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What if You Discovered That Your Digital Dollar Netted You a Dime’s Worth of Digital Media?

12 Feb

dreamstime_xs_2601647In 2014, the World Federation of Advertisers conducted a study which demonstrated that “only fifty-four cents of every media dollar in programmatic digital media buying” goes to the publisher, with the balance being divvied up by agency trading desks, DSPs and ad networks.

Fast forward to the spring of 2016 and a study by Technology Business Research (TBR) suggested that “only 40% of digital buys are going to working media.” TBR reported that 29% went to fund agency services and 31% to cover the cost of technology used to process those buys.

Where does the money go? For programmatic digital media, the advertiser’s dollar is spread across the following agents and platforms:

  • Agency campaign management fees
  • Technology fees (DMP, DSP, Adserving)
  • Data/Audience Targeting fees
  • Ad blocking pre/post
  • Verification (target delivery, ad fraud, brand safety)
  • Pre-bid & post-bid evaluation fees

It should be noted that the fees paid to the above providers are exclusive of fees and mark-ups added by SSPs, exchanges or publishers that are blind to both ad agencies and advertisers. What? That is correct. Given the complex nature of the digital ecosystem, impression level costs can be easily camouflaged by DSPs and SSPs. Thus, most advertisers (and their agencies) do not have a line-of-sight into true working media levels…even if they employ a cost-disclosed programmatic buying model (which is rare).

Take for example the fact that a large preponderance of programmatic digital media is placed on a real-time bidding or RTB basis, and a majority of that, is executed using a second-price auction methodology. With second-price auctions, the portion of the transaction that occurs between a buyer’s bid and when the clearing price is executed without advertiser or agency visibility, thus allowing exchanges to apply clearing or bid management fees and mark-ups as they see fit. So for example, if two advertisers place a bid for inventory, one at $20 per thousand and the other at $15 per thousand, the advertiser who placed the higher bid of $20 would win, but the “sale price” would be only one-cent more than the next highest bid, or $15.01. However, advertisers are charged the “cleared price,” (could be as high as $20 in this example) which is determined after the exchange applies clearing or bid management fees. How much you ask? Only the exchanges know and this is information not readily shared.

Earlier this month Digiday ran an article entitled, “We Go Straight to the Publisher: Advertisers Beware of SSPs Arbitraging Media” which profiled a practice used by supply-side platforms (SSPs) that “misrepresent themselves.” How? By “reselling inventory and misstating which publishers they represent.” The net effect of this practice allow the exchanges an opportunity to “repackage and resell inventory” that they don’t actually have access to for publishers that they don’t have a relationship with.

Let’s look beyond programmatic digital media. Consider the findings from a Morgan Stanley analyst, reported in a New York Times article in early 2016 that stated that, “In the first quarter of 2016, 85 cents of every new dollar spent in online advertising will go to Google or Facebook.” What is significant here is that until very recently, these two entities have self-reported their performance, failing to embrace independent, industry accredited resources to verify their audience delivery numbers.  

The pitfalls of publisher self-reporting came to light this past fall when Facebook was found to have vastly overstated video viewing metric to advertisers for a period of two years between 60% and 80%.  

By the time one factors in the impact of fraud and non-human viewing, and or inventory that doesn’t adhere to digital media buying guidelines and viewability standards, it’s easy to understand the real risk to advertisers and the further dilution of their digital working media investment.

Advertisers have every right to wonder what exactly is going on with their digital media spend, why the process is so opaque and why the pace of industry progress to remedy these concerns has seemingly been so slow. Sadly, in spite of the leadership efforts of the Association of National Advertisers (ANA), The World Federation of Advertisers (WFA), The ISBA, The Association of Canadian Advertisers and the Interactive Advertising Bureau (IAB) there is still much work to be done.

The question that we have continually raised is, “With advertisers continuing to allocate an ever increasing level of their media share-of-wallet to digital, where is the impetus for change?” After all, in spite of all of the known risks and the lack of transparency, the inflow of ad dollars has been nothing short of spectacular. According to eMarketer, digital media spend in the U.S. alone for 2016 eclipsed $72 billion and accounted for 37% of total media spending.

There are steps that advertisers can take to both safeguard and optimize their digital media investment. Interested in learn more? Contact Cliff Campeau, Principal of AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation. After all, as Warren Buffett once said:

“Risk comes from not knowing what you’re doing.”

Advertisers: Buying Guidelines Matter

25 Jan

compliance-rulesAdvertisers and their media agency partners spend countless hours, invest significant energy and apply a wealth of creativity in crafting their initial media plans and updating those plans to address internal issues, marketplace opportunities and or competitor moves over the course of a budget year.

The question is: “Do advertisers and their media agency partners spend enough time ensuring that those plans are actually executed to their fullest during the investment phase of the media buying cycle?”

In our experience, the direct answer is “No.” The hand-off from media planning to media buying and the accompanying media process controls, forms and reporting are often inadequate as is the level of oversight applied on a post plan approval basis.

Advertisers, if you’re wondering whether or not this is the case with your organization, it may be worth reviewing the following processes, forms and reports for their thoroughness and the extent to which they are reviewed and monitored over the course of a media campaign:

  • Buying Guidelines – When was the last time you reviewed your organization’s buying guidelines? Did you approve them? Are they current? Are they comprehensive enough to safeguard your interests and optimize your message reach? Have they been created for each media channel purchased or for TV only? How are these guidelines communicated to media sellers? Does your agency monitor and or report on buying guideline adherence? What are the consequences to the agency and or the media sellers if these guidelines are not complied with? Too often we find that this important communication bridge between media planning and media buying has not been satisfactorily completed or is so lacking in detail and or coverage across media that it is ineffectual. This is a critical mistake. Buying guidelines represent the explicit instructions from the agency planning team to their associates in buying and ultimately to the media sellers for how the client-approved plan is to be executed, stewarded and its performance assessed. Shortfalls in this area negatively impact media delivery and marketing ROI in a very direct manner.
  • Request for Proposals (RFPs) – Whether sent manually or digitally by the agency to media sellers, this process is often fraught with shortcomings. These include insufficient time afforded publishers to effectively respond to the RFP requests; and not enough information provided on the advertiser and or their specific goals to facilitate the publisher to tailor their proposal to the advertiser’s needs. From an advertiser’s perspective, often times these documents fail to ask for feedback on important issues such as whether or not digital publishers employ third-party vendors for website traffic sourcing. In other instances, RFPs fail to communicate critical performance standards such as viewability standards for digital media or in establishing the advertiser’s position on whether or not they will pay for non-human or fraudulent traffic. It would be a worthwhile practice for Advertisers to periodically review the level of detail contained in their media agency’s RFP templates and review completed RFPs to understand the basis for why certain RFPs were accepted or acted upon and others rejected.
  • Insertion Orders & Buy Confirmation Letters – The primary focus with these important control documents is to establish the specific tenets of the deal (i.e. audience delivery, performance guidelines, basis for evaluating performance, make good policies, etc.). Unfortunately, in our media agency compliance audit practice, we regularly discover incomplete documentation in this area that fails to establish enforceable delivery thresholds or basic qualitative standards to safeguard an advertiser’s media investment. In this era of “Big Data,” it is important for agencies to assert their clients’ data access and ownership rights. This relates generally to the audience modeling and transactional data generated as part of their media investment, and in the case of programmatic media buys, specifically to items such as winning bid log files and the associated meta data from all suppliers, including DSPs. Ensuring these types of data access and ownership rights are essential for advertisers if they want to have a clear line-of-sight into impression level pricing prior to the addition of the myriad number of fees and mark-ups charged by third-party suppliers. These documents also present an excellent opportunity for agencies to reinforce the agreed upon advertiser data protection guidelines such as how an advertiser’s data will be siloed, how long it will be stored and the extent to which the suppliers will limit other advertisers and third-parties access to such data.
  • Post-Buy Performance Reporting – There are three primary concerns in this area, aside from whether or not performance reporting is even being conducted. First, how are media buys monitored and stewarded while underway? What is the agency doing to monitor campaign delivery and to optimize performance in-flight? Second, is the agency monitoring performance across all media? More often than not we find agencies conducting television post-buys or digital media performance analysis, but totally ignoring other media elements altogether. Third, are the post-performance reports provided in a timely manner and include the level of detail necessary to hold media sellers accountable and provide meaningful insights that shape future media plans and buys?

Without a solid media stewardship process that incorporates sound control documents, continuous monitoring and comprehensive post-performance analysis, even the most thoughtful and compelling media plans will fall short of their potential. Advertisers could well benefit from conducting periodic reviews of their media agencies approach and performance during this phase of the media investment cycle. In the words of W.B. Sebald, twentieth-century German academic and author:

“Tiny details imperceptible to us decide everything!”

 Interested in learning more about the role of media buying guidelines and controls in safeguarding your media investment? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation on this topic. 

 

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.

 

 

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

3 Oct

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

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

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

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

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

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

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

 

 

 

 

Is It Too Late for the 4A’s on the Topic of Transparency?

26 Sep

toolateEarlier this month, the 4A’s announced that it was pulling out of the Association of National Advertisers (ANA) “Transparency” panel scheduled during Advertising Week in New York City.

In light of the organization’s decision to break from ANA / 4A’s joint media transparency initiative earlier this spring, ostensibly to chart its own course, this move comes as no surprise. However, it is nonetheless disappointing. After all, why wouldn’t the 4A’s and it member agencies want to share the stage with the ANA to address the advertiser community on the topic of transparency?

The quest for improved standards and performance related to transparency would benefit mightily from the involvement of the 4A’s. The ANA, advertisers and many within the agency community have sought the 4A’s cooperation on this issue and would welcome a united effort to address this topic.

Clearly a full-court press is necessary if the industry is going to improve both transparency and ultimately the level of trust between advertisers, agencies and publishers. Aside from the eye opening findings from ANA / K2 study on media transparency, there have been two recent announcements that certainly seem to bolster the results of this study. First, just this past week Facebook indicated that it had misrepresented average viewing times for video ads played on its site. Secondly, the global agency holding company Dentsu came forward and cited multiple instances where there were “failures of placement,” “false reporting” and “inappropriate operations” which impacted over 100 of their clients. Dentsu’s CEO, Tadashi Ishii issued a statement saying that there were “instances where our invoices did not reflect actual results, resulting in unjust, overcharged billings.”

In fact, the impact of the 4A’s decision has resulted in two agencies, Empower and Mediasmith, pulling out of the 4A’s citing the associations failure to take a more progressive stance when it comes to working more closely with the ANA to resolve the issue of media transparency.

From the perspective of advertisers, they are rightly concerned about the issue of transparency and are taking matters into their own hands. Consider the September 23rd article in the Wall Street Journal; “Major Marketers Audit Agencies“ in which firms such as J.P. Morgan, General Electric Nationwide Mutual Insurance and Sears Holdings Corp. indicated that they “had hired outside counsel” to conduct audits, due in part to the ANA study. Additionally, the article identified more than a half-dozen other firms that are “trying to get more liberal auditing rights” to improve the protections afforded them under their Client/ Agency agreements.

Given the importance of transparency and full-disclosure in establishing productive, long-term relationships between advertisers and agencies it is unclear what the 4A’S hopes to gain with its current approach. While the 4A’s has issued transparency guidelines of their own, advertisers and many industry observers have indicated unequivocally that these guidelines are inherently biased in favor of the agency holding companies and that they simply don’t go far enough to address advertiser transparency concerns.

The very fact that many agencies are deriving non-transparent revenue from the budgetary dollars entrusted to them by advertisers is an affront to a principal-agent relationship. And even if, as some agency leaders have suggested, not all client / agency contracts espouse a principal-agent relationship, it is simply not a good practice (and promotes distrust) for an agency to leverage an advertiser’s funds for its financial benefit without its knowledge. This is particularly true when such gains undermine the notion of “objectivity” when it comes to the media investment counsel being provided by these agencies to their clients.

Noted novelist, Thomas Hardy once said that, “The resolution to avoid an evil is seldom framed till the evil is so far advanced as to make avoidance impossible.” One might argue that as an industry, when it comes to transparency, trust and their impact on client / agency relationships the point in time to frame a resolution is long past due. Sadly, for the 4A’s, change is afoot and the organization’s actions may render it as an observer rather than a co-author of a doctrine for positive change.

 

 

 

 

 

 

Funding Accountability Initiatives

26 Aug

Accountability FinalThe desire on the part of many advertisers to extend their organization’s accountability initiative to marketing is high. This is due to the fact that marketing is both one of the largest indirect expense categories within an organization and, for those that believe in its ability to drive strategic outcomes, critical in driving brand value and demand generation.

One of the key challenges for Internal Audit and Procurement professionals in implementing accountability programs is that they typically do not have a budget to fund the projects. Rather, they are reliant on their peers in Marketing to “buy in” to the concept and to underwrite the investment associated with analyzing contract compliance, financial management and in-market performance across their agency networks. This dynamic can create a loggerhead that delays or prevents corporate scrutiny into marketing and advertising spending and its resulting business impact.

The irony is that relative to the millions of dollars invested in marketing, the cost of implementing an accountability program for this corporate function is much less than one-percent of total spend. As we know, applying the skills and capabilities of audit and procurement teams and outside consultants typically results in improved controls that mitigate financial and legal risks to the organization. Further, these efforts often uncover historical errors and overbillings, and always generate future savings and improved marketing return-on-investment opportunities that more than offset the cost of the program.

It has always been a mystery as to why more advertisers simply don’t formalize and legislate the marketing accountability program and establish the requisite budget to be administered by the CFO / Finance organization. A minority of our clients operate in this manner, but clearly a “win, win” situation is created where internal audit and procurement provide their support and apply their resources pro-actively and marketing doesn’t feel as though funding is coming at the expense of critical business building programs within their budgets.

From our perspective, the source of funding for extending a corporate accountability initiative to marketing is the last hurdle. The reason is that we have seen marketing’s appreciation for accountability support grow along with their respect for the audit and procurement functions and a recognition that such programs can improve the efficiency and efficacy of the organization’s marketing spend.

The advertising industry is a complex; rapidly changing, technology-driven sector fraught with opacity challenges and risks such as digital media fraud and non-transparent revenue practices employed by agencies, ad tech providers, ad exchanges and media sellers. In light of these dynamics, organizations truly understand the benefit of monitoring the disposition of their marketing investment and the performance of their advertising agencies and third-party vendors.

It has been over 140 years since Philadelphia merchant John Wanamaker offered the following perspective on his ad spend:

Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

Yet, with the passage of time it would be difficult for the industry to suggest that much has changed with regard to a marketers ability to accurately assess the efficacy of their advertising spend.

There is no time like the present to proactively develop; implement and fund transformative accountability programs that can optimize planned business outcomes, while safeguarding marketing spend at every level of the advertising investment cycle.

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

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

16 Aug

Interesting video from Campaign magazine … Click Here to watch.

transparency

Key to Media ROI: Chief Media Officer or Compliance Auditing Support?

14 Aug

AccountabilityIn the wake of this spring’s Association of National Advertisers (ANA) “Media Transparency” study, conducted by K2, many in the industry have suggested that advertisers add a Chief Media Officer to staff to assist them in navigating what is clearly a complex, rapidly changing industry. For those advertisers that have the financial wherewithal to support such a position, the benefits could be significant when it comes to strategy development, planning and stewardship of their media agencies and extended supplier base.

That said, the dynamics which impact media return-on-investment require resources that go well beyond the reach, and sometimes knowledge, of a Chief Media Officer and create an entirely different set of challenges even for those organization’s that do have the luxury of adding a seasoned, media executive to their staff.

The findings of the ANA/K2 study dealt with non-transparent media agency practices effecting advertisers such as: rebates taken at the agency holding company level and not passed through to advertisers, media arbitrage, value banks, related party transactions and inappropriate mark-up on both media and non-media expenses. The economic and relationship impact of these practices, and the continued adverse effects of digital ad fraud and viewability challenges besetting the industry, all serve to greatly reduce the efficacy of an advertiser’s media investment.

Experience suggests that the key to resolving these issues is more likely rooted in the development of a sound, broad reaching media accountability program. One which focuses on improving client/agency contract language, client/ agency focused communications, financial and legal controls and enhancing advertiser transparency rights that allow clarity into the disposition of their funds at each stage of the media investment cycle.

This is not an easy task in an industry still largely reliant on an estimated billing model, with inordinately long campaign closing/reconciliation processes and multiple third-party vendors and middlemen, which all serve to negatively impact working media ratios.

Add to this the fact that the C-Suite within many advertiser organizations simply doesn’t pay much attention to media, in spite of the materiality of spend in this important area. Consider the results from a July ANA study, conducted by Advertiser Perceptions, following the release of the ANA/ K2 study:

Only one-quarter (25%) of advertisers surveyed were aware of the ANA’s media transparency study.

We believe that advertisers do care about how their media funds are being managed. However, we also know that very few organizations know what happens to their money, once an agency invoice has been paid.

It is for this reason that we believe strongly in the vast benefits that a structured, agency compliance and financial management auditing program. One that can also assist advertisers by providing a context for understanding the scope of the risks they face when it comes to building mitigating controls to optimize their media investment.

At present, few advertisers undertake such testing and even fewer have the requisite industry experience and specific media-based accounting, auditing and fraud examination experience represented in-house. Additionally, we have yet to evidence a client organization that has implemented the requisite software in their media function capable of processing and catching media billing discrepancies and performing other detailed financial analysis on their media investment.

We have learned over the years that the implementation of such controls yields tangible value far in excess of the cost to support such efforts.

The combination of financial loss related to approved but unspent media funds, earned but unprocessed credits and rebates, billing errors, unreconciled pass-through expenses and related party transparency issues can range between 2.0% and 5.0% of total agency billings. Once aware of the causes, savings are realized year-over-year by implementing improved process changes and treasury management.

With this as a backdrop, imagine an organization investing tens of millions or hundreds of millions of dollars on media. The resulting financial benefits, combined with improved controls, enhanced risk mitigation and transparency most assuredly will secure the attention of the C-Suite and their support for media agency compliance auditing.

Interested in learning how to start improving your media transparency today? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation.

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.

 

Seeing Their Way to Digital Media Growth

21 Mar

Vision MissionDigital advertising spend will surpass television in 2017. This according to eMarketer, which is forecasting that digital ad expenditures will grow to $77.3 billion, while spending for television will increase to $72.0 billion.

This growth comes in spite of continued advertiser concern regarding transparency and the fact that 40% to 60% of their working digital media dollars are being absorbed into inventory margin.

With this as a backdrop, we have noted a couple of interesting trends in the digital media space, that directly and positively addresses these concerns.

First and foremost, there have been a number of agencies that have embraced a more transparent model when it comes to digital media planning and placement. They are looking to directly appeal to advertisers’ opacity-busting inclinations and their desire to improve working media ratios.

What are they offering? In short, they are structuring their service and financial management models to eliminate the hidden fees, double charging, rebates, kickbacks and media arbitrage practices employed by a host of traditional media agencies operating in the digital space.

The common link among these progressive agencies is to take more of a consultative approach to working with their clients to solve for the best method to drive brand engagement and to improve consumer experiences. These shops fundamentally understand the importance of integrating customer relationship management (CRM) and online media to create personalized customer interactions across each stage of the marketing lifecycle.

Recognizing the rapid advances occurring on the data analytics and ad tech fronts, they are agnostic when it comes to their role as a full-service or managed service provider. These agencies have come to realize the importance of integrating first, second and third party data and that from a privacy and data governance perspective advertiser ownership of such data may be a more appropriate path forward.

Additionally, they are open to working with their clients to help facilitate direct relationships between advertisers and technology providers to eliminate duplicate costs and boost transparency. They have a comfort level with direct-bill third-party media payment processing models which afford advertisers the opportunity to see exactly what the net media cost is.

For advertisers’ who are comfortable using the agency’s technology stack, no problem. For those that are interested in migrating that ownership in-house, they will consult and work to design and implement an approach that will work best for their clients. This could include everything from identifying DMP, DSP and ad server options to suggesting viewability optimization, fraud prevention and modeling tools. This new breed of agency recognizes that cutting out the middlemen from these areas can greatly enhance an advertiser’s working media ratios.

The benefit of this approach is profound when one considers that according to a recent survey by Technology Business Research (TBR) among 240 ad technology users in North America and Western Europe, they found that “only about 40% of digital advertising budgets are currently going toward working media” and that “the second biggest allocation – 31% of budgets – was going to pay for technology” with the balance being applied to “pay for agency services.”

The second trend that is having a meaningful impact in the digital advertising space is the continued expansion of services offered by technology consultants including IBM, Deloitte, Accenture and McKinsey. These firms have made strategic acquisitions and or built resource bases in the creative design area which allow them to complement their technology integration offerings and provide comprehensive end-to-end solutions. These firms’ gains will likely be to the detriment of traditional advertising agencies as the roles of data management and digital media continue to grow in the coming years.

As Jon Suarez-Davis, Chief Marketing and Strategy officer for Krux recently stated: “Marketers want absolute transparency across the value chain.” Mr. Suarez-Davis’ opinion, based upon his experience on both the ad technology and client-side, where he managed digital media for the Kellogg Company, is that advertisers “would like to have the technology and other non-working costs (that aren’t related to impression delivery) separated.”

 As the comedian Bill Hicks, so accurately opined:

We are the facilitators of our own creative evolution.”

The agencies and consultants that understand this dynamic and have a willingness to morph their service delivery and compensation models to address advertiser desires in these areas will be well positioned to boost their relevancy and revenue growth potential in the coming years. Those that don’t may struggle to keep pace as advertisers take a more proactive approach to optimizing their digital media investment.

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