Archive | Media Rebates RSS feed for this section

Programmatic Digital Media Reforms. Too Little, Too Late?

23 Oct

toolittletoolate

There was an interesting announcement earlier this month, regarding the potential for introducing much needed reforms to the programmatic digital media marketplace.  Specifically, several of the top exchanges announced that they had reached out to the Trustworthy Accountability Group (TAG) for help in cleaning up some of the non-toward practices that have plagued digital advertisers. 

As part of the group’s efforts, these exchanges have agreed to not charge hidden fees or offer rebates that unduly influence agency holding companies. Further, they have pledged to notify buyers in advance if they change auction dynamics, to clearly mark first-price and second-price auctions and to not bid cache without notice.

Translation, the exchanges have been employing these practices all along to the detriment of advertisers as a means of shoring up their bottom lines. Step in the right direction or affirmation of the ongoing murkiness associated with programmatic digital? Advertisers will have to decide, or have they already weighed in on this initiative.

Coincidentally, findings from an important research study and a forecast on digital marketing were also released earlier this month. The results of these efforts may very well shed some light on how advertisers are viewing the ongoing malaise within the digital media marketplace.

In the first study from the In-House Agency Forum (IHAF) and Forrester Research called “The State of In-House Agencies” it was revealed that 64% of corporate America have in-house agencies, which is up 50% from 2008. Interestingly, of those firms with in-house agencies, 38% have digital capabilities. The second piece of information came from an eMarketer forecast “Flight to Quality” which predicted that by 2020 open exchanges will see a declining share as programmatic money goes direct.” eMarketer is predicting that $4 of every $5 will go to private marketplaces. For reference, today, approximately 58% of all programmatic display spend, which totals $27 billion goes to private marketplaces.

The reasons for the move to programmatic direct are clear and compelling and have been at the root of advertiser concern for several years:

  • A desire to minimize the risk of digital ad fraud
  • The need to improve brand safety
  • A concerted effort to move away from low-quality, non-viewable inventory
  • Interest in a greater level of transparency (both as it relates to pricing/ fees and the content/ sites where their ads are placed)

Thus, it would appear that while the announcement by top exchanges to engage TAG to assist with reforming the practices employed by the exchanges may be a little too little, too late.

The time to take action to safeguard advertisers’ digital media investments and address advertiser concerns may have come and gone, at least as it relates to the open exchanges. Rebuilding advertiser trust and confidence was an excellent strategy… in 2016 at the height of the U.S. media market’s “Transparency Crisis.”

Unfortunately, as results from the aforementioned studies suggest, many agencies, adtech firms, and exchanges may have waited too long to remedy the woes that led to the epic level of waste that has negatively impacted advertisers’ programmatic digital media spend.

In the words of Og Mandino, the late 20th century American author:

There is an immeasurable distance between late and too late.

 

 

 

 

 

 

Advertisers: What Does the Department of Justice Know That You Don’t?

19 Oct

FBI LogoIt has been two years since the Association of National Advertisers (ANA) published its blockbuster study on media transparency in the U.S. marketplace. Among the study’s findings were that the use of media rebates paid by publishers to agencies was “pervasive” and that there was a “fundamental disconnect” regarding client-agency relationships and the agencies assumed fiduciary obligation to act in an advertiser’s best interest.

Later that same year, December of 2016, the Department of Justice (DoJ) announced that it was conducting an investigation into the practice of “bid rigging” by agencies for TV and video production jobs. The bid rigging was allegedly being done to favor the agencies in-house production groups over independent production companies. This was done by urging outside production vendors to artificially inflate their bids, creating a reason and a paper trail for supporting the agency’s decision to award the production job to their in-house studio, which coincidentally bid a lower price for the work. At least four of the major ad agency holding companies were subpoenaed as part of this ongoing investigation.

One year after the release of the ANA media transparency study the ANA conducted research among its members that found:

  • 60% had taken “some” steps to address the study’s findings
  • 40% had not taken steps or weren’t sure if their companies had taken action
  • 50%+ of those that had taken steps indicated that had revised agency contract language
  • 20% of those that had taken steps had conducted audits of their agency partners

Given the $200 billion plus in estimated U.S. media spending (source: MAGNA, 2018) and the $5 billion U.S. commercial production market the aforementioned numbers are stunning in that more advertisers have not taken action to safeguard their advertising investment by implementing controls and oversight actions that mitigate risks and improve transparency.

It would appear as though the Department of Justice is taking these matters more seriously than many advertisers. The reason that the DoJ and FBI have undertaken probes of U.S. media buying and creative production bidding practices is quite simple… fraud, price fixing and bid rigging are prohibited under federal law.

The question is; “Why haven’t more advertisers, whose media and production dollars are at risk, been more proactive in constructively addressing these issues with their agency partners?”

The fact that the federal government has determined that it was necessary to launch two separate investigations into U.S. advertising industry practices is a clear signal that marketers should reinvigorate their oversight and compliance efforts. The stakes are high and the risks have not abated since the aforementioned practices first came to light.

If federal investigations into ad agency practices in these areas isn’t enough to spur advertisers to action, perhaps the words of Jon Mandel, former CEO of Mediacom in an interview with Mumbrella following his whistleblowing presentation regarding media agency “kickbacks” at an ANA conference in 2015 will provide the necessary incentive;

Clients need to stop suspending disbelief. The agency is supposed to be a professional providing you with proper advice not tarnished by their own profit. Marketers need to know the limits of that.

 

 

Increase Your Digital Coverage by 40% In One-Easy-Step

1 Aug

simpleisgoodConfucius once said that “Life is really simple, but we insist on making it complicated.”

Perhaps the same can be said of digital media buying. Too often it seems as though the onset and rapid growth of programmatic buying has created more problems than solutions. An expanded media supply chain with multiple layers of costs, increased levels of fraud, brand safety concerns, visibility challenges, a lack of transparency and perhaps most troubling, eroding levels of trust between advertisers and their agencies.

Growing pains? Perhaps. But something needs to change and this author would like to suggest one potential solution… abandon programmatic digital media buying altogether. Seriously? Why not?

Consider the following and the concept won’t seem so far-fetched:

  • In 2015, advertisers spent $60 billion on digital media, with close to two-thirds of that going to Google and Facebook (source: Pivotal Research).
  • According to the advertising trade group, Digital Content, today this duopoly is garnering 90% of every new dollar spent on digital media.
  • What happened to the magical pursuit of the long-tail and the notion of smaller bets being safer? Economics. The fact is that the notion of the long-tail simply didn’t work as researchers and economists found that having less of more is a better, more statistically sound pursuit. To wit, Google’s and Facebook’s market share.
  • Today, programmatic digital display advertising accounts for 80% of display ad spending, which will top $33 billion in 2017 (source: eMarketer).
  • Between 2012 – 2016 programmatic advertising grew 71% per year, on average (source: Zenith).
  • In 2018, programmatic will grow an additional 30%+ to $64 billion, with the U.S. representing 62% of global programmatic expenditures (source: Zenith).

Come again. Two publishers are getting $.90 of every incremental digital dollar spent and programmatic digital media buying accounts for 80%+ of digital media spend. What are we missing? Is there an algorithm that specializes in sending RFPs and insertion orders to Google and Facebook in such a manner that the outcome yields a 40% or better efficiency gain?

As we all know, there have been numerous industry studies, including those sponsored by the World Federation of Advertisers (WFA) and the Association of National Advertisers (ANA), which have suggested that at least 40% of every digital media dollar spent goes to cover programmatic digital media buying’s transactional costs (third-party expenses and agency fees), with only $.48 – $.60 of that expenditure going to publishers.

So, for an advertiser spending $40 million on programmatic digital media, if the law of averages holds true, $16 million will go to cover transactional costs and agency fees. That means that of the advertiser’s original spend, they will actually get $24 million worth of media. While we know that programmatic media can yield efficiencies, can it overcome that type of transactional deficit?

If that same advertiser eschewed programmatic digital and decided to rely on a digital direct media investment strategy, what would it cost them?

Assume that they hired ten seasoned digital media planning and investment professionals for $150,000 each (salary, bonus, benefits), they would spend $1.5 million on direct labor costs. Further, in order to afford their team maximum flexibility, let’s say that the advertiser allocated an additional $1 million annually for access to ad tech tools and research subscriptions to facilitate their Team’s planning and placement efforts. This would bring their total outlay to $2.5 million per annum.

If they were spending $40 million in total, this means that the team would be able to purchase $37.5 million worth of digital media. Don’t forget that placing digital buys direct will greatly reduce fraud levels that can eat up another 8% – 12% of every digital ad dollar, while also greatly improving brand safety guideline adherence. Compare that to the $24 million in inventory purchased programmatically.

So how efficient is programmatic?

Sadly, most advertisers can’t even address this question, because their buys are structured on a non-disclosed, rather than a cost-disclosed basis. Even if they had line of sight into what the third-party costs (i.e. media, data, tech) and agency fees being charged were, they wouldn’t have a clue as to the fees/ charges that sell-side suppliers were levying, further eroding working media levels.

A simplistic solution? Perhaps. But the fact that the industry continues to drink the programmatic “Kool-Aid” without any significant progress toward resolving the dilutive effect that programmatic transactional costs, agency fees and fraud have on an advertiser’s investment seems a tad irresponsible.

Ask yourself. What would you do if it were your money?

 

 

Is Programmatic Advertising Worth the Risk?

26 Jul

dreamstime_xs_50082776Conceptually, it is easy to understand the potential of programmatic media buying. It is obvious to most that using technology to supplant what is a manual, labor intensive process to drive efficiencies and improve media investment decisions could be a plus for advertisers, agencies and publishers (not to mention ad tech vendors).

The only question to be addressed is “when” will the benefits of programmatic outweigh the costs and the risks to advertisers?

Proponents of programmatic will argue that this buying tactic has already generated economic benefit for advertisers when it comes to digital media buying. After all, streamlining the processes related to the issuance and completion of RFPs, buyer/ seller negotiations and preparation of insertion orders clearly saves time and reduces labor costs for all stakeholders.

No one would argue this premise. However, reducing labor costs associated with traditional buying is but one component of programmatic buying costs. Consider the broad array of programmatic buying related fees and expenses currently being born by advertisers:

  • Data Management Platform (DMP) fees
  • Demand Side Platform (DSP) fees
  • Data/ Targeting fees
  • Pre-Bid Decisioning/ Targeting fees
  • Ad Blocking (pre/ post) fees
  • Verification fees
  • Agency Campaign Management fees

It should be noted, that there are “other” non-transparent charges and fees linked to sell-side platforms (SSPs), bid processing, real-time bidding auction methodology and principal-based buys (media arbitrage) that are born by advertisers and limit the percentage of their digital media spend that actually goes toward inventory.

In a recent Ad News article by Arvind Hickman, the author referenced studies conducted by both the World Federation of Advertisers (WFA) and the Association of National Advertisers (ANA) that demonstrate the magnitude of these programmatic fees and expenses. The WFA study determined that $.60 of every dollar spent on programmatic digital media buying goes to cover “programmatic transactions and fees.” The ANA study suggests that advertisers could be paying between $.54 – $.62 of every dollar on digital supply chain data, transaction fees and supply side charges.

Bear in mind that neither of these studies addressed the impact of media arbitrage or ad fraud. Industry studies, focused on assessing the level of digital ad fraud, fielded by the Association of National Advertisers (ANA) and WhiteOps found that fraudulent non-human traffic in the form of bots was “more prevalent in programmatic environments.” According to the research, display ads purchased programmatically were “55% more likely to be loaded by bots” than non-programmatic ads.

And yet, in-spite of the challenges still being faced with programmatic digital media buying, this media investment model is being rapidly rolled out to out-of-home, print and television.

Who do you think will bear the learning curve costs and risks associated with expanding programmatic to other media categories? The answer, is primarily advertisers and to a lesser extent, publishers.

We certainly understand that programmatic is the future of media buying. That said, rushing headlong into this arena, without satisfactory levels of transparency and or fraud prevention, combined with the upfront costs of the industry’s investment in technology, that are ultimately passed through to the advertiser, are both risky and costly to advertisers.

Is there a need to reach and take risks in order to secure positive progress? Yes. But, it might be best to follow the approach advocated by one of this country’s greatest military leaders, General George S. Patton:

“Take calculated risks, that is quite different than being rash.”

Dentsu Aegis: Poster Child for Ad Industry Transparency Concerns?

30 Nov

transparencyEarlier this month Dentsu issued a statement that it had cancelled its annual New Year party, typically celebrated in each of its five offices in Japan, citing a need for “deep reflection.”

When one considers the issues being faced by the agency, albeit of their own doing, it is easy to understand their desire for a more contemplative holiday.

Two short months ago the agency rocked the ad world with the acknowledgement that it had overbilled one of its oldest and largest advertisers, Toyota Motor Corp. for digital media placements. Ultimately, the agency confirmed that the overbilling and falsification of invoices impacted 111 clients, totaling JPY ¥230 million ($2.28 million USD).

This is on the heels of a Japanese Labor Agency ruling that the suicide of a young employee in December, 2015 was due to karoshi, or death by overwork. Prior to her death, the employee had logged 130 hours of overtime in November and 90 hours in October. In the wake of this ruling, the third such case of karoshi at Dentsu, the Minister of Health, Labor and Welfare Yasuhisa Shiozaki threatened harsh action against the company. Regrettably, according to Mediapost, reports have surfaced in Japan suggesting that the agency “may have encouraged workers to underreport overtime hours” to deceive authorities that it had been complying with regulatory limits (70 hours per month).

Thus, many in the industry were intrigued when it was reported earlier this month by MediaTel that Dentsu-Aegis was looking to launch a programmatic trading desk in the U.S. called “agyle.” The irony, for an agency dealing publicly with fraud and transparency issues, is that the model apparently being pursued for agyle is that of a principal-buy (media arbitrage) operation, where advertisers will have zero line of sight into the price paid for media inventory purchased by the trading desk.

Really? This move certainly seems to be counter intuitive for an organization trying to mend its brand image within the advertising community, while it deals with the fall-out from the overbilling and labor investigations. Particularly in light of Aegis’ own track record related to media transparency over the last ten plus years (prior to Dentsu’s 2012 acquisition of Aegis).

Some will remember that Aegis and its Posterscope division had their own problems of accounting fraud, involving the use of volume rebates it earned on its clients’ out-of-home media investments that were improperly retained by the agency to record higher revenues, rather than returning them to their respective clients. In the end, its President and Finance Director pled guilty to accounting fraud. This fraud occurred on the heels of a highly publicized scandal in which Aegis’ client, Danone successfully sued the agency, requiring it to disclose the disposition of all volume based discounts it had received for a two year period, estimated to be  $22.0 million. Notably, during the lawsuit it was alleged that Aegis’ president and five other executives had been “siphoning credits for free media airtime to a private company” and then selling that same airtime for their own profit.

With all due respect to Dentsu’s CEO, Tadashi Ishii, for his efforts to aggressively and forthrightly address the agency’s recent issues, one has to wonder how deeply seeded these issues are in the organization’s culture.

For advertisers who have followed the lawsuits, regulatory investigations, allegations and company acknowledged issues into overbilling, fraudulent reporting, timekeeping system manipulation, volume rebate programs and the like… this is why the industry must inwardly reflect and take the Association of National Advertisers (ANA) study on media transparency seriously.

Clearly opacity issues related to misleading practices employed by some within the agency community related to the pursuit of non-transparent revenue sources using client funds, for their self-gain negatively impact advertiser trust in their agency partners and ultimately erode the client/ agency relationship.

For Mr. Ishii and his team at Dentsu, we wish them luck in righting the proverbial ship and hope that their decision to use the holiday season as a time for deep reflection bears fruit.

 

 

Video: “The Truth Crisis: Marketing’s Biggest Challenge”

16 Aug

Interesting video from Campaign magazine … Click Here to watch.

transparency

Decision Time for Advertisers in Wake of ANA Study on Media Rebates

5 Jul

time to decideU.S. advertisers have long suspected their presence and agencies have steadfastly denied accepting rebates in the U.S. market. Depending on which side of the ledger one fell on, the ANA/ K2 study on media transparency may not have swayed your perspective on the topic one iota.

If such is the case, that is too bad. As the noted Irish playwright, George Bernard Shaw once said:

“Progress is impossible without change, and those who cannot change their mind cannot change anything.”

The study was thorough, insightful and shed light on some of the non-transparent sources of revenue available to agencies. These range from AVBs or rebates and value banks consisting of no-charge media weight to the spread earned by agency trading desks from the practice of media arbitrage or “principle buying” as it is often called. The source of these findings were agency, ad tech and publisher personnel that participated in the study in exchange for the ANA and K2 protecting their anonymity. Of note, not one representative from an agency holding company or ad agency was willing to go on the record and participate in this study.

We believe that the study should serve as a wake-up call for advertisers and agencies alike to engage in serious discussions regarding the level of disclosure desired by clients when it comes to the stewardship of their media investment. In the wake of the 4A’s shortsighted, premature withdrawal from the joint task force dealing with this topic and their subsequent challenges of the ANA/ K2 study methodology and findings, these discussions will have to occur on a one-on-one basis. Which, candidly, is the best means of affecting near-term change.

In most instances, it is not illegal for agencies to generate non-transparent revenue and is likely not even a violation of the agreements, which have been signed with their clients. Why? The contracts are lacking in the requisite control language to protect advertisers and agencies are masters at interpreting “gray areas” within those agreements and bending the rules in their favor. This coupled with the fact that only a small percentage of advertisers audit their agency partners and it is easy to see how such practices could exist.

Thus, as an industry we should not cast blame for the emergence of non-transparent revenue as an important element in agency remuneration programs… even if not sanctioned by advertisers. Nor should we accept the agencies excuse that client’s driving fees down somehow makes it acceptable for agencies to pursue non-transparent revenue to counter remuneration agreements, which agencies have knowingly signed on for.

Agencies are not suffering financially. Consider that in the first-quarter of 2016 the “Big 4” holding companies all saw increases in revenue ranging between 0.9% – 10.5%. WPP achieved a 10.5% increase on an 8.5% increase in billings, OMG saw net income per diluted share increase 8.4% and IPG achieved operating margins of 33.8%. Between these performances and media inflation outstripping GDP growth or increases in CPI and PPI it is easy to see how advertiser investments are fueling the trend of continued acquisition by these holding companies as they snatch up ad tech firms, content firms, digital agencies and traditional ad shops. Not to mention the fact that WPP’s chairman has an annual compensation package, which tops $100 million per year.

The focus of clients and agencies should be on returning to a principal/agent relationship predicated on full-disclosure. This is the surest path to rebuilding trust and establishing solid relationships focused on objectivity, transparency and a mutual focus on maximizing advertiser return-on-media-investment. Secondarily, both parties need to evaluate how to minimize the number of middlemen in the media buying loop, particularly for digital media, rethinking the role of ad tech firms, exchanges and publishers and the cut that each takes, lowering the advertisers working media ratios.

From our perspective there are four steps, which advertisers can take to address these issues:

  1. Revisit client/ agency Master Services Agreements to tighten terms and conditions, which deal with disclosure, financial stewardship and audit rights.
  2. Undertake constructive conversations regarding agency remuneration, with the goal of ensuring that your agency partners are fairly compensated, removing any incentive for non-transparent revenue generating behaviors.
  3. Pay more attention to the proper construction of statements of work (SOWs), establishing clear deliverables and review/ approval processes against which your agency partners can assess the resource investment required to achieve such deliverables. This will assist both client and agency in aligning remuneration, resources and expectations.
  4. Monitor agency performance, resource investment levels vis-à-vis the staffing plan and audit contract compliance to ensure that contractual controls and the resulting levels of protection and transparency are being met.

The ANA/ K2 study can and should serve as a platform for advertisers and their agency partners to work through any concerns or expectations regarding media transparency, both in the U.S. and across the globe. Experience suggests that progressive organizations will use the insights gleaned from the study as a launch pad for improving contractual controls, working media ratios and client/ agency relations.

For the industry, it is important to dispatch with concerns regarding media transparency quickly. This will allow all stakeholders to focus on tackling the myriad of issues that dramatically impact media effectiveness including ad fraud, cross channel audience delivery measurement, viewability and attribution modeling.

 

Will Transparency Concerns Undermine Trust?

17 Mar

transparencyAt the 2014 ANA “Agency Financial Management” conference, representatives from the Association of National Advertisers, Association of Canadian Advertisers and the World Federation of Advertisers each presented member survey results which indicated that their advertisers were concerned about the lack of transparency which existed into the financial stewardship of their advertising funds.

In their February, 2014 study, the ANA found that forty-six percent of the members’ surveyed expressed specific concern over the “transparency of media buys.” As contract compliance auditors, we know from our dealings that the resulting lack of clarity and in some instances, honesty surrounding issues such as data integrity, audience delivery, trading desks, reporting and financial reconciliations creates financial risks for advertisers. Sadly, the lack of transparency ultimately can serve to undermine attempts to improve trust levels between clients, agencies and media sellers. 

Fast forward one-year and two events come to light, which raise serious issues regarding trust.

The first was a speech made by Jon Mandel, former CEO of WPP’s Mediacom unit at the ANA’s “Media Leadership Conference” in early March, where he alleged the widespread use of volume based rebates or kickbacks from media sellers to agencies. He suggested that these practices, which have the potential to negatively affect advertisers, had migrated from cash advances to no-charge media weight which an agency can then deal back to clients or liquidate in barter deals. Mr. Mandel specifically stated that media agencies “…are not transparent about their actions. They recommend or implement media that is off strategy or off target if it works for their financial gain.”

The second event, which coincidentally involves Mr. Mandel’s former employer, Mediacom, deals with revelations regarding the use of “value banks” and the falsifying of media campaign reports by its Australia operation. For those not familiar with the term value bank, this is where media sellers provide a certain level of no-charge media weight to agencies based upon their aggregate client spending with that entity.

In a story which broke in Mumbarella, a media news website, it was reported that media “discrepancies” were found in late 2014 in an audit of Mediacom. The audit, conducted by EY was actually commissioned by Mediacom once it had learned of the problems. Among the findings of EY’s investigation were that Mediacom personnel had “altered the original demographic audience targets to make it appear as though the campaigns had reached the official OzTam audience ratings numbers.” Further, the review found that the agency had been taking “free or heavily discounted advertising time given to it by TV stations” and selling it back to its clients in violation of its parent company’s (GroupM) policy.

While Mediacom terminated several of the employees allegedly involved in these matters and pro-actively engaged an auditor, it should be noted that the audit found that the aforementioned fraud had been taking place undetected for a period of “at least two years.” This certainly raises questions regarding the efficacy of the controls that were in place at the agency to safeguard advertiser funds. The combination of lax controls and limited transparency had a negative financial impact on some of the agency’s largest clients (i.e. Yum! Brands, IAG, Foxtel).

As an aside, following Mr. Mandel’s comments to the ANA conference attendees, Rob Norman, Chief Digital Officer at WPP’s GroupM stated that; “In the U.S., rebates or other forms of hidden revenue are not part of GroupM’s trading relationships with vendors.” Sadly, in light of both Mr. Mandel’s revelations and the Mediacom Australia situation U.S. advertisers will likely take little solace in these reassurances from WPP. Worse, given the levels of advertiser concern about the lack of transparency within the industry, there is a high likelihood that other agencies will be painted by the same broad brush and assumed to be engaged in similar practices… whether they are or aren’t.

For an established industry with estimated 2014 global ad expenditures of $521.6 billion (source: MAGNA GLOBAL) it is amazing that some of the aforementioned practices would take place and that the industry would continue to deny rather than acknowledge their existence in an overt manner. Unchecked, the murky dealings of some media owners and a handful of agencies may ultimately push trust, not transparency to the fore of advertiser concerns and that is not a healthy dynamic when it comes to client/ agency relationships. The words of American humorist and journalist Kin Hubbard may serve to synthesize the crux of the issue:

“The hardest thing is to take less when you can get more.”

Interested in learning how you can improve your transparency into the financial management of your organizations marketing investment? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com.

 

 

 

 

Social Media Can Teach Us a Lot

15 Nov

social mediaI’m being polite.  The real point of this article is “Advertisers Beware.”  After serving as an agency account director and client-side marketing executive, I thought I had heard it all. However, after becoming involved in marketing accountability consulting my eyes were opened… or so I thought.  

Recently, a post by an agency media professional on a social media group to which I belong caught my attention.  The two-part question had to do with: 1) Whether or not an agency buyer should request unspent monies back from the media; and 2) If so, was the agency entitled to keep those funds.  What was surprising was not the question per se but some of the responses from group members, largely media buyers and sellers, suggesting it was appropriate for either or both of those parties to retain an advertiser’s unspent funds.     

Either the advertising industry has lost its moral compass or there is an urgent need for training and education in and around agency and media stakeholders’ fiduciary responsibilities to the advertiser.  As British philosopher and social critic Bertrand Russell once said: 

“We have two kinds of morality side by side: one which we preach but do not practice and another which we practice but seldom preach.” 

In our agency contract compliance auditing practice the need for education and a greater level of financial controls on the part of the advertiser is played out on a regular basis.  It is not uncommon to identify aged media credits that are extremely old or to learn that prompt payment discounts, volume discounts or AVB’s that have been earned by the advertiser have not yet been “processed.”  

For too many years the advertiser community has turned a blind eye toward many of the industry’s practices regarding agency and media use of advertiser funds.  These include items such as the interest income earned on float and the retention of compensatory media weight.  However, if there are stakeholders within various facets of the media purchasing cycle that are unclear about the need to return budgeted, but unspent funds to the advertiser than we should all take heed.  

This is obviously a serious issue and importantly one where there should be no debate.  The only answer to the aforementioned question is that media agencies and media owners have a fiduciary responsibility to their clients.  Any unused funds, media credits, compensatory media weight for underdelivery, prompt pay discounts and or rebates should go back to the advertiser, plain and simple.  Let’s remember, it is the advertisers’ money being invested, not the agency’s and not the media properties. 

Further, on the topic of AVBs, policy action is required by the ANA and 4A’s as it relates to the growing use of volume rebates both globally and within the U.S.  Advertisers should be reassured that their agencies are planning and deploying their media budgets in an optimal manner based upon sound, fact-based analysis tied to maximizing the advertiser’s return on media investment.  The faintest specter of allocation decisions being skewed by the presence of an AVB offered by the media to an agency holding company is simply inappropriate. 

However, as we all know, education and the enactment of industry policy takes time.  Consequently, in the short-term the best way for an advertiser to monitor their marketing investment may be through the use of independent contract compliance auditing.  

A good approach would be to begin with upgrading agency contract language to provide the requisite legal and financial safeguards to protect the advertiser’s interest on these topics and to incent all parties to conduct themselves in an appropriate manner.  This would be followed by some combination of contract compliance monitoring, performance assessments, billing reconciliations and time-of-staff/ fee reconciliation reviews.  In the end, this type of accountability program will both protect an advertiser’s interests and clearly communicate its expectations regarding “appropriate” behavior among its agents and 3rd party vendors when it comes to their financial obligations.  

Interested in learning more about the benefits of compliance auditing as a means of improving transparency into your marketing investment and control over the stewardship of those funds?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on the topic.

Media Rebate Follies Continue

17 Jul

media rebatesThe Association of National Advertisers (ANA) conducted a survey among 180 members with regard to the prominence of media rebates within the U.S. media market.  Of note, both the ANA and those members surveyed expressed concern about the existence and appropriateness of this practice. 

By way of background, media rebates or volume over-rides have been in use within the European advertising market for several years.  In essence, media properties offer advertising agency holding companies a financial incentive tied to their overall purchases of space and or time.  These rebates can take the form of cash rebates or no charge media weight which is banked by the agency holding company.  These rebates can range between 1% and 15% of the media commitment.  The agency community has long contended that this practice did not take place in the U.S.  Advertisers on the other hand have always had their doubts about those denials and with apparently good reason. 

In the recent ANA survey, 28% of the respondents indicated that they “were aware” of incentives being provided by the media to advertising agencies.  Further, 85% of the ANA members surveyed felt that those rebates should be passed along to the advertiser.  Yet in spite of these beliefs, only one-third of the respondents had client-agency contract language to that effect.   Of note, Bill Duggan, EVP of the ANA stated that; “Frankly what I find personally surprising is that agencies are doing this.  It’s in my opinion a totally inappropriate practice.”  Some of the ANA members echoed those sentiments indicating that it was a “dark and murky” area of the business that required greater transparency. 

Why the concern?  Quite simply, the notion that a media seller would offer a media buyer with a financial incentive to increase the level of media purchased from them raises a serious conflict of interest issue.  In fact, I cannot think of one cogent argument for the agency to participate at any level in the retention of volume over-rides at either the holding company or operating agency level.  The media agency has a fiduciary responsibility to its clients.  The advertiser needs to know with certainty that the resource allocation decision being made by its media agency are driven by sound, fact-based analysis tied to optimizing the advertisers return on media investment… not tied to the agency being able to supplement their revenue base. 

Having contract language that clearly defines what constitutes a “rebate,” how the advertisers pro-rata share of that rebate is to be calculated, in what currency that rebate is to be paid (cash or media) and the timing of those payments is a must.  However, that may not be enough.  Why?  The utter lack of transparency regarding these deals between global media concerns and global agency groups creates a series of challenges for the advertiser to assess the validity of the rebate amounts identified.  In our advertising agency contract compliance auditing practice we have often encountered scenarios where the advertiser was receiving quarterly “rebate” checks, but had no basis for calculating or forecasting the amounts of those rebates.  Of note, more often than not, the CFO of the operating agency does not have insight into how the holding company is allocating the rebates back to the client base. 

In our opinion, independent contract compliance auditing is a necessary compliment to solid contract language to protect the advertiser’s interest.  The knowledge gleaned across multiple audit engagements and the subject matter expertise necessary to even identify the presence of a rebate program, let alone calculate payment levels is crucial. 

Let’s remember one fact.  The multi-national agency holding companies are publicly traded entities.  They are responsible for accreting shareholder value… their shareholders, not the advertisers.  The incremental profit margin on volume over-ride programs, interest income from float, the mark-up on in-house studio or trading desk charges and the like is significant.  To be clear, no one begrudges an agency from profiting on the investments which they make in building out their infrastructure and resource offering to improve performance or operating efficiencies.  The issue is quite simply one of transparency.  In the case of rebates, it is the advertisers’ money being invested, not the agency’s.  Therefore, any economic benefit should come back to the advertiser, plain and simple. 

Hopefully the ANA’s recent survey on this topic results in meaningful dialogue within the advertising community over this practice and how to monitor and control its use within the U.S. market.  However, no one should be surprised with regard to the existence of these programs.  In a March 3, 2008 BusinessWeek article entitled; “An Adman Tests the Limits” Irwin Gotlieb Chairman of WPP’s Group M media operation stated that the agency had begun to pursue rebate programs with U.S. based outdoor advertising companies and that they were looking at other media channels to expand the concept to in the U.S. market.  

Interested in learning more about the utilization of rebates and how to implement the appropriate controls and transparency?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this topic.

 

%d bloggers like this: