Archive | Contract Compliance Auditing RSS feed for this section

Keeping Pace with the Rate of Change in Ad Industry Can be a Challenge

31 Jan

lexiconDo you sometimes wonder how you will ever keep up with the dizzying array of change that has become a constant in the ad industry? The good news is that you may not be alone in your angst. Just take a look at how industry lexicon has evolved in recent years to reflect the technological changes that the industry is dealing with and one can easily surmise why practitioners feel stressed out…

Industry Lexicon for the 21st Century

Algorithm, artificial intelligence, programmatic media buying, header bidding, second-price auctions, big data, fraud, domain spoofing, viewability, demand side platform, Pinterest, supply side platform, data management platform. Ad tech, exchange, tech stack, human marketing, voice activation, block chain technology, deep learning, managed service model, the duopoly, GDPR, hyperlocal media, ad spoofing, biometric recognition, virtual reality, winning bid log metadata files, econometrics, transparency, martech, Facebook, linear TV, Snapchat, digital content production, ad tech integration, ads.text, brand safety, publisher addressable marketplace, blackhat SEO, walled gardens, proprietary tech integration, trading desks, principal-based buying, PII-based consumer ID’s, brand safe environments, push notifications, mobile-app fraud, spoof impressions, ad networks, e-commerce analytics platform, contextual fit, attribution fraud, HULU, curated inventory, general data protection regulation, CX strategy, cyber security, white list, multi-screen viewing, bid management fees, Instagram, PAM, PII based identifiers, automated monetization, onboard connected TV, app-install, exchanges, click spam, downstream metrics, dynamic creative optimization, sustainable ecosystems, dynamic personalization, performance media platform, extremist content, audience engagement, monetization, fake followers, hard news, enterprise brands, CPI, retargeting, data controller, software development kits, mediation products, combinatorial bidding, people-based marketing, waterfalling,  trust, content recommendation guarantees, Alexa, frequency capping, probabilistic methodology, addressable IDs, over-the-top video streaming, TAG, streaming environments, cross-channel messaging, influencer marketing, direct-to-consumer brands, brand activation, experiential marketing, growth hacking, social selling, fake news, user generated content, storytelling, illegitimate traffic sourcing, private marketplaces, sandboxing, non-human viewing, synchronized nodes, decentralized ad networks, voice assistants, cross-channel attribution, verification technologies, internet of things, personalization, social search, facial recognition platforms, 3-D printing, hyper-relevance, automated buying, voice activation, first-price ad auction, AI machine learning, in-home sensors, smart re-ordering services, digital workspace, multi-channel ecosystem, native advertising, organic posts, privacy settings and controls, FVOD free-video-on-demand, clearing price, net neutrality, invisible bots, Spotify, voice strategy, audio logos, autonomous vehicles, behavioral DNA, spot cloaking…

Never a dull moment for ad industry professionals to be sure. Consider the words of the twentieth century American writer, Alvin Toffler:

“Future shock is the shattering stress and disorientation that we induce in individuals by subjecting them to too much change in too short a time.” 

The questions to be considered are; “Can the industry sustain this rate of change, without compromising its ability to deliver? Can you?” Only time will tell.

 

3 Keys to Strengthening Client-Agency Relationships

25 Jan

Keys to SuccessMost would agree that strong client-agency relationships are more conducive to achieving positive results that drive in-market performance levels which meet or exceed expectations.

Similarly, both client-side and agency executives agree that “trust” is imperative in building and maintaining a solid partnership. Thus, one could logically conclude that establishing a relationship predicated on trustworthiness would be beneficial to advertisers and agencies alike.

However, as the ad industry has evolved and grown over the last decade or so, it seems as though the ability to establish trust between stakeholders has been greatly compromised. Whether this is between advertisers and agencies or agencies and ad tech providers or between ad tech providers and publishers. While the reasons for this are many, pundits will point to the myriad of documented transparency related issues that have plagued the industry, while cynics might suggest that Agatha Christie had it right when she said: “Where large sums of money are concerned, it is advisable to trust nobody.”

As consultants specializing in marketing supply chain accountability, working with advertisers and their agency network partners, we take a more pragmatic view. We believe that trust is not elusive, that it can be earned and nourished if clients and agencies are willing to commit to the following three steps:

  1. Establish a Principal-Agent Relationship – In short, an advertiser should never have to doubt the allegiance of their agency partners or the objectivity of their recommendations. A principal-agent relationship establishes the expectation that the agency has a fiduciary responsibility to always act on behalf of and in the best interest of its client. Memorialized within the client-agency agreement, this principle is the single best means for fostering trust.
  2. Perform Independent Transparency Accountability Reviews – Actions that advertisers should consider and that agencies should welcome include contract compliance reviews, financial management audits and media performance assessments. Independent reviews of agency performance relative to client expectations and contractual performance requirements instills a certain level of discipline when it comes to governance, and provides both parties with the assurance each is acting within the guidelines of agreement and a platform in which to discuss improvement opportunities.
  3. Conduct QBRs and 360° Performance Evaluations – We are all in the communications business, yet too often client-agency communications are inadequate when it comes to strengthening the relationship. Not talking about day-to-day interactions, but dialog regarding key business strategies and challenges, performance expectations and opportunities that occurs at even the most senior level within each organization. The use of quarterly business reviews (QBRs), that involve cross functional team members and executives from both the advertiser and client organizations are a great way to ensure that both sides are focused on the business and relationship priorities established at the beginning of the year. Complementing the QBRs should be an annual performance evaluation where representatives from the client and agency are invited to provide feedback on the relationship and identify opportunities to improve processes and performance. This should then be followed by a brief meeting to discuss the results of the evaluation and come to an agreement on actions to be taken in the coming year.

Business relationships can be complex and at times difficult. In our experience, implementing the aforementioned steps greatly enhances effective levels of communication, which fosters trust and confidence, which leads to solid relationships that drive superior performance.  As George Bernard Shaw intoned: “The biggest problem in communication is the illusion that it has taken place.”

Interested in learning more about how to improve your marketing supply chain accountability for your organization? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on the topic.

 

4 Questions That Can Impact Your Digital Buys

15 Nov

four

According to eMarketer, in 2017 advertisers will spend 38.3% of their ad budgets on digital media – in excess of $223 billion on a worldwide basis. Yet, in spite of the significant share-of-wallet represented by digital media, there is generally little introspection on the part of the advertiser.

Looking beyond the “Big 3” [ad fraud, safe brand environment and viewability concerns], the lack of introspection begins much closer to home. Simply, in our experience, client-agency Agreements do not adequately address digital media planning / placement roles, responsibilities, accountability or remuneration details.

Standard media Agreement language does not adequately cover digital media needs – specific rules and financial models need to be included in Agreement language that covering each potential intermediary involved in the buy process and to guarantee transparent reporting is provided to the advertiser. It is our experience that Agreement language gaps related to “controls” can be much costlier to advertisers than the aggregate negative impact of the Big 3.

And, regardless of Agreement language completeness, a compounding factor is that too few advertisers monitor their agencies compliance to these very important Agreement requirements.

To assess whether or not your organization is at risk, consider the following four questions:

  1. Can you identify each related parties or affiliate that your ad agency has deployed on your business to manage your digital spend?
  2. Does your Agreement include comprehensive compensation terms pertaining to related parties, affiliates and third-party intermediaries, that handle your digital ad spend?
  3. Is your agency acting as a Principal when buying any of your digital media?
  4. What line of sight do you have into your ACTUAL media placements and costs?

If you answered “No” to any of the questions, then there is a high likelihood that your digital media budget is not even close to being optimized. Why? Because the percentage of your digital media spend that pays for actual media is likely much lower than it should be, which is detrimental to the goal of effectively using media to drive brand growth.

Dollars that marketers are investing to drive demand are simply not making their way to the marketplace. Often a high percentage of an advertiser’s digital media spend is stripped off by agencies, in-house trading desks and intermediaries who have been entrusted to manage those media buys. A recent study conducted by AD/FIN and Ebiquity on behalf of the Association of National Advertisers (ANA) estimated that fees claimed by digital agencies and ad tech intermediaries, which it dubbed the programmatic “technology tax” could exceed 60% of an advertiser’s media budget. This suggests that less than 40 cents of an advertiser’s investment is actually spent on consumer media.

A good place to begin is to ask your agency to identify any and all related parties that play a role when it comes to the planning, placement and distribution of your digital media investment. This includes trading desk operations, affiliates specializing in certain types of digital media (i.e. social, mobile) and third-party intermediaries being utilized by the agency (i.e. DSPs, Exchanges, Ad Networks, etc.). The goal is to then assess whether or not the agency and or its holding company has a financial interest in these organizations or are earning financial incentives for media activity booked through those entities.

Why should an advertiser care whether or not their agency is tapping affiliates or focusing on select intermediaries to handle their digital media? Because each of those parties are charging fees, commissions or mark-ups for services provided, most of which are not readily detectable. This raises the question of whether or not the advertiser is even aware charges are being levied against data, technology, campaign management fees, bid management fees and other transactional activities. Are such fees appropriate? Duplicative? Competitive? All good questions to be addressed.

When it comes to how an agency may have structured an advertiser’s digital media buys, there is ample room for concern. Is the affiliate is engaged in Principal-based buying (media arbitrage)?  Is digital media being placed on a non-disclosed basis, versus a “cost-disclosed” basis where the advertiser has knowledge of the actual media costs being charged by the digital media owner?

Evaluating your organization’s “risk” when it comes to digital media is important, particularly in light of the findings of the Association of National Advertiser’s (ANA) “Media Transparency” study released in 2016, which identified agency practices regarding non-transparent revenue generation that reduces an advertiser’s working media investment.

The best place to start is a review of your current client-agency Agreements, to ensure that the appropriate language safeguards are incorporated into the agreement in a clear, non-ambivalent manner. Once in place, monitoring your agency and its affiliates compliance to those contract terms and financial management standards is imperative if you want to assure compliance, while significantly boosting performance.  

“Today, knowledge has power. It controls access to opportunity and advancement.” ~ Peter Drucker                                                                                                                    

Interested in learning more about safeguarding your digital media investment? Contact Cliff Campeau, Principal, AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this important topic.

 

Are We Missing the Real Issue with Ad Blockers?

26 Oct

blockerThe advertising industry is rightly concerned about the financial impact related to consumers growing use of ad blockers, which can filter out ads before users ever see them. A recent study by OnAudience.com highlights the reasons why:

  • 26% of U.S. consumers now use ad blockers, resulting in lost publisher revenues of $15.8 billion in 2016, up from $11.0 billion in 2015. The U.S. represents approximately $45 billion of the $100 billion global display market.
  • Internationally, the loss of publisher revenue from ad blocking is projected to rise to $42 billion, up from $28 billion in 2016.

In addition, Google has announced that the 2018 version of its Chrome web browser will allow consumers to automatically block “annoying, intrusive” ads, which will accelerate the financial impact of this trend given that Chrome represents approximately 60% of the desktop/mobile/tablet browser market (source: NETMARKETSHARE, September 2017). Google’s motivation, it claims, is that they are simply introducing the Coalition for Better Ads recently announced best practices standards to enhance the consumer’s web browsing experience.

It is no surprise how we got where we are. Advertisers wanted to improve consumer engagement and publishers wanted to drive revenues. This, in turn, led to publishers placing more ads on a web page, including higher paying video units, making ads larger or forcing visitors to somehow interact with these ads to get to the content. This involves video ads that automatically refresh or blast audio automatically or force consumers to wait for :05 to :10 seconds before they can access the content they seek.

In the end, advertisers and publishers have not realized greater levels of engagement, but rather helped to fuel greater levels of consumer irritation and therefore ad blocker usage.

Thus far, the industry has been focused on blocking the ad blockers. It is true that many publishers believe that being exposed to ads is a user’s obligation if they want their content to be free. Others, however, share the consumer’s disdain for obnoxious, intrusive ads, and would like to see them banned from their sites. The problem is that ad blockers tend to block all ads.

So what is the ad industry to do? Busting the use of ad blockers or implementing web browser workarounds would appear to be somewhat short-sighted. Consumers have clearly signaled that they find the level, number, positioning and type of online ads served to them on a regular basis to be discordant with their intended browsing habits. Pursuing a more measured approach on the part of the industry is warranted. As Supreme Court Justice Ruth Bader Ginsburg intoned:

“Reacting in anger or annoyance will not advance one’s ability to persuade.”

The challenge is clear, finding a mechanism for publishers to fund their content creation at least in part through the use of online advertising. The answer, however, is not so readily apparent.

Let’s face it, by in large, consumers do not want to view online advertising. This can be evidenced by plummeting open and click-through rates, reductions in conversion rates and declines in average viewing times. Advertisers and publishers want “engagement” and sadly, consumers want nothing to do with most of the advertising foisted on them.

Is the answer better creative that informs, educates and entertains in the hope that users will both notice the ads and choose to interact with them? Or is it fewer, less intrusive ads that can take away from a user’s web browsing experience? Or will publishers finally have to solve the “pay to view” content dilemma, which consumers have largely been resistant to thus far?

If consumer engagement is the goal, the answer is likely “Yes” to all of the above.

 

Media Agency Estimated Billing Should Be Eliminated

24 Oct

accountspayableLet me start by saying that Advertising Agencies are not banks and should never be asked to settle vendor obligations, made on behalf of clients, with their own funds. That said, the long-standing practice of “estimated billing” is a relic of a bygone era and one which should be abandoned.

In a day and age where the electronic transfer of funds is commonplace and where most media owners invoice agencies based upon “actual” activity, following the month of service, the notion of an advertiser being billed upfront on an estimated basis is no longer necessary for the vast majority of media being purchased. From an advertiser’s perspective, this antiquated system results in burdensome levels of paperwork, drives up accounts payable processing costs, needlessly extends the invoice reconciliation process, restricts client use of funds, results in lost interest income opportunities for the advertiser and perhaps one of the less apparent benefits, eliminating the apprehension/reliance on an agency to accurately track and timely reconcile such estimated billing.

Can anyone cite a single benefit that accrues to an advertiser from this approach? If an advertiser were to purchase inventory directly from the media seller they would pay based upon actual costs, so why should it be any different when purchasing media via a client-agent relationship?

The move to final billing has but one drawback, to one stakeholder… the loss of agency float income on pre-billed activity. While conceptually we don’t believe that it is appropriate for an agent to make money on the use of client funds, we do understand that eliminating this non-transparent source of revenue would have a negative impact on an agency’s bottom-line. This, however, should not be the concern of the advertiser community, as this was never the intent of the estimated billing process to begin with. After all, it is the advertiser’s money and as such, they should be the only stakeholder to benefit from access to and the use of those funds.

Transitioning to actual billing makes good sense from both a treasury management and a transparency accountability perspective. It is more efficient, can reduce payment processing costs and can potentially improve days payable outstanding performance for the media seller.

As it is, advertisers generally have little to no insight into the time gap between remittance of their funds to their agency and in turn the time it takes for the agency to reconcile media activity and remit payment to an advertiser’s third-party media vendors. If client-side CFO’s were aware, there would certainly be significant interest in reforming the estimated billing system and the stewardship of an advertiser’s media advertising investment.

When it comes to financial management within the advertising sector, we have always been cognizant of the words of Robert Sarnoff, past president of NBC and RCA in the mid-twentieth century:

“Finance is the art of passing currency from hand to hand until it finally disappears.” 

Interested in learning more about improved financial management practices across your marketing agency network? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this topic.

Lawsuits Expose the Seemly Underbelly of Programmatic Digital

25 Sep

fraudsterAt the rate things are progressing in digital media and programmatic trading, the tenuous relationships between advertisers, agencies, ad tech providers, exchanges and publishers are about to come unglued.

While many in the ad industry have had their doubts about programmatic digital, this sector has grown unabated for the last several years. According to eMarketer in 2014 advertisers invested 28.3% of their ad budget in digital media. Their projection is that this will grow to 44.9% in 2020, likely topping $100 billion in total spend. eMarketer estimates that 80% of U.S. digital display activity in 2017 will be transacted programmatically. 

