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We Know We Should Audit, But…

30 Mar
Hesitation

We’ve all seen the look on the face of an anxious toddler as they prepare to jump into the waiting arms of a parent in a pool.

The child wants to leap, knows there is little risk, trusts their parent and knows that the feeling of satisfaction related to their action will far outweigh their apprehension, yet they hesitate to take the plunge. This scenario can be analogous to organization’s considering an independent contract compliance audit of an advertising agency partner.

Managers’ go through a series of considerations when weighing whether or not to conduct an agency compliance and financial management review, including:

  • It’s not that we don’t trust our ad agency partners
  • It’s not that we don’t believe our agencies are putting forth their “best efforts” to safeguard our marketing investment
  • It’s not that we don’t have confidence that our marketing team is effectively safeguarding our marketing budget

But…

  • We have never audited this aspect of our SG&A
  • Marketing spend is a material expense
  • Our C-suite executives are asking questions regarding risks and controls
  • Over time, our agency roster has grown and spending has increased
  • We read the trade press and are concerned about fraud, brand safety, adherence to fiduciary standards and the like

In the end, Finance, Procurement and or Internal Audit leadership know they should undertake this important risk reducing work. They also realize that an outside specialists provides valuable industry expertise. Yet, they often cannot get to “yes.” 

Why the hesitation? The reasons are many; Marketing indicates that the timing is not right, we don’t have the budget, we’ve conducted internal reviews ourselves, our agency is a trusted partner, we’re considering transitioning agencies… and the list goes on.

The good news is that all rationale cited for not moving forward with comprehensive testing of  ad agency partner billings, costs and contract compliance can be readily addressed. The audit process is not time consuming, poses no relationship risk, is allowed for in the client-agency agreement, and most importantly the benefits far outweigh the cost / risk of the audit not proceeding.

Audit results yield a combination of historical financial recoveries tied to billing errors, unauthorized mark-up, unreconciled jobs, and outstanding credits.  Financial true-ups and learning far outpace the initial audit investment. And most importantly, the work yields forward looking process improvement, contract language improvement, financial refinement, and risk mitigation opportunities to generate cost savings and peace of mind.

With proper oversight, we have seen concerns regarding agency accountability replaced with a sense of trust and confidence. Key benefits in a market sector noted for its lack of transparency, murky supply-chains and lack of trust.

Where does your organization stand on this important accountability practice? Perhaps the words of Daniel Wagner, a widely published author on current affairs and risk management, can embolden organizations to take the prudent action:

“Some risks that are thought to be unknown, are not unknown. With some foresight and critical thought, some risks that at first glance may seem unforeseen, can in fact be foreseen. Armed with the right set of tools, procedures, knowledge and insight, light can be shed on variables that lead to risk, allowing us to manage them.” 

Agency Audits: An Advertiser “Right” Not Yet a Standard Practice

26 Jan

dreamstime_xs_7828625For most organizations, the “Right-to-Audit” is a staple in their advertising agency agreements. Worded properly, this important contract language provides the company an opportunity to periodically check ad agency compliance with contract terms, review financial support that should agree to agency billings and to otherwise evaluate various performance metrics.

Yet despite the inclusion of this vital risk management clause and the rights that it confers, far too few organizations actually follow through to perform the testing which would otherwise provide stakeholders with comfort that agency billings are accurate and true.

So, why don’t advertisers audit their agency partners?

One might logically deduce that all clients would periodically review agency compliance, financial management and performance given:

  • The materiality of spend levels.
  • Limited insight to whether agencies are accurately reconciling estimated invoices to actual costs.
  • The complex, multi-layered supply chains, especially in digital media.
  • The well-publicized news of the ad industry’s ongoing challenges with transparency and fraud.

Aside from mitigating financial risk that could be eroding marketing expense effectiveness, another benefit of agency compliance testing is that it can help allay client-side stakeholder (marketing, finance, internal audit, procurement) concern and further build trust. Trust is crucial, particularly clients are relying on agency partners to fulfill their fiduciary and legal responsibilities in stewarding their advertising funds.

In addition, the level of trust between advertisers and their agency partners has been under siege. Consider ID Comms 2018 Global Media Transparency Survey where only one in ten respondents indicated that their “relationship with their agency or advertising client was trusting.” Further, 40% of respondents believed that trust levels were “average” compared to 52% in ID Comms 2016 survey.

We see first-hand where contract compliance and financial management audits identify and address gaps in understanding, controls and reporting that negatively affect client spend effectiveness and erode agency margins. Whether financial definitions, billing basis, fee calculations, project briefing, the approval process, rework levels, custom reporting requests, and or payment timing issues, audits can provide a prescriptive for positive change to benefit all stakeholders.

In our practice we see three principal reasons why the right-to-audit is not employed often enough – and therefore has become much less effective as a control than necessary:

  1. No clear ownership who is responsible for the Audit function in the context of marketing.
  2. Lack of a formal budget allocation process for assurance and risk mitigation for marketing and advertising spend.
  3. Limited organizational understanding of risks related to the advertising category.

As a result, clients continue to invest billions of dollars annually through their agency partners in spite of never verifying whether there are proper controls and regulations to safeguard those funds and optimize the efficacy of their investment. The need is real. Building effective verification and monitoring tools into client-agency relationships cannot be viewed as an option, but rather a prerequisite.

Fortunately, if the will is there on the part of client organizations, the solution is relatively straight-forward.

  • Responsibility for the checking agency financial compliance cannot rest solely with the marketing team. Finance, internal audit and procurement each have a role to play in the process.
  • Setting up a rotational audit program for each of the organization’s audit partners is paramount. Funding the effort through marketing, finance or internal audit budgets can ensure that the program will be executed as designed.
  • Establishing direct relationships between client-side finance and agency finance personnel greatly enhances an advertiser’s line-of-sight into the disposition of their funds at each phase of the advertising investment cycle.
  • Develop a relationship with a co-source supplier with deep marketing audit expertise.

Enhancing an advertisers control framework to include the regular review of their agency partners’ client accounting practices and controls along with their contract compliance to contract terms will inevitably mitigate risks and lead to better management of this important investment. In the words of Simon Mainwaring, brand futurist and businessman:

“The keys to brand success are self-definition, transparency, authenticity and accountability.”

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Marketers That Don’t Have Formal Assurance Programs Are At Risk

27 Sep iceberg risk

For most companies, marketing spend can be considered a material expense, often running at 5% or more of annual revenue. Yet, a majority of these organizations have not included marketing in their corporate governance and risk mitigation efforts, conducting limited or no supplier compliance, financial management and performance testing.

Given the complex nature of the marketing and advertising space, the less than ideal levels of transparency and the murkiness of advertiser supply chains, this creates a precarious situation.

It must be noted that this is an industry which is largely predicated on the concept of “estimated billing,” where advertisers are invoiced in advance for approved activity by their agency partners. These funds are then disbursed over time by the agency to third-party vendors or realized as agency revenue in accordance with remuneration agreement terms. An underlying tenet of this billing model is  that estimated costs are “trued up” to reflect actual costs incurred once a job is closed, supplier invoices tallied, and an agency’s time-of-staff investment is fully posted. However, reconciliation efforts do not always occur and approved but unused funds, for which advertisers have been billed, are not always returned in a timely manner or at all.

Many Client/ Agency contracts contain solid control language to protect the advertiser and to provide explicit financial management and reporting guidelines to their agency partners. That said, many agreements are outdated and do not contain the requisite terms and conditions necessary to adequately safeguard an advertiser’s marketing spend. Ironically, good contract or not, too few organizations review supplier compliance with agreement terms or conduct financial and performance reviews of their agency partners… even though most agreements provide advertisers with the right to audit the agency to review the financial documentation that supports the agency’s billings.

In our experience, advertising agencies expect their clients to conduct periodic compliance and performance testing. The fact that more companies are not following through on their audit rights is a mystery. Why should testing be performed? Because periodic compliance reviews drive accountability and improve transparency, addressing questions such as:

  • Did we get what we paid for?
  • Were we charged the appropriate rates for the work performed?
  • Were third-party expenses billed on a pass-through basis, net of any mark-up?
  • Did the agency reconcile fees to reflect its actual time-of-staff investment?
  • Were third-party vendors paid in a fair and timely manner?
  • Were agency and third-party vendor billings accurate?
  • Are future projects being estimated and approved using accurate historical information?

Beyond providing financial management assurance and recoveries, compliance testing identifies gaps in control, yields recommendations for improving contract language and reporting and can drive process enhancements that result in future savings.

In the end, sound Client/ Agency agreements backed by a formal risk mitigation program can protect a company’s marketing investment, converting risk control measures into business growth opportunities. This, while driving accountability and providing company stakeholders with a sense of trust and confidence that its marketing team, agency partners and third-party suppliers are properly stewarding the funds entrusted to them.

Compliance Programs Can Transform Marketing

24 Jun

compliance-rulesCompliance is a cost of doing business, and companies invest appropriately in compliance and risk management programs and policies. Many have even been successful at elevating compliance to “cultural ethic” status.

That said, few organizations have risk-management frameworks in place for their marketing and advertising spend. Why?

Consider that the marketing and advertising expenses are material to the financial statements. Further, marketing represents a critical link to building brands and driving revenue. If not managed properly, dollars invested are lost to fraud and non-transparent advertising supply-chain practices, lowering working dollars and leading to declines in marketing efficiency. These factors help to underscore the necessity for compliance risk mitigation coverage in this area.

Allaying risks aside, we have been fortunate enough to witness the transformative power of compliance audit work and financial management oversight programs for advertisers. Benefits have included financial recoveries, cost reductions, improved efficiencies and enhanced revenue generation.

Best of all, technology advancements combined with sound compliance frameworks and proven audit work processes afford organizations the opportunity to efficiently conduct comprehensive, periodic reviews of their marketing services agency network. In our experience this is readily achieved without disruption to client-agency workflows or performance.

Aside from the financial benefits, a structured marketing and advertising compliance program can instill a sense of confidence among all stakeholders that advertising related risks are being monitored and continuously mitigated. Additionally, concerns, questions and the unknown regarding a marketer’s ad agency network, are replaced with a sense of trust and confidence. This is a compelling outcome given the important role that an advertiser’s agency partners play.

In the wake of the COVID-19 crisis, marketers will face a myriad of challenges in meeting their organization’s performance expectations. The combination of an uncertain future regarding the consumers’ return to “normal” consumption patterns and behaviors and budget reductions will require a disciplined approach to planning and resource allocation efforts… not to mention the need for flawless execution.

Embracing compliance and extending enterprise initiatives in this area to include marketing and advertising will mitigate risks and boost the return on marketing investment. In the words of former U.S. Navy Seal and NY Times bestselling author, Brandon Webb:

“Being a Navy SEAL and sniper taught me all about risk management. Take away all the risk variables under your control and reduce it to an acceptable level. The same fundamentals apply in business.”

 

Time for a Financial Review?

26 Jul

knowledge and ignorance puzzle pieces signdreamstime_xs_53502419

Really?

No triple bid.

No staffing plan.

No reconciliation.

Fixed fee

100% advanced billings.

Slow job cost reconciliation.

Poor Agreement language.

Old Agreement.

No examples / templates.

No breakout of retainer vs. out-of-scope fees.

No agency reporting of costs / hours.

Programmatic supply chain not understood.

Use of in-house agency services, no rate sheet.

Use of in-house agency services, not reconciled.

Freelance billed at full retainer rate.

Interns billed at full retainer rate.

Credits held.

Low Full Time Equivalent basis.

High Rate per hour.  No fee detail.  Non arms-length use of affiliate.

Mark-up applied.

Float.  Kick-back.  Favored expensive suppliers.

Duplicate charges.

Time reported doesn’t match time system.

Overpayments.

Luxurious Travel.

Gifts.

That’s the short list.

Don’t let this happen to your critical marketing dollars.

Update and lock down financial terms in Agreement.

Tighten up definitions.

Enhance Agency reporting required.

Perform routine spot checks.

Follow the money to the ultimate end user.

Vet Agreement with ANA template.

Ask the Experts.

Maintain consistence of control and visibility across the Marketing supplier network.

Maintain trust but validate Agency financial activity.

Strengthen the Agency relationship through understanding and alignment.

Really.

 

Don’t Start There

25 Jul

contract complianceMost would agree that the days of conducting business on a handshake are long gone. Make no mistake, honesty, forthrightness, trust and respectability are still qualities that we look for in our professional relationships. However, when it comes to transacting business the protection afforded to all parties is greatly enhanced with the use of a contract versus a verbal agreement marked by a handshake.

A verbal contract isnt worth the paper its written on.” ~ Samuel Goldwyn

The good news when it comes to the advertising industry, most client-agency relationships are governed by a contractual agreement. That said, there is one common mistake made by many advertisers when it comes to contracting with their agency partners… they start with the agency’s base contract.

Unfortunately, this creates a handful of challenges beginning with the fact that by its nature, agency contract templates are not client-centric. Then, when the advertiser turns the draft agreement over to counsel for review the document will likely require major modifications or, depending on counsel’s degree of advertising industry knowledge, there is a risk that key terms and conditions, which safeguard the advertiser’s interest will not be included in the agreement.

For advertisers, getting the contract “right” is important for two reasons. Firstly, the client-agency agreement establishes the legal nature of the relationship (e.g. principal-agent), while clearly articulating both stakeholders’ roles, responsibilities and rights. Secondly, the agreement establishes expectations and guidelines related to key aspects of the relationship, including; agency performance, staffing, remuneration, reporting, audit and record retention and intellectual property and data rights.

Over the course of the last several years the nature of client-agency relationships has certainly evolved with the advent of emerging technologies, changes in the regulatory environment and a move away from principal-agency relationships, which once held agencies to a much higher fiduciary standard. Thus it comes as no surprise that the complexity of the legal agreements that govern these relationships has increased dramatically.

Larger advertisers certainly benefit from working with marketing procurement departments and in-house counsel that are adept at contracting with a myriad of marketing vendors. Many organizations have developed standardized marketing vendor Master Services Agreements (MSAs) that can be used across their agency network, with some modification. These are typically “evergreen” agreements that don’t need to be renegotiated on an annual basis. Complimentary annual Statements of Work (SOW), which include key deliverables, agency staffing plans and remuneration program details are designed to be reviewed every year.

Additionally, the Association of National Advertisers (ANA) and The Incorporated Society of British Advertisers (ISBA) have both developed comprehensive, client-agency contract templates for use by their members that reflect industry “Best Practice” trends in this area. For small advertisers, or relationships with smaller, independent agency partners, the ANA and ISBA contract templates may not be wholly appropriate, but will provide a worthwhile guide for key terms and conditions that will certainly be applicable.

In our experience, advertisers will be much better served by taking this approach as opposed to accepting or attempting to retro-fit an agency’s base contract.

Of course, once the contract has been executed, marketing and advertising team personnel have an obligation to their organizations… monitoring contract compliance and financial management across each of their agency partners. The first step in this process, one which is often overlooked, is to socialize the agreement. Since an agreement is intended to serve as the basis for the client-agency relationship, it is important to share a summation of this agreement with those client-side individuals responsible for managing these important relationships.

As it relates to ongoing contract compliance monitoring tactics, these can include the tracking and reviewing agency time-of-staff commitments, retainer fee “burn” rates, budget control and project status reports and annual fee reconciliations. Progressive advertisers compliment these efforts with periodic business review meetings (i.e. quarterly or semi-annually) and by conducting independent agency contract compliance audits every year or two.

Good contracts can be the building block for great relationships. The time and effort invested in fashioning them and insuring compliance to them will yield dividends and across an advertiser’s agency network.

 

 

 

 

Advertisers Beware: Agency Margin Optimization Efforts

19 Apr

Traffic LightIt was with great interest that I read an article on Digiday dealing with “key issues” facing ad agencies and, ostensibly, the “agency model” ranging from transparency to in-housing.

Masked behind the author’s perspective that transparency comes at a high cost was the reality that marketers remain at risk to the predatory non-transparent revenue practices applied by certain agencies.

Why? With marketers demanding more transparent ad buying practices and transitioning certain tasks and or ownership of elements of the tech stack in-house, agency gross margins are under pressure. In turn, this has created an environment where agencies attempt to make up for the margin shortfall from clients that don’t actively monitor agency contract compliance, financial management or media performance.

Of note, one anonymous agency executive went so far as to suggest that some agencies use a “traffic-light system to determine how knowledgeable the procurement teams at clients are.” This guidepost allows the agencies to assess how much margin they can make on a given account.

This certainly reinforces the reality of the old adage; “Where there is mystery, there is margin” and signals the importance for all marketers to get up to speed on both the potential benefits and the pitfalls related to their digital and other advertising investments. For client organizations, most of which do not have the bandwidth or subject matter expertise in-house, engaging an independent contract compliance or media performance auditor or consultant could greatly help to mitigate risks in this area.

In spite of the potential for efficiencies that fueled the rise of programmatic media buying, what we have all come to realize is that the costs related to algorithmic, machine-to-machine buying have far outweighed these efficiencies. One dynamic, which drives costs is the number of agent firms involved in a typical programmatic digital media buy and the fees that each charge for their role. Below is an overview of typical fees or mark-ups that are charged by those on the demand-side of a programmatic transaction.

Digital Dollar

Source: Industry Experts

As is readily apparent, the dollar dissipation that occurs between the advertiser’s initial investment and the money that actually ends up with the publisher is significant. Industry studies have consistently shown that less than forty cents of each digital dollar invested makes its way to the publisher.

To combat this trend, rightly or wrongly, marketers have focused on reducing the number of intermediaries and the fees charged by each, with the goal of improving working media ratios and ultimately the performance of their digital campaigns. Thus, the agency margin squeeze.

That said, the agency practice described in the aforementioned Digiday.com article of taking advantage of unsuspecting, less knowledgeable clients to make up for the margin lost on those that have moved to transparent buying models, is neither appropriate nor sustainable. Agencies conducting themselves in this manner may want to reflect on the words of the renowned physicist, Stephen Hawking:

Intelligence is the ability to adapt to change.”

This is particularly true given the competitive inroads being made by the management consultant and tech consultancies that are focusing on the digital media segment of the market. The best path forward for agencies is to actively engage their clients in an open dialog about mutually beneficial remuneration methodologies.

In our opinion, it is right and just to eliminate the potential for media arbitrage, non-disclosed fees, no charge media weight and volume-based rebates that often accrue to agencies, and much of the time without the advertiser’s knowledge. Further, we also don’t believe that clients are obligated to make up the gap in lost agency revenue tied to transparency reforms. That said, we are fully supportive of an agency’s right to earn a fair and reasonable profit and to have the potential for incremental gains tied to extraordinary performance.

Near-term, the best way to balance an advertiser’s quest for transparency and an agency’s ability to generate a reasonable profit will likely be a compensation schema that incorporates a base fee using a direct-labor or cost-plus methodology with an outcome-based performance incentive. This approach is particularly apropos for advertisers that are leaning toward a managed-service model. With this approach, ownership of the tech stack and or tech platform licensing agreements transition from agency to advertiser; and the agency is then engaged to oversee the digital planning, buying and ad operations chores associated with programmatic media.

Does Your Organization View Marketing Spend as a Material Expense?

2 Mar

digital mediaWhile on the surface this seems like a nonsensical question, advertiser indifference toward independent contract compliance, financial management and performance auditing of their agency partners might suggest an answer that would surprise you.

According to The CMO Survey conducted by Deloitte, Duke University’s Fuqua School of Business and the American Marketing Association in February of 2018, companies surveyed spent on average 10.3% of their annual sales on marketing. This would certainly qualify as a “material” expense in our book, particularly when one considers that this investment is being made to build brand equity, establish customer loyalty and to drive demand generation.

So why do so many advertisers take a laissez-faire (French term that translates as “leave alone”) attitude toward basic governance and assurance practices related to their marketing spend?

Is it the belief that a tight client-agency agreement provides the requisite safeguards and controls? Perhaps it is because of an unyielding level of trust in one’s agency partners, intermediaries and third-party vendors exhibited by an organization’s C-suite.

Based upon our experience over two decades of providing contract compliance support to some of the world’s leading advertisers we know that this is not the case. Marketers recognize that the industry is fluid and that the breadth and rapidity of change is such that contract language needs to be reviewed and updated on a frequent basis. Similarly, while advertisers certainly trust their agencies, there is also a core belief in the concept of “trust but verify.”

No, we believe that the reason for the laissez-faire approach to marketing accountability is the fact that no one function “owns” this task organizationally.

In our experience, few marketing departments willingly invite independent scrutiny of their marketing and advertising practices, controls and or the performance of their agency networks. If such examination is not mandated corporately, it will likely not be initiated by marketing. Similarly, the procurement organization is typically focused on screening, vetting and contracting with current and potential marketing vendors. Many procurement teams recognize the value of periodic agency audits, but as “support” departments they rarely have the budget to self-fund such accountability initiatives. The same is true of Internal Audit and their ability to underwrite the cost of audit projects in this area.

In many instances, procurement and internal audit leaders will approach marketing and ask for their participation in and funding for a governance and assurance initiative, but too often this is proffered on a voluntary basis. Unfortunately, this scenario rarely leads to a marketing accountability and transparency review. Thus, in the end, if an organization doesn’t mandate periodic examinations or the ongoing monitoring of its marketing investment or provide funding for such an initiative to its procurement and internal audit team(s) than it may be “flying blind” when it comes to safeguarding its marketing investment.

The irony, as progressive marketing organizations have learned, is that a formal governance and assurance program, which includes marketing, provides financial returns that more than pay for the cost of the attendant independent examinations. Further, the resulting improvements in contract language and process related learnings yield efficiency gains for clients and agencies alike and the resulting transparency gains can serve as the impetus for improving the level of trust and ultimately the relationship between these partners.

With an admitted “pro audit” bias, we can state unequivocally that our experience over the course of two plus decades of providing contract compliance and financial management audit support to advertisers, our belief in the old saying; “In god we trust, all others we audit” has never been stronger.

 

Compliance Auditing: The Path to Building Client Trust

26 Oct

Accountability Final“Trust is the one thing that changes everything” ~ Stephen Covey

In the context of client / agency relationships, transparency simply means removing any element of doubt. Whether in the context of an agency’s earned revenue, billing accuracy, net payments to third-party vendors or the agency’s resource investment on behalf of a client.

The best means of achieving transparency is through an agency contract compliance and financial management audit and or the implementation of a continuous performance monitoring program focused on these aspects of the relationship.

After all, the marketing investment made by most advertisers is material and often ranks as one of, if not the largest SG&A expenditures. Which is precisely why marketing budgets are currently drawing more C-Suite attention from finance, procurement and internal audit personnel, working in conjunction with their peers in marketing.

This type of cross-functional oversight is a good thing. Particularly when striving to build a unified team by earning each other’s trust across the organization. Additionally, experience has shown that sound enterprise accountability and assurance programs can create value for all parties:

  1. Client financial team members benefit from the specific knowledge as to how their marketing dollars are being managed at each phase of the marketing investment cycle.
  2. Procurement gains insights related to the organization’s return on agency fee investment, optimization of contract language and opportunities for potential future cost avoidance initiatives (not related to agency fees).
  3. The internal audit group gains confidence in knowing that contract terms and organizational controls are being adhered to and if not, that actions are being recommended to shore up potential gaps and risks.
  4. Marketing gains feedback on the agency’s financial management performance, while identifying opportunities for process improvements that can boost the efficiency and effectiveness of their marketing investment.
  5. The agency benefits from direct feedback on their performance in this important area, the opportunity for interaction with and exposure to a broad cross-section of senior client management and the trust and associated confidence that comes with receiving a solid “report card.”

Over time, agency contract compliance and financial management performance audits have evolved in a manner which has yielded in-depth institutional knowledge and feedback that greatly assists advertisers in stewarding their marketing organizations and agency network partners. This is occurring during a period of time where the complexities of the advertising and media marketplace have expanded significantly, increasing an advertiser’s risk / reward considerations. 

Of late, there has been significant industry concerns relating to the questionable transparency relative to the disposition of an advertiser’s investment. How much money flows through to third-party vendors versus what is retained by the agency? What percentage of activity is directed to the agency’s affiliates or holding company, without client insight or approval rights? Is the agency earning excessive float income on the client’s marketing spend?

Rightly or wrongly, in the wake of these concerns, advertising agencies have found themselves all painted with the same broad brush of operating under an opaque modus operandi. This in turn has raised the specter of mistrust among many on the client-side, which has had negative implications on the strength (and length) of client-agency relationships. Needless to say, this is not a healthy dynamic for generating above average in-market results, solid returns on marketing investment, fair and fully disclosed agency remuneration levels or in building strong relationships.

Time and time again, we have seen clients and agencies alike benefit from the investment in compliance audits and the sustained comfort levels that come with ongoing performance monitoring programs. The chief benefit to both parties is the assurance of knowing that the advertiser’s investment is being well managed by their agency partners and the insight to fuel future process improvements.

In the end, these programs represent the quickest and most economical path to restoring trust between clients and their agencies, allowing both to focus on building strong brands and increasing demand generation. In the words of author Joel Peterson:

“Trust doesn’t just happen. It takes initiation, nurture, evaluation and repair.”

3 Thoughts on Facebook’s Video “Watch Time” Issue

3 Oct

facebookFrom an advertiser’s perspective, there were three things that stood out in the wake of Facebook’s recent disclosure that it had mistakenly overstated average video ad watch times.

First and foremost, the miscalculation was not uncovered by the advertising agency community. Given the dollar volume being committed to Facebook, whose digital ad revenues will eclipse $6.0 billion, it would be fair to assume that ad agencies had a fiduciary duty to verify/investigate Facebook’s performance monitoring methodologies prior to investing their clients’ media dollars. The fact that Facebook had not embraced industry standards and asked the Media Rating Council (MRC) to accredit its performance metrics should have been the hot topic of conversation prior to Facebook’s disclosure, rather than after the fact. Ironically, in the wake of this disclosure, WPP stated that the mistake “further emphasizes the importance and need for third-party verification of all media — not only to verify trading terms but also to verify performance.” So if agencies truly felt this way, why wasn’t this standard not being applied here-to-for?

Secondly, it would appear as though the agency community is somewhat fearful of Facebook. Too many agency executives spoke to the trade media on the basis of anonymity rather than overtly stating their personal and or their company’s perspective on both the inflation of the viewing time metric and the need for accreditation. This seems an odd dynamic given the percentage of digital media spend represented by the “Big 4” agency holding companies. Advertisers might rightly expect that the scale of these entities would offer them some level of leverage and protection when interacting with media sellers. This is apparently not the case.

Thirdly, advertisers need to put a stake in the ground when it comes to media transparency and performance authentication. Self-reported performance indicators, such as Facebook’s average video watch time, cannot be the basis upon which they invest their media dollars. If a media seller has not had its delivery and performance metrics audited and accredited by an industry accepted resource such as the MRC, IAS, Nielsen or comScore for example, then they should be excluded from the media investment consideration equation.

The Association of National Advertisers (ANA) CEO, Bob Liodice appropriately addressed this issue when the ANA issued the following statement: “ANA does not believe there are any pragmatic reasons that a media company should not abide by the standards of accreditation and auditing” calling this important step “table stakes” for digital advertising.

The issue with the misstatement of the video ad watch times is not whether or to what extent the :03 second watch time threshold was utilized by ad agencies to assess Facebook’s performance. Quite simply, the issue is that self-reported performance metrics are unequivocally no substitute for independently audited outputs.

For anyone to suggest that the miscalculation is really no big deal, because it is a metric that is not utilized when considering the purchase of video advertising on Facebook, is misguided. The lack of transparency, further compounded by the media seller’s lack of adherence to industry standards when coupled with the self-reported inflated viewing times can and did wrongly influence agency and advertiser decisions. Thus, raising the all-important question: “Absent an independent audit, what portion of Facebook’s self-reported performance metrics can an advertiser trust?”

 

 

 

 

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