Report details results of eight-month investigation without naming namesThe report is based on the findings of an eight-month investigation by corporate-investigation firm K2 Intelligence. The report claims to be based on interviews with 150 sources between October 20, 2015, and May 31, 2016, although authors did not reveal the identities of any single source or organization.
Fifty-nine of those sources detailed involvement with non-transparent business practices. The report claims that opaque business practices were found at both agency-holding corporations as well as some independent agencies, and extended across digital, print, television and out-of-home media.
Non-transparent business practices outlined in the report include:
Agencies received rebates from media companies that were not revealed or passed onto advertisers.
“K2 interviewed 41 sources who reported that media rebate deals occur in the U.S. market. Of those 41 sources, 34 reported indicia that the rebates were not disclosed to advertisers, were not passed through to advertisers, and/or were demanded by agencies. K2 also obtained corroborating documentary evidence of rebates, including e-mail threads and contracts between media suppliers and media agencies. This collective body of evidence showed a range of instances in which media suppliers paid rebates to agencies, or entities affiliated with those agencies, in amounts ranging from 1.67% to approximately 20% of aggregate media spending, depending upon the deal. K2 identified several cases in which the percentage of the rebate owed increased along with agency spend.”
Contact terms between some agencies and advertisers allow agency holding companies to resell media time purchased in advance at a markup.
“Many advertiser-agency contracts contain “opt-in” provisions that permit the agency to engage in certain principal transactions with advertisers. In a principal transaction, an Agency Holding Company essentially acts as a media supplier by purchasing media on its own behalf and then reselling it at a markup. When an agency within the Agency Holding Company sells the media to an advertiser, the original purchase price—as well as other potentially relevant information—is not disclosed. According to information provided to K2, markups on media sold through principal transactions can range from approximately 30% to 90%. Sources also indicated that media buyers are sometimes pressured and/or incentivized by their agency holding companies to direct client spend to this media, regardless of whether such purchases are in the clients’ best interest.”
Some agencies owned by holding companies that also control media channels are pressured to purchase advertising through those suppliers
“Several former senior-level agency employees reported that they felt pressure from the senior executive level of agency groups or agency holding companies to direct spend to companies in which the agency or holding company held an equity investment.”
Evidence suggesting advertisers and agencies view their relationships in different ways, with advertisers assuming agencies are bound to act in their best interests, while agencies only feel obligated to honor contact terms.
“In general, advertisers expressed a belief that their agencies were duty-bound to act in their best interest. They also believed that this obligation—essentially, in their view, a fiduciary duty—extends beyond the stated terms in their agency contracts. While some agency executives expressed similar beliefs, others told K2 that their relationship to advertisers was solely defined by the contract between the two parties. Some sources further noted that their obligations to their respective agency holding companies were sometimes in conflict with the interests of their clients.”
The report also claims to find evidence that this practices encompassed standard operating procedure at several agencies, concluding, “specifically, K2 found evidence that senior executives at agencies and agency holding companies were aware of and even mandated some non-transparent business practices, suggesting high-level buy-in. K2 also found evidence that contracts for rebates and other non-transparent business practices were negotiated and sometimes signed by agency executives.”
In a press release, ANA president and CEO Bob Liodice says the findings show, “Advertisers and their agencies are lacking ‘full disclosure’ as the cornerstone principle of their media management practices. Such disclosure is absolutely essential if they are to build trust as the foundation of their relationships with their long-term business partners.”
The findings outlined in the report are sure to create shockwaves throughout the industry. Maurice Levy, CEO of Paris-based advertising and public relations company Publicis Groupe, called the report an “unfair and an unwarranted attack on the entire industry” in a letter written to fellow CEO Bill Koenigsberg of media buying firm Horizon Media. The letter, which was obtained by the Wall Street Journal, says the report carries the “potential to cause great financial and reputational damage” to the ad business.
new by; https://www.ama.org
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