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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.”

Can AI Bots Solve the Agency Remuneration Issue?

21 Mar

Commodorergb1-243x300It was a simpler time in 1864, or so it seems, when the “Commodore,” James Walter Thompson, founded his namesake agency.

As the ad industry grew over the next several decades, a commission based compensation system was the predominant means of remuneration. Simply put, full-service agencies kept 15% of the gross media rate charged by media owners from whom agencies purchased advertising for their clients. At some point in the 1960’s commission based remuneration began to give way to labor-based fees that were predicated on an agency’s direct labor and overhead costs and a reasonable level of profit.

It wasn’t long afterward that the agency “holding company” was born and full-service agencies gave way to agencies that specialized in a particular area such as creative development, media planning and placement and sales promotion. Both of these trends directly impacted “how” and “what” agencies charged clients for their services. As importantly, advertisers became more acutely interested in understanding more finitely the details behind the composition of their agency partners’ fees. This in turn created anxiety and concerns on the part of ad agencies and clients alike. Advertisers sought to reduce the level of fees that they were paying and the agency community sought to protect their profit margins and maintain some level of privacy surrounding their financial operations.

Fast forward to 2017 and the topic of “non-transparent” agency revenue sources such as rebates, kick-backs, float income and media arbitrage has been at the forefront of contract and compensation discussions since the Association of National Advertisers (ANA) completed their landmark “Media Transparency” study in 2016. Rightly or wrongly, many in the industry feel that client procurement tactics, focused on squeezing agency compensation led to the rise in non-transparent revenue. Agencies for their part, feel as though they are overworked and underpaid, while clients continue to sense that they are paying too much for the resources being proffered by their agency partners.

Challenging times to be sure. Add in the shift from traditional media to digital, the attendant impact on workflow and resources, the rise of new competitors to ad agencies that include consultancies, publishers and ad tech providers and the rapidly increasing impact of technology on operational efficiencies and the topic of agency compensation becomes even more vexing.

And while agencies wrestle with their organizational, talent and cultural issues, the industry is poised for a giant leap forward in operational efficiency. Algorithms that can place media and inform resource allocation planning and artificial intelligence bots that can actually create advertiser content and oversee the production of creative materials have the potential to displace agency personnel across multiple functions. The question is: “What is the impact of these technology trends on agency remuneration systems?”

For an industry that has relied on labor-based fees linked to marking-up employee salaries and selling their time to advertisers, the notion of automation and doing more with less can certainly be daunting. As IBM Watson Chief, David Kenny, once said:

“If you are using people to do the work of machines, you are already irrelevant.”

Thus it is time for the ad agency community to rethink both how they organize themselves to deliver client services and how to evolve from labor-based compensation models to outcome based remuneration systems.

Wonder if there is an AI bot that can assist with this transition?

If you’re an advertiser and interested in learning more about how to compensate your ad agency. Contact Cliff Campeau, Principal, AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this important topic.

 

 

 

Big Data. Big Deal. You Bet.

5 Dec

digital trading deskThe evolution of media channels, ad targeting and the role of ad tech have significantly reshaped the media marketplace, allowing advertisers to select inventory and direct their messaging with an incredible level of precision. These developments have long been hoped for and yet, now that they are here, there is much that advertisers don’t understand about one important bi-product of the ad tech revolution… the disposition of the data gleaned from their investment at all levels of the media investment cycle.

In our contract compliance auditing practice, it is not uncommon that we find contract language gaps relating to issues such as:

  • Who owns the data?
  • Where is the data stored?
  • For how long?
  • How secure is the data?
  • Is the data kept separate from that of other advertisers?
  • Is your data being used to aid other advertisers?

These are important questions that heretofore have yet to be addressed by many advertisers within their agency agreements. “Big data” represents a potential treasure trove of information that can drive marketing strategy for advertisers by leveraging the insights gleaned from media transactional and customer behavioral data. That is, if and only if they are in receipt of the layers of data available to them and that they have the rights to use the data.

Rights to use their data? As odd as that may seem, data ownership is not automatically ceded to an advertiser. In spite of the fact that without an advertiser’s investment there would be no media buy and no corresponding data stream. Yet, many within the media chain have taken aggressive actions to claim that data as their own. Ad agencies, trading desks, publishers, demand side platforms (DSPs) and third party ad servers to name some of the entities that desire to own, or at a minimum, have unrestricted access to that data.

This jockeying for data ownership and access carries additional risks for advertisers in and around the topic of data privacy and security. Particularly as it relates to first-party data that may be utilized in the planning and placement of programmatic digital and addressable TV buys. Why? Because the unregulated, unsupervised use of an advertiser’s first-party data could be in violation of their users’ privacy rights.

Ownership and access rights to third-party data, which is often accessed on the advertiser’s behalf by its agency and or ad tech providers such as data management platform (DMP) and ad platform providers are generally clear and typically spelled out in licensing agreements between the various stakeholders. Then there is second-party data, which can best be described as information that users didn’t give you directly but was acquired through an advertiser’s relationship with another entity, such as an SEO platform or that was acquired via feedback from a behaviorally targeted digital display ad campaign. Advertisers must ensure that the use of and or sharing of second-party data is done in a privacy compliant manner to safeguard the interests of the user.

Complicated. Yes, and often little understood by those crafting client/agency agreements. It would certainly be appropriate for advertisers to revisit their agency agreements, with the goal of ensuring that their data ownership rights, privacy considerations and third-party access rights are clear and consistent in this emerging area. It is important to note that industry best practice templated language is still evolving and should not be relied on as an advertiser’s sole source for securing ownership/access rights and protections for agency agreements.

When it comes to advertiser data ownership, we share the beliefs of American businessman and politician Jim Oberweis, who stated:

“I am a strong believer that intellectual property rights need to be protected.”

Want to learn more about evolving your organization’s agency contract language? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com.

Advertiser Audit Rights: Define & Exercise Them

2 Aug

dreamstime_xs_7828625There is a new trend developing within the marketing agency community when it comes to negotiating client contract language – and that is a fairly aggressive attempt to limit the advertiser (client) audit rights and scope. In other words, limiting what the agency is required to have available as “proof” and support for agency billings to the client and agency use of client funds.

At a time when there is much talk about the need for transparency and its role in helping to bolster trust and strengthen client-agency relationships, this trend is highly antithetical.

The most common examples of agencies trying to dictate and limit the client’s “Audit Rights” are:

  1. Limiting the window of time in which an advertiser can conduct the audit. For example, 12 months from date of service or invoice, as opposed to a 3 year window.
  2. Limiting access to agency financial data and or records, as opposed to full access to information that support agency billings, financial management and performance. This can include denying access to data such as employee time keeping records, agency overhead or holding company allocations to client, freelance records, prices paid for certain media and agency affiliate company costs.
  3. Limiting the amount of time the agency is required to retain data and records.
  4. Limiting the type of audit firm that an advertiser can engage to perform the testing – and or including language that seeks to secure agency approval of advertiser’s auditor selection.

In order to ensure full-transparency into the financial stewardship of funds by the agency and third-party vendors, experience suggests that advertisers must secure client-centric contractual audit terms and conditions. It is our belief that this is an advertiser’s unassailable right. After all, it is the advertiser who bears the risk of non-compliance and sub-standard performance when it comes to the investment and management of their marketing funds. And it is the advertiser who is providing the funding to the agent.

Contract language dealing with Audit Rights should grant advertisers the ability to establish the scope of the audit, deploy an audit team of its choice and to have unfettered access to information necessary to validate agency compliance and or performance (i.e. contract compliance, media performance, etc.). To ensure full transparency, advertiser Audit Rights should extend to the agency holding company and affiliates in any full-disclosure relationship.

As important as securing solid Audit Rights language, within a Client-Agency agreement, is the need for advertisers to exercise those rights on a regular basis. Whether through the deployment of internal audit personnel, engaging independent contract compliance or financial auditors or the use of a media performance audit firm, it is imperative that advertisers monitor and vet agency performance in these areas.

The frequency of such oversight actions can range from annual reviews to quarterly reconciliations to the implementation of continuous monitoring programs to assess the disposition and performance of advertiser funds, while under the control of their agency partners.

Sharing audit findings with both advertiser and agency is highly recommended so that both parties, if necessary, can adjust practices going forward. After all, the goal of an accountability program is to provide improved transparency, assurance, improved process, and stronger client-agency relationships. In the words of Thomas Huxley, the noted 19th century scientist:

“Learn what is true, in order to do what is right.”

If you would like to receive a complimentary review of your organization’s “Audit Rights” contract language please contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com.

 

“Our Agency Contract has Expired…”

22 Jul

ExpiredThis along with feedback such as; “We can’t find a copy of the agreement,” “We don’t have an executed copy of the contract” and “Hadn’t seen that version before” are common responses from advertisers when asked for copies of their Client/ Agency agreements when undertaking an inaugural agency contract compliance audit.

While alarming at a certain level, perhaps no more concerning than the dated, evergreen and largely inadequate agency-centric contractual instruments that represent a majority of the agreements that many advertisers have entered into.

Concerning? To be sure. Perhaps these organizations aren’t familiar with the words of legendary investor, Warren Buffett, who once said:

Risk comes from not knowing what you’re doing.

In an industry grappling with issues such as fraud, transparency, relationship stability, trust and the fairness of agency compensation systems the risks posed by non-existent or inadequate contracts are significant and include, legal, financial and intellectual property exposure.

The reasons for this dilemma are many and common across many client organizations:

  1. No central contract repository within the organization
  2. Limited cross-functional agency relationship oversight
  3. No strategic supplier management system
  4. Contracts negotiated by one function, not shared with relationship owners
  5. No enterprise wide accountability initiative

By now, most are aware of the Association of National Advertisers (ANA) study on “Media Transparency” that was prepared in conjunction with K2 and released in June of this year. If there is one takeaway from the findings of that study, which all advertisers should pay heed to its the fact that a solid Client/ Agency contract is an advertisers best defense when it comes to protecting their advertising investment.

One side benefit of the ANA/ K2 study is that C-Suite members within many advertiser organizations are asking the questions; “How susceptible is our firm?” and “What level of control and transparency do we currently have when it comes to our marketing investment?”

Addressing these questions is an excellent place to begin, because it necessarily involves securing and reviewing current copies of the contractual agreements that are in place with each of the organization’s marketing vendors. Perhaps the next best place to turn is to engage either outside counsel or an independent agency contract compliance specialists, with deep knowledge of the marketing/ advertising industry and some of the advancements and best practices which are in place to safeguard an advertisers investment.

Once an updated agreement is put in place, the easiest way to manage these contracts, amendments and ongoing statement’s of work is to schedule (and contractually mandate) annual reviews of the agreement and all legal documents governing your agencies staffing plans and compensation.

For those seeking an added layer of protection, engaging an agency contract compliance specialist to monitor each agencies adherence to the terms and conditions of the agreements that govern these important relationships is an excellent idea.

Interested in assessing your organization’s legal and financial risks? Contact us for a complimentary agency contract risk assessment by emailing Cliff Campeau, Principal, Advertising Audit & Risk Management at ccampeau@aarmusa.com today.

Two Words That Represent Accountability’s Biggest Obstacle; “Who’s Budget?”

24 Feb

Accountability FinalMany organizations want to implement an accountability program. Virtually all Internal Audit directors would like to extend that accountability initiative across the enterprise and most certainly want to provide coverage for categories with a significant spend, such as marketing.

Yet, in spite of the good intentions, U.S. companies have been slow to embrace independent compliance and performance auditing of their marketing supply chain partners. Ironically, the reason emanates from the answer to a very simple question, “Which departmental budget will be tapped to fund the initiative?” More often than not the answer to that question, in the context of a marketing and advertising spending review, is “Marketing.”

Given this dynamic, it is often a challenge for companies to implement an “unbudgeted” audit project once the fiscal year planning process has been completed, even if results dwarf its cost. Additionally, while many CMO’s have come to value the feedback and insights provided from the independent testing of supplier contract compliance and performance, there are others that still do not embrace audit or accountability initiatives. As a result, unless mandated by the C-Suite, independent accountability testing may never make its way into the budget, causing a huge assurance gap governing that company’s multi-million marketing investment.

There is good news however for procurement, finance and audit executives seeking to remove these obstacles and manage associated risks. Namely, that in addition to the opportunity for process improvements, performance monitoring, contract language enhancements and better controls, these engagements yield hard dollar returns resulting from various financial true-ups and future savings opportunities; far exceeding the fees necessary to conduct the review.

Positive financial returns aside, the costs associated with an audit of an advertiser’s agency network partners is miniscule when compared to the tens of millions or hundreds of millions of dollars being expended in this area.

Perhaps best of all, independent assessments of marketing agency compliance and third-party vendor billings sets a tone of the desired financial stewardship and accountability behavior that the client would like to see employed across its marketing supplier base. In turn, the very act of performing an independent audit, provides a powerful incentive for an agency to diligently self-police itself by tightly adhering to the processes and guidelines agreed to and memorialized in the Client/ Agency Master Services Agreement. In the words of the noted English author and speaker, Simon Sinek:

Actions speak louder than words. All companies say they care, right? But few actually exercise that care.

