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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.

 

 

Transparency Concerns Extend from Media to In-House Production Services

16 Oct

agency in-house productionEarlier this week The Association of Independent Creative Editors (AICE) posted a statement dealing with untoward agency business practices in the area of in-house production services on its website.

This action was enough to get the attention of two important industry stakeholders; AdAge who wrote an article entitled; “Trade Group Blasts Agencies for Shady In-House Post Practices” and the Association of National Advertisers (ANA) which voiced support of the AICE for going public with their concerns in an association blog post.

The AICE’s claims include the claims that “agencies lack transparency, ethics and fairness” when it comes to securing business for their in-house production units. While the AICE may have a certain level of bias, the directness of their statements and the allegations being leveled should cause advertisers to reflect on this particular agency service offering.

In our agency contract compliance auditing practice, