a former MediaCom CEO Jon Mandel, and you can bet that GroupM’s admissions here will now garner global coverage.

And you can bet your bottom dollar any savvy client has been on to their media agency in the last 24 hours demanding to know their policies on value banks, now the cat is out of the bag.

It is not clear how Mediacom came to breach GroupM policy on value banks, or who authorised these deals which are against the stated ethics of the company. Why was there no external audit of GroupM practices in relation to this area, and will there be now?

The company has issued a written statement on the issue but you can expect it to come under pressure in the coming days from clients to provide more transparency on this controversial topic.

We can also expect media owners to start pushing back on the area of media credits, amid concern that GroupM and other agency groups may be profiting at the expense of their media owner “partners”.

Media credits are amounts of money which have been invoiced by the agency and paid by the client, but which have not been fully invoiced by the media owner. Legally these can be billed for up to six years, meaning agencies should keep hold of the cash for that time, then what happens to it is up to client contracts.

But as value banks, which come directly from the media owner’s hip pockets hit the headlines will they start asking questions over their media credits and why they don’t get them back? I’d watch this space.


GroupM’s Sydney HQ

The question of leadership and what happens next?

Finally, and perhaps most importantly, there is the questions of leadership and let me say up front this should be a broader question than Mediacom or even GroupM.

The coming days will no doubt see headlines asking who at Mediacom, and more broadly GroupM, takes responsibility for the events that have occurred and now cast a shadow on the entire media buying landscape?

Despite overhauling their internal processes will client confidence hold in GroupM and Mediacom and its senior leadership team going forward? Today’s win from UM of the News Corp – certainly looks like a deliberately choreographed vote of support from one quarter.

Make no mistake all eyes will be on this, as Australia’s biggest buying house, which represents close to a third of local client spend, seeks to make today’s admissions the final word on the scandal.

But more broadly there are also important questions of leadership for the Media Federation of Australia in terms of maintaining client confidence in the wider media buying industry.

Some of these questions are simple: i.e. does the industry need to overhaul compliance standards to ensure TV post-analysis reports can never be tampered with again in any media agency?

Others are much more complicated like: what policies and guidelines should agencies have around value banks? (On this one the likes of advertiser association the Australian Association of National Advertisers might also want to state a position.)

The questions before us as an industry are numerous and somewhat daunting.

But, I’d also like to throw one more question into the mix:

Are we brave enough, as an industry, to use this to bring about a new era of transparency between clients and their agencies?

This question is perhaps the hardest of all to answer. However, if we are to take anything from these revelations, if we are to learn from this episode, then I would argue that it might just be the one question that might help an industry rebuild and move forward in a positive way.

Nic Christensen is the deputy editor of Mumbrella.

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