Opinion

The questions clients & agencies should ask about the MFA transparency framework

Nic-Christensen-234x151-234x151-234x151The MFA yesterday released a new framework on transparency for media agencies and their clients. Mumbrella’s Nic Christensen welcomes a formal framework for these issues but notes that both sides may now have to answer some awkward questions.

Yesterday’s release of a MFA transparency framework makes for interesting read for a variety of reasons.

Not only because it formalizes the existence so-called “value banks” (no longer are these something of fiction or a seemingly isolated activity) but also because it puts the onus on both sides to begin what may well be a difficult conversation for all concerned.

Maybe that’s why there was no big awareness push by the MFA or AANA around this.

There was no launch event, no media release or association interviews and the framework was quietly posted on both their websites (here and here). Plus an email was sent to AANA members and the promise that this will be: “the first of a series of initiatives that will be developed to enable and encourage advertisers and agencies to reach a better understanding of the issues.”

Given the attention the topic of transparency has had in 2015, particularly in the wake of the Mediacom misreporting scandal, there was no way the release of a document that acknowledges the existence of value banks, sets rules about agency trading desks and ethics training was going to fly below the radar.

It’s big news that has implications for everybody.

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The new 243 word MFA transparency code

To be explain, briefly, who is behind this transparency push: it is The Media Federation of Australia (MFA), the peak industry body which represents almost all the major media agencies that control in excess of $10bn of client funds in a $12bn industry. Their new transparency framework has now been endorsed by the Australian Association of National Advertisers (AANA) the peak advertiser body representing major brands.

All of this is despite the ongoing insistence by the MFA that there are no wider industry transparency problems and no need for tighter regulation. 

Critics could argue that the 243 word statement has major loopholes, ignores the responsibility of both marketers and procurement in these discussions, and does not go far enough to restore trust in the wake of the MediaCom scandal which shook the industry.

But as Peter Horgan chairman of the Media Federation Australia notes, this sets a standard for these transparency conversations.

Is that standard a particularly high bar? No it is not, but as with anything built by committee and consensus what begins as horse invariably turns into a camel by the time the process has gone through its various stages.

When the alternative is no formal framework I’d personally say something – heck anything – is better than the alternative: nothing.

So what exactly does the MFA transparency framework cover?

Despite covering off a number of hot button issues: agency rebates, agency commissions, value banks, agency trading desks and ethics training, there is arguably tremendous overlap particularly in the first three points.

If we begin with the first point agency commissions the framework requires that: “Where media owners extend Agency commissions to the Agency or the Agency Holding Company they are rebated directly to clients or retained in lieu of service in accordance with the clients’ contract.”

Basically what it is saying is that if the media agency is paid a commission by the media own this should be returned to the client as per the contract.

Given most marketers have their agency on a fee for service model this is relatively uncontroversial but it’s notable that much of the framework requires clients to have rigorous contracts covering this and many other areas where an agency might get paid.

The question here is therefore simple for marketer: do you have a contract that specifically addresses the commission paid by most media owners back media agencies?

Most do. It’s in the area of rebates and ‘value banks’ that things quickly get a lot more murkier.

Value banks and Rebates 

A little over two years ago an article on Mumbrella, authored by myself, caused a bit of an industry stir after we tolled the bell on the existence of so-called “value banks” in a piece entitled: “What your media agency isn’t telling you.”

If you didn’t read it at the time check out the 50 or some comments at the end of the story for a sense of the reaction at the time. 

At the time no media agency publicly acknowledged the existence of value banks, agency volume bonifications (AVBs), media owner rebates or whatever “value” ladened term you wish to apply to what is essentially free/bonus inventory or cash rebates based on the size of the media agency’s collective client media spend.

For legal reasons at the time we couldn’t say that value banks actually existed in the Australian market and the piece was published as “fiction”.

That has since changed in the wake of the misreporting scandal GroupM admitted for the first time that it operated value banks and that its subsidiary Mediacom charged four clients for using this advertising inventory rather than passing it on at no additional cost.

Steedman

Steedman on value banks: “not illegal”

At the time, GroupM chairman John Steedman said while what Mediacom had done “is not illegal” he admitted “it is against our ethics as a business” but I also would make point that the practice of having value banks is not in itself unethical, immoral or evil.

The question for the industry – be they clients, media agencies or media owners – is around disclosure to clients big AND small, and why is it that media owners must return inventory to agencies and their clients?

Also does your media agency do any “research” for media owners and are they paid for it?

Now this brings me to the new MFA framework which defines a “value bank” as “space, time, impressions, awarded free of charge by media owners to agencies as a reward for volume commitments.”

First I’m not sure media owners, many of whom are under increasing financial pressure due to the growth of digital and increasing overseas threats, would agree with the characterisation of value bank inventory as a “reward”.

It is something that some agencies negotiate on the basis of the size of their media spend but implicitly there is the threat that if media do not provide it then agencies may move spend to their rivals and competitors.

The new framework requires that media agency must: “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.”

Again, agencies are of course obliged to follow the terms of a legal contract. The challenge has often been ensuring the contract covers all the relevant entities.

Just as the new rules on media rebates require that: “The agency or the agency holding company discloses any rebates that it receives in relation to their Australian business tied to a client’s media spend (volume or share), in accordance with the clients’ contract.”

But I would argue that clients will still need to ask important questions of their agencies such as: Outside of GroupM (which at least now acknowledges the existence of value banks) do their agencies have a position on value banks or whatever name you want to put on what is essentially a media owner discount/rebate/inventory?

If they do, how are these value banks structured and specifically which entities are involved? Is it just the media agency, the agency holding group or some obscure entity (eg. a barter company) that is given the inventory or cash?

The new UM transparency booklet

The new UM transparency booklet

For the record: in the wake Mediacom, holding groups Dentsu Aegis, Publicis and IPG Mediabrands all declined to discuss their policy on value banks, while Omnicom was willing to disclose their approach to the issue of rebates but only if the others did.

However, I would argue now that there is an industry wide statement on the practice there is again an onus on these groups to come forward with some clarity on issue, particularly at a time when some of these groups are pushing their transparency credentials hard.

Sadly I wouldn’t be surprised if we’re again met with a deafening silence.

Agency Trading Desks 

Amid the boom in programmatic this is the other major hot button in the transparency framework.

The new MFA guidelines say: “Agency trading desks operate in either a disclosed or undisclosed manner. Where clients’ elect to opt-in to the undisclosed model this is via a client contract.”

Many clients may ask what the hell opt-in, disclosed, undisclosed all means.

Essentially many agencies are asking clients that we to use their agency trading desk to sign addendums to their contract where they acknowledge that the agency is both the media buyer and media owner and in many cases will not disclose how much margin they make on inventory.

When clients “opt-in” they are giving permission to the media agency to become the vendor and saying they are ok with the potential conflict of interest that might create.

The question for media agencies on this issue is are they now the media owner? And if so is the client ok with that – particularly if they are using an “undisclosed model” where the margin is not revealed to the client?

Ethics training 

In the wake of the revelations at Mediacom that staff deliberately faked campaign audience reports for three of its biggest clients for at least two years the MFA was under pressure to show it had moved to address the risk of a repeat incident.

The new rules say: “Agency staff members are required to undertake training on the Agency’s ethics/anti-fraud corporate protocols at induction and at least every 24 months.”

This is a good step but I would question if a two year gap between drinks is sufficient particularly when a 30 per cent plus agency churn rate means bad practice can potentially spread fast.

Also what other steps, safeguard, checks are agencies introducing to protect clients from “a rogue trader”?

More will likely need to be done on this question in the long term.

The broader questions 

If there is one major hole in this framework to my mind is it the complete absence of the focus on clients and their procurement departments’ responsibilities.

Yes this is a media agency framework but the reality is relationships are a two-way street and clients aren’t blameless in the lost of trust.

Too many horror stories persist: agencies being screwed on price, agencies going on performance structures only for the client to refuse to pay when they perform, clients demanding value bank inventory and not caring where it comes from.

The biggest question that stands out in this framework to me is for clients and it is: are you paying your agency enough?

At Mumbrella we often sit on the intersection of a lot of these conversations and the narrative we hear is that the answer is no, which is why agencies look for ways to get paid through their value banks, rebates and increasingly agency trading desks.

There is real anger among agencies at procurement and consultants who help them negotiate. If you don’t believe it, check out the procurement session comment threat from last week’s SAGE event.

Now I’m not blaming any one party, everyone be they client, agency and even media owners (who are also complicit in valuebanks) have some responsibility.

This framework is a first step but it certainly shouldn’t be the end of the transparency conversation or the obligation on all sides to work to improve the current situation.

Nic Christensen is the deputy editor of Mumbrella. 

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