Interestingly, since 2014 the industry has become much more attuned to the risks encountered by advertisers when it comes to optimizing (or should we say safeguarding) their digital media investment. Yet in spite of the findings regarding unsavory practices emanating from the ANA’s seminal 2016 study on “Media Transparency” advertisers continue to pour an increasing share of their advertising spend into this media channel.

However, not all advertisers are continuing to embrace digital media quite as readily as they once did. A handful of progressives, namely Procter & Gamble, have begun to rethink the share of wallet being allocated to digital media and programmatic trading. Marc Pritchard, P&G’s Chief Marketing Officer, has been very outspoken in summing up his company’s position quite succinctly; “The reality is that in 2017 the bloom came off the rose for digital media. We had substantial waste in a fraudulent media supply chain. As little as 25% of the money spent in digital media actually made it to consumers.”

Given Mr. Pritchard’s comments it has been quite intriguing to monitor the legal developments in two high profile lawsuits that have recently been filed.

In the first case, Uber is suing Fetch Media, its digital agency suggesting that it had “squandered” tens of millions of dollars to “purchase non-existent, non-viewable and/ or fraudulent advertising” on its behalf. Uber has further alleged that the agency “nurtured an environment of obfuscation and fraud for its own personal benefit” and that of its parent company, Dentsu Aegis Network. To be fair, Fetch Media has denied what it says are “unsubstantiated” claims by Uber which it claims is designed to draw attention away from their “failure to pay suppliers.”  Allegations include that the agency acted as agent for Uber in some markets and executed principal-based buys in others and that they earned and retained undisclosed rebates tied to Uber’s media spend.

The second case involves RhythmOne, a technology enabled media company and its partner dataxu, a programmatic buy-side platform/ applications provider. RhythmOne originally filed suit regarding $1.9 million worth of unpaid invoices. Dataxu filed a counterclaim alleging that RhythmOne “used a fake auction to consistently overcharge” them and suggested that RhythmOne also “procured inventory from other exchanges, and then marked it up,” both violations of their partnership agreement. As an aside, for the $1.9 million in payments that dataxu admittedly and intentionally withheld from RhythmOne, going back to January, 2017, it is likely that dataxu’s clients had been billed and remitted payment to them. Which raises questions as to how and when their clients will be made whole.

Of note, both of these lawsuits delve into a range of topical issues that pose risks to most programmatic digital advertisers:

  • Agencies executing principal-based buys, rather than acting as agent for the advertiser.
  • The retention of undisclosed rebates tied to an agency’s use of advertiser funds.
  • Non-transparent fees and mark-ups being tacked on to the actual cost of media inventory by multiple middlemen (i.e. agencies, DSPs, exchanges).

These are issues that advertisers should familiarize themselves with and address through the development of a comprehensive client/ agency contract. In addition, advertisers must vigilantly monitor supplier compliance with the terms of those agreements to insure full transparency and, importantly, accountability when it comes to the stewardship of their digital media investment.

As these two cases highlight it is dam difficult for an advertiser to accurately assess the value of digital inventory that is being proffered on their behalf by their agency and adtech partners. Beyond establishing what percentage of an advertiser’s digital dollar actually goes toward media inventory, these separate, but related legal actions demonstrate that it is not just a lack of transparency that advertisers must worry about, but a lack of ethics. When it comes to programmatic digital media the American artist, John Knoll, may have said it best;

“Any tool can be used for good or bad. It’s really the ethics of the artist using it.”

There are steps that advertisers can take to both safeguard and optimize their digital media investment. If you are interested in learning more, contact Cliff Campeau, Principal of AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

Economic Growth Projections Raise Concerns for Ad Industry

25 Aug

economyAdvertising agencies are finding that organic growth will be a difficult objective to achieve in the near-term.

One contributing factor comes in the form of marketing spending constraints on the part of advertisers. Why? Organizations are feeling pressure to control costs in the wake of lack luster market conditions that are limiting growth and reducing margins.

The key economic indicator driving advertiser concern is “slow growth” which is impacting many sectors of the economy:

  • GDP growth of 1.2% during the 1st quarter and 2.6% in the 2nd quarter (short of the sustained 3%+ growth rate promised by the White House)
  • U.S. retail sales, excluding auto and gasoline, rose 0.5% in July ’17
  • Fast-Casual restaurant sales fell more than 3% in the first quarter 2017
  • U.S. automotive sales have fallen for seven straight months (Jan. – Jul.)
  • Homebuilder confidence sank, posting HMI’s lowest reading in over 6 mos.

Two CPG giants have announced dramatic moves, which reflect the nature of this challenge. Unilever signaled its intent to reduce the number of agencies on its roster by 50%, while cutting the quantity of ads produced by 30%. Procter & Gamble Co. indicated that it would trim $2 billion in marketing spend over five years as part of an enterprise wide expense reduction initiative.

It is worth noting that there are motivations beyond “cost reduction” driving these decisions by advertisers. Consider fast-food giant McDonald’s, which earlier this year trimmed the number of agencies that it works with from 60 to fewer than a dozen. Their goals included streamlining marketing and improving the consistency of their output… in addition to reducing expenses.

Unfortunately, the impact of slower spending by advertisers is being felt on Wall Street. According to an August, 24 article in the NY Times, WPP which had earlier cut its revenue forecast saw its share price decline by 10.9% in London, with Omnicom Group and Interpublic Group falling 7% and 6.3% respectively in the U.S. and media stocks are generally lower as a sector.

Interestingly, advertisers have made a conscious decision not to fuel marketing spend to counter slowing sales, but to cut spending to protect margins, which is particularly concerning to the ad agency community.

With increased competition from non-traditional players (i.e. management consulting and technology firms) and the continued fall-out from an industry transparency crisis, the lack of confidence on the part of marketers regarding advertising’s ability to drive profitable revenue growth is certainly a worry.

Whether or not this slowdown in organic growth on the part of ad agencies portends a slump, remains to be seen, but at the very least the macro-economic uncertainty will serve to increase industry volatility. Perhaps the industry can find some solace in the words of Yogi Berra the hall of fame catcher and manager of the New York Yankees: “Slump? I ain’t in no slump… I just ain’t hitting.”

 

 

It’s Only Money…

5 Jun

digital mediaThere was one particularly startling revelation that came from the ANA’s recent Agency Financial Management conference in San Diego. During the presentation of this year’s “Agency Compensation Trends” survey results it was noted that the ANA found that almost half of the members it surveyed had not reviewed the findings of the ANA’s 2016 Transparency study.

Think about that. If an organization did not review the Transparency study’s findings, that means that there must not have been any resulting internal dialog with or among marketing’s C-Suite peers, no direct interaction with their agency network partners, no review of existing Client/Agency contracts, no improvements in reporting and controls in which to illuminate how an advertiser’s funds are being managed.

This, in spite of the level of trade media coverage regarding transparency issues ranging from rebates, discounts and media arbitrage, to the Department of Justice investigation into potential ad agency bid rigging practices or the level of ad fraud, traffic sourcing or non-disclosed programmatic fees on both the demand and sell side of the ledger.

There is only one conclusion that can be drawn from this remarkable revelation…many marketers simply don’t care how their organization’s advertising investment is being allocated or safeguarded. Unfortunately, we regularly see the ramifications of this attitude of indifference in our contract compliance audit practice:

  • Client / Agency agreements that haven’t been reviewed or updated in years
  • Failure among clients to enact their contractual audit rights with key agency partners
  • Limited controls regarding an agency’s use and or disclosure of its use of affiliates
  • No requirement for agency partners to competitively bid third-party and affiliate vendors
  • Lack of communication to media sellers regarding ad viewability standards
  • Failure to assert an advertiser’s position on not paying for fraudulent and non-human traffic
  • No requirement for publishers to disclose the use of sourced-traffic
  • Incomplete instructions on buy authorizations to media vendors, minimizing or blocking restitution opportunities
  • Poorly constructed media post-buy reconciliation formats that lack comprehensive information and insights

Interestingly, there have been many positive developments from key industry associations such as the ANA, 4A’s, IAB and public assertions from leading marketers such as P&G and L’Oréal to further inform and motivate marketers on the topic of transparency accountability. Yet, given the materiality of an organization’s marketing spend and the publicized risks to the optimization of its advertising investment, many organizations have not yet taken action, tolerating the risks associated with the status quo. As the noted British playwright, W. Somerset Maugham once said:

Tolerance is another word for indifference.”

The failure to proactively embrace transparency accountability can pose perilous risks to an organization’s marketing budget which in turn directly impacts its company’s revenue. Many would rightly suggest needlessly.

In these instances, the fault for the increased level of attendant financial risk, fraud and working media inefficiencies lies squarely with those companies that have adopted an attitude of indifference toward these very real proven threats. One cannot blame an ad agency, production house, tech provider, publisher or media re-seller for taking advantage of the status quo and acting in manners that, while not in the best interest of the advertiser, are not expressly contractually prohibited.

The good news is that advertisers can address these issues head-on in a quick and efficient manner, mitigating the risks posed by transparency deficiencies. It all begins with a review of existing Client/Agency contracts and engaging one’s agency partners in dialog regarding the adoption of industry best practice contract language to facilitate an open, principal-agent relationship. The Association of National Advertisers (ANA) has a wealth of information on this topic and can also recommend external specialists to assist an advertiser with agency contract development and or compliance auditing.

Interested in safeguarding your marketing investment? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a no-obligation consultation on this topic.

Is Your Contract Worth the Paper It’s Written On?

25 May

partnershipThe Association of National Advertisers (ANA) recently released its study on programmatic media. The study was conducted in conjunction with the Association of Canadian Advertisers (ACA), Ebiquity and AD/FIN.

While the study provided fascinating insights into programmatic media performance and costs at the transactional level, there was one particular item that stood out:

88% of the advertisers that were interested in and 75% of the advertisers that signed up to participate in the study could not or had to opt out.

Why was this? According to the study’s authors, “because of a myriad of legal, technical and process roadblocks put up by players in the ecosystem.” Long story short, those advertisers did not have contractual language providing them with clear data ownership or usage rights with their agency, trading desk and or ad tech partners.

The obvious question to be asked is, How can an advertiser’s programmatic media transactional data not belong to the advertiser? After all, it was their media investment that funded the buys. It was their agency partners who invested those funds on their behalf (or not). So, who could possibly own that data if not the advertiser?

What would you do if your agency partner denied your organization access to programmatic performance data that you had requested. Data that would shed light on your programmatic media performance and costs (i.e. third-party costs, agency fees, tech fees, data fees). It certainly seems short-sighted that an agency would deny their clients access to this data, both in the context of the ANA study and for providing transparency into how their programmatic investment is being stewarded to disclose what their true working media percentage is.

Sadly, this is but one example of Client/ Agency contract language omissions that create disclosure and accountability gaps, which can lead to legal and financial risks for advertisers. Other examples include:

  • No requirement for an Agency to disclose or competitively bid in-house production resources or affiliate companies.
  • Media arbitrage deals in which the Agency is marking-up media by an undisclosed amount on inventory that it owns stemming from principal-based buys it has made.
  • Agencies acting as principals, rather than agents, when investing the Client’s creative production funds. One example might be the Agency or its production studio filing for and retaining incentives offered by states and municipalities for shooting or post-production work completed in their geography.

Marketing spend is on the rise and is certainly considered a material expenditure, which can represent 12%+ of a marketer’s revenue base (source: 2015 CMO survey).

And yet too often, an advertiser’s contractual audit rights are not broad enough to ensure unmitigated access to the data files, records and reporting necessary to evaluate an agency’s compliance with the agreement and or their financial management performance. This can and should include:

  • An advertiser’s right to select an internal or external auditor of its choice (i.e. contract compliance, media performance, financial management).
  • The right to audit the agency and its related parties (i.e. holding company, affiliates, related entities, etc.).
  • Assertion of the advertiser’s right to limit or eliminate an agency’s non-transparent revenue (i.e. AVB’s, rebates, non-disclosed fees, mark-ups, float income).
  • The right to audit principal inventory and or mark-ups.

Contracts are also a great vehicle for communicating performance guidelines for items ranging from brand safety and viewability policies to fraud monitoring requirements and an advertiser’s policy on not paying for bot traffic, all of which are designed to safeguard an advertiser’s investment.

From our perspective, it makes sense for advertisers to engage in dialog with their agency partners to talk through contract terms and conditions, such as these, to secure their perspective and ultimately their buy-in. After all, the contract is a document that will govern most aspects of the Client/Agency relationship. Thus, open dialog that leads to a transparent relationship can form the basis for a trusting partnership that will last for many years to come.

As Stan Musial, the legendary baseball hall of fame member of the St. Louis Cardinals once said:

The first principle of contract negotiations is don’t remind them of what you did in the past – tell them what you’re going to do in the future.”

Advertisers: Contract Compliance is Easier to Secure Than You Think

19 Apr

EasyIf you’re an advertiser, we have three brief questions for you to consider:

  1. Does your organization have contracts with its ad agency partners?
  2. Do those contracts contain right to audit clauses?
  3. Has your company ever enacted its right to conduct contract compliance and or performance audits?

Chances are your answer to the first two questions is “Yes” and very likely “No” to the third question. Why is this? Why would the majority of advertisers negotiate audit rights into their marketing supplier agreements and not take advantage of such an important control mechanism? This is particularly perplexing given the materiality of marketing spend and the many publicized challenges confronting advertisers and their relationships with advertising agencies. Challenges such as waning levels of transparency into agency financial management practices, lack of a direct line-of-sight into the rates paid by its agency partners, agency resource constraints and personnel turnover.

After years of conducting advertising agency contract compliance audits, our experience shows the agency community wants to do the right thing in most instances. Are there bad actors? Sure, as there are in any business sector. Are there lapses in oversight or judgment? Certainly. This is a people business and people make honest mistakes. Do errors occur? Of course, as in every organization… no entity is perfect in that regard. Beyond common lapses in judgement, follow-through and or mistakes the primary compliance challenge is often a sub-standard or outdated client/ agency agreement which does not supply an advertiser with the requisite legal safeguards and financial controls.

It is for all of these reasons that “Right to Audit” clauses exist and why it is considered “Best Practice” to engage independent audit support to assess an agency’s contract compliance and financial performance. The benefits of auditing are meaningful and many, with the resulting financial true-ups, identification of process improvement opportunities and new learnings in general, providing substantial contributions to future efficiencies.

These outcomes can have significant financial impacts for both stakeholders. For agencies, who have made oversights, misinterpreted or misapplied certain contractual conditions there is the obvious impact of correcting those items and reconciling their fee and or third-party expense billings. Advertisers benefit from the collection of past due credits, trueing up financial matters, identifying and eliminating unauthorized, non-transparent agency revenue and realigning its scope of work and agency resources on a go forward basis.

It is true that the consequences of an audit can sometimes cause an agency some discomfort and even be outside an advertiser’s comfort zone. However, these important accountability programs are more than offset by the positive outcomes that ultimately drive compliance with the agreement and motivate more effective financial stewardship. To this end, it was with interest that I read a recent article entitled, “Mix Enforcement with Persuasion” by Lucia Del Carpio, Assistant Professor of Economics with INSEAD. Professor Carpio wrote about the topic of improving compliance with laws and regulations. One of his observations had particular relevance to our compliance auditing experience and crystalized what we often profess:

“Compliance sometimes requires nothing but enforcement.”

 The cost to conduct agency contract compliance auditing is nominal relative to the benefits yielded by these initiatives. In our experience, we have never seen an instance where the financial and operational benefits of an audit didn’t provide a return multiple times its attendant cost. Factor in the notion that compliance auditing actually incents agency contract adherence and it is easy to understand why “Right to Audit” clauses exists in client/agency contracts to begin with.

Interested in learning more about agency contract compliance auditing? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation on this topic.

%d bloggers like this: