Numerous non-transparent business practices, including cash rebates to media agencies, were found to be pervasive in a sample of the U.S. media ad-buying ecosystem
Share this post
The assessment was conducted between October 2015 and May 2016 by K2 Intelligence, an industry-leading investigative, compliance, and cyber defence services firm. The 58-page study reveals "evidence of a fundamental disconnect in the advertising industry regarding the basic nature of the advertiser-agency relationship".
The non-transparent business practices employed by agencies, some of which may or may not have been contract-compliant, include the following:
- Cash rebates from media companies were provided to agencies with payments based on the amount spent on media. Advertisers interviewed in the K2 Intelligence study indicated they did not receive rebates or were unaware of any rebates being returned.
- Rebates in the form of free media inventory credits.
- Rebates structured as "service agreements" in which media suppliers paid agencies for non-media services such as low-value research or consulting initiatives that were often tied to the volume of agency spend. Sources told K2 Intelligence that these services "were being used to obscure what was essentially a rebate."
- Markups on media sold through principal transactions ranged from approximately 30% to 90%, and media buyers were sometimes pressured or incentivized by their agency holding companies to direct client spend to this media, regardless of whether such purchases were in the clients' best interests.
- Dual rate cards in which agencies and holding companies negotiated separate rates with media suppliers when acting as principals and as agents.
- Non-transparent business practices in the U.S. market resulting from agencies holding equity stakes in media suppliers.
These were found across digital, print, out-of-home and television media. In addition, the non-transparent practices were found to exist across the spectrum of agency media entities.
The report included detailed source accounts from dozens of confidential, personal interviews as well as documentary evidence. Due to the confidential nature of the assessment, the report does not specifically identify any companies or individuals. This was consistent with the original directives of the study.
"Advertisers and their agencies are lacking 'full disclosure' as the cornerstone principle of their media management practices," said Bob Liodice, president and CEO of the ANA. "Such disclosure is absolutely essential if they are to build trust as the foundation of their relationships with their long-term business partners."
In response to the ANA transparency report, Stephan Loerke, WFA CEO, said: "Advertisers should take the lead in addressing the challenge but WFA also believes in, and calls for, global cross-industry collaboration to find answers. That's why we have been conducting systematic dialogues between media agencies and clients around the world to better understand the issues and ultimately try and engender greater trust in the marketplace."
More information about the ANA report can be found here.