Transparency Rules: Not So Clear

18 Mar

digital trading deskThe hot topic thus far at the American Association of Advertising Agencies (4As) “Transformation” conference in New Orleans has been in and around agency charging practices for their digital trading desk operations.

It would appear as though the panel of agency digital media experts fell into one of two camps:

1) Arbitrage and profiting on the spread between actual inventory cost and client authorized plan costs is an acceptable way for agencies to recoup the investment they make in digital technology support and there is no obligation to share true cost data with clients.

2) Agencies should fully disclose the cost of the original inventory and any fees or commissions charged to clients in association with an agency’s procurement of that media.

Over the course of the last three to five years, virtually every agency holding company has launched a digital media “trading deskoperation focused on the procurement and in some instances re-selling (arbitrage) of online advertising inventory.  Evolved from the early days of demand side platforms, agencies have layered on significant data analytics capabilities that allow the trading desks to select the most appropriate inventory/ audiences for their clients in a real-time-bidding (RTB) auction environment.  No one disputes the value of that capability and its role in securing optimized inventory at the right price.  The questions surface around the transparency into the true cost of that inventory and whether it’s purchased for all the right reasons.

Theoretically, agency holding companies present their trading desk clients with agreements that specify the type of buying practices employed by the trading desk operation and the fees associated with that service.  Practically speaking, in our agency contract compliance audit practice, seldom have we seen separate agreements executed for this service nor have existing letters-of-agreement (LOA) been modified to reflect the terms of engagement for this aspect of an agency’s media buying offering.

Separate from the 4A’s conference, Rob Norman, Global Digital Chief of GroupM presented an interesting perspective in an interview with Ad Age when he referred to their policy on trading desk charging practices as “transparent, but not disclosed.”  In the end, this may be the most practical approach to the debate on this topic.

For savvy advertisers who seek full-disclosure on all aspects of the relationship with their agency partners and 3rd party vendors this is a discussion that they need to have prior to authorizing the agency to engage their trading desk on their behalf.  On the other hand, for advertisers who believe that they are receiving superior online ad inventory pricing and that the results of the effort are consistent with expectations, they may be comfortable forgoing insight into the cost of the original inventory.  The point is, that these are conversations that should be had upfront between the advertiser, agency and trading desk.  Any decisions made with regard to agency/trading desk remuneration, 3rd party vendor disclosures and transparency requirements on behalf of the digital trading desk process and performance should then be incorporated into the LOA.

While it would be convenient if there were published industry guidelines on this issue and others related to contract and compensation topics ranging from the composition of agency overhead rates to standard ranges for fee multipliers and full-time equivalent definitions, the fact is there are no standards.  Thus, advertisers must enter into all agency agreements with their “eyes wide open.”  Caveat emptor.

An agency can best serve the needs of their clients and their proprietary interest by initiating these conversations, sharing the agency’s philosophy on the practice in question and discussing options that are available to the advertiser within the context of that agency offering.  There is nothing to be gained by suppressing dialog on topics such as trading desk charging practices and transparency.  In fact, having these conversations surface after work has been begun can call into question the agency’s trustworthiness and or loyalty.

So if you’re an advertiser that has engaged your agency partner’s expanded service offering whether in the form of digital trading desks, in-house studios, programming procurement or production, poster specialists and or barter, check to make sure that you have a current binding agreement in place that affords you the desired level of protection, control and transparency.

If you would like a complimentary consultation to discuss agency contract “Best Practices,” contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com.

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