Interested in learning more about fielding a marketing agency network accountability initiative at your company? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com to for a complimentary consultation on the topic today.

 

 

 

Did You Trust the Banker When You Played Monopoly?

26 Jan

Monopoly

If you were a “gamer” (in the days when board games were the norm) that implicitly trusted both the banker and the individual who controlled the distribution of the real estate properties when playing Monopoly, than this article isn’t for you.

On the other hand, if you are one who turns a wary eye toward those in control of assets, particularly your assets, then we would like to pose one question: “Do you know what happens to your company’s marketing funds once checks have been distributed to your agency partners?

In our experience, few if any individuals within an advertiser organization have a clear perspective on the disposition of approved funds once an agency invoice has been paid. The primary reason for this is that the industry still operates largely on the concept of “estimated” billing and the pre-payment of funds from the advertiser to the agency. Over the years the resulting transparency gap has been compounded by the fact that few if any advertisers require their agencies to provide copies of all third-party vendor invoices with their final project or campaign billing. Most advertisers have document retention and audit rights clauses in their agreements, but few act upon these contractual rights.

As contract compliance auditors, we review thousands of agency bill-to-client invoices as part of our hard copy vouching and testing process. In general, the lack of specificity contained on these invoices, particularly when one recognizes that there is often little accompanying back-up can be startling. For example, imagine coming across an invoice for the production of television commercials for a major seasonal advertising campaign that simply stated; “Holiday Campaign TV Production – $785,000.” Was that for one commercial or six? Were these :15 second spots or :60’s? Is this for a U.S. campaign or a global effort? Apparently, answers to those types of questions aren’t always required to process payment for that invoice… as long as the invoice amount doesn’t exceed the approved purchase order, if there is an approved purchase order.

Do you know if your agencies are abiding by the contractual guidelines for competitively bidding jobs? Do you know whether or not the agreements with the agencies in your network even requires three bids or at what spending threshold? More broadly, do you know which of your third-party vendors are actually related to your ad agency partners (i.e. shared financial interests, investors or corporate lineage)? If so, was this disclosed in advance of work being awarded to those related parties?

If you’re like most advertisers, you are billed in advance of production or media commitments being made on your behalf, or at least prior to the activity occurring. Likely, your company pays that invoice within 45 days of receipt. Any idea how much time elapses prior to your third-party vendors being paid or whether their billing to the agencies is scrutinized for accuracy? Let’s assume there are credits issued by third-party vendors or approved funds that are not spent by the agencies, how long does it take for the agencies to identify and return those funds to you? Who is involved in determining the disposition of those funds? Marketing? Or are checks cut and sent to finance?

Do you compensate one of more of your agency partners based upon a direct labor model, with estimated monthly fees tied to a contractual staffing plan predicated on the hourly time investment of specific individuals? How often to you see time-of-staff reporting from the agencies? Monthly, quarterly, annually, ever? Have those fees ever been reconciled to each agencies actual time investment? Have you ever tested your agencies time-keeping systems to assess the accuracy of the reports that may be shared with your team?

We have good news for you, news that can provide answers to each and every one of these questions. There is a proven means of closing this transparency gap and providing your organization with the processes and controls necessary to assess the disposition of marketing funds at each step of the advertising investment cycle.

It is called agency contract compliance auditing, it is an industry best practice and it will provide insights, answers and recommendations that will benefit an advertiser’s agency stewardship efforts and their agency partners’ financial management performance.

If you still have some apprehension about this complex ecosystem called marketing, consider the words of former Supreme Court Justice, Oliver Wendell Holmes when weighing the pros and cons of a contract compliance audit; “When in doubt, do it.”

Interested in learning more about safeguarding your firm’s marketing investment? Contact Cliff Campeau, Principal with AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on how to implement or enhance your organization’s marketing accountability initiative.

 

 

 

Linking Agency Fees to Outcomes

14 Dec

overheadThe topic of agency remuneration is one that the advertising industry has wrestled with for the last few decades, since the 15% standard agency commission went by the wayside. 

Agencies want to be paid fairly for their services and clients want to earn a fair return on their agency fee investment… at least theoretically. In reality, agencies want to earn as much money as possible on each of their accounts and clients want to pay as little in agency fees a they can. 

Unfortunately, both stakeholder groups’ true intentions can at a minimum negatively impact perceptions one side may have of the other and in a worse case scenario, drive bad behavior. This can include an advertiser focusing on continually ratcheting down agency fees, with little consideration for the relationship between agency fees and the scope of services. In turn, this is a perfect breeding ground for an agency’s decision to pursue non-transparent revenue sources to shore up perceived inequities at the expense of the advertiser. Ultimately, these actions can serve to undermine trust and eventually the stability of the client/ agency relationship. 

Thus the question remains; “How can both parties bridge the divide when it comes to the agency remuneration discussion?” 

The best solution, obviously, would be to structure a compensation system which is fully transparent, fair to both parties, encourages good behavior and fosters a relationship based upon mutual respect and shared goals. As Sam Walton, founder of one of the world’s largest companies once said; 

“We’re all working together; that’s the secret.” 

In our experience as contract compliance auditors, we have found that the most effective compensation programs link to agency fees to outcomes. We have seen more beneficial results when this is the case compared to fixed retainer fees that have no link to a mutually agreed upon foundation. Typically, these outcomes fall into one of three categories: 

  1. Agency deliverables
  2. Agency time-of-staff investment
  3. Qualitative and quantitative outcomes, those controlled/ influenced by the agency and KPIs tied to the success of the client in-market

It should be noted, that remuneration programs often combine elements from each of the aforementioned categories. In many respects, this is an ideal scenario, particularly in the context of agency-of-record relationships, where the nature of the client/ agency relationship is more akin to a partnership than a buyer/ vendor interaction. 

Regardless of the mode of compensation ultimately selected, value-based, direct-labor driven or performance based, we believe that there are two critical components, which must be negotiated in advance of focusing on the level of remuneration. 

First and foremost is the development of a tight scope-of-work (SOW) collaboratively constructed by the client-side marketing team and the agency account services team. At a minimum, the SOW should explicitly identify all projects, expected outputs, the quantity and timing of those outputs and some indication of whether those items must be created versus modified or adapted. Ideally, the SOW will also address issues with regard to project component complexity and the number of rounds of input/ review per project component to assist the agency in assessing the required time-on-task and to assist the client in establishing project briefing and approval processes which are consistent with desired project outputs. 

Secondly, with a mutually agreed upon SOW, the agency should be asked to provide a detailed staffing plan, one which identifies the names, titles and functional responsibilities of the specific individuals who will work on the business along with their utilization rates. The staffing plan should also identify the base number of hours utilized to calculate a full-time equivalent (i.e. 1,800 hours per year) and at a minimum, a blended hourly rate by department or by function for use in pricing out-of-scope work and or in reconciling fees relative to the agency’s time-of-staff investment if and when necessary. 

The time invested by both parties on the front-end to clearly establish the client’s desired outputs, timing requirements and qualitative expectations and to assess the resource investment required by the agency to deliver on those anticipated outcomes will yield significant dividends. 

Additionally, tracking monthly progress project status and the agency’s time-of-staff investment will allow both parties to stay on track and within budget… while eliminating any surprises. 

In the words of Henry Ford; “Coming together is a beginning; keeping together is progress; working together is success.”

 

 

 

 

 

 

 

 

 

 

What is the True Cost of Opacity? (part 2 of 2)

1 May

iceberg riskPart 2 of a two-part look advertiser concerns regarding “transparency” and the impact it is having on client-agency relations.

Why is a tight client-agency agreement important? One need look no further than the recent comments of Maurice Levy, Chairman of Publicis; We have a clear contract with our clients, and we are absolutely rigorous in respecting transparency and the contracts.”  It should be noted that other agency executives have also cited their compliance with the terms of their client agreements as part of their response to recent questions regarding transparency in the context of rebates and the lack of full-disclosure associated with trading desk operations.

As contract compliance auditors we would suggest that most of the client-agency agreements, which we review do not have sufficient language to deal with the evolving advertising landscape.  It is common to find contract language gaps when it comes to items such as; AVBs, related party obligations, disclosure requirements and or right to audit clauses. Therefore, it is quite possible for an agency to be in compliance with an agreement as Mr. Levy suggested and still not be operating in a fully transparent manner.

To the extent that reducing the level of opacity is an important step in establishing a solid client-agency relationship founded on the basis of trust, we would strongly encourage advertisers to review their marketing agency partner agreements.

If agencies truly functioned as principal agents for the advertiser, a less structured agreement may pose less risk. However, today we operate in a complex environment where agencies may have a financial stake in certain outcomes and those stakes are not always fully disclosed to clients. Thus the reality is that the potential for bias to impact an agency’s recommendations clearly negates the principal of agency neutrality.  Think about it, agencies today operate as independent agents, partnering with a range of third-party vendors in the research, technology and media sectors and actually owning and reselling media inventory to their clients.

Don’t agree? Consider the comments of Irwin Gotlieb, CEO of WPP’s Group M at the aforementioned ANA conference; “Those relationships, rightly or wrongly, don’t exist anymore” he said, adding that “You cease to be an agent the moment someone puts a gun to your head and says these are the CPMs you need to deliver.”

It is imperative that advertisers protect themselves from a legal and financial perspective by crafting contract language and implementing the appropriate monitoring and control processes to insure that they have the transparency that they seek in the context of their agency partners’ financial stewardship of their advertising investment.  This does not mean that clients cannot forge solid relationships with their agencies or that their agency partners should not be afforded positions of trust. Quite the contrary, it simply means that candid, direct dialog must occur so that each party in the relationship is clear and comfortable with regard to the guidelines that will be put in place to govern their relationship.

Once clients and agencies have aligned their interests in the context of their relationship, the ability to focus their time, talent and resources on driving business forward and tackling industry challenges will be greatly enhanced. Interested in learning more about industry best practices when it comes to client-agency agreements? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management, LLC at ccampeau@aarmusa.com for a complimentary consultation on this important topic.

Is Agency Ownership of Audience Measurement Providers a Good Idea?

13 Feb

transparencyRecently, WPP indicated that they were planning to take a large equity stake in comScore, one of the world’s largest online campaign measurement providers. This is in addition to WPP’s recent investment in Rentrak, a television audience measurement service, an organization in which WPP is now the largest institutional shareowner.

With WPP’s continued push into the campaign measurement space, advertisers may begin to question the consequences of an agency holding company’s ownership of audience delivery measurement resources. After all, these campaign measurement service providers gather and analyze data and publish ratings which are utilized to assess the efficacy of the agency’s media purchasing efforts on the advertiser’s behalf.

More broadly, based upon the business activities in which the agency holding companies now routinely engage in, one might legitimately question whether or not the designation of “agent” is even an apt description of the role which advertising firms play in support of their clients. Activities such as media arbitrage or reselling if one prefers, joint media and technology ownership deals with publishers, participation in AVB or volume rebate programs offered by media owners to agency holding companies tied to transactions entered into on behalf of their clients, all raise a legitimate question about “Whose” interests agencies are beholden to.

What recourse do advertisers have? After all, there are often distinct advantages to utilizing large agency holding company brands. Independent agencies, which while unencumbered by questions regarding their fiduciary focus, sometimes lack the scale or depth of resources required to perform in certain situations. Enlightened protectionism in the 21st century requires advertisers to aggressively push for enhanced transparency, improved controls and the unimpeachable right to audit their agency’s contract compliance and financial management performance. In the oft quoted words of President Ronald Reagan; “Trust, but verify.”

As a sound first step, it is essential for advertisers to understand their agency partners’ affiliate relationships. Secondly, it is imperative for advertisers to fashion contract language which requires their agencies to provide full disclosure when an agency affiliate is being utilized on their behalf, how that affiliate is compensated and by whom and whether or not the rates charged by that affiliate are competitive with comparable providers in the market. Whether in the context of ad serving, programmatic buying, trading desk operations or campaign measurement, an advertiser has a right to know when their agency has engaged an affiliate firm. This affords client stakeholders the opportunity to raise any questions or concerns they may have regarding such a selection and its impact on the agency’s objectivity. 

Once affiliate firms have been identified, tracking what percentage of an advertiser’s budget is being spent collectively at the agency holding company level can prove enlightening. More importantly, understanding the value of their account to the holding company based upon total revenues enhances an advertiser’s negotiating position when considering agency remuneration options going forward. 

As the ad industry has grown in size, generating approximately $521.6 billion in revenue in 2014 (source: MAGNA GLOBAL), it has also grown in complexity which is due in large to the rate and rapidity of technological change. Thus, it comes as no surprise that relationships among industry stakeholders have evolved, becoming more complex in their own right. The industry has begun to come to terms with the plurality of such relationships where partners may simultaneously be competitors or buyer agents may also function as sellers. However, “coming to terms” doesn’t mean blind acceptance. Rather it requires a new level of discourse and enhanced controls to protect advertisers and their investment.

Interested in learning more about agency network “affiliate management?” Contact Cliff Campeau, Principal at Advertising Audit & Risk Management, LLC at ccampeau@aarmusa.com for a complimentary consultation on the topic.  

 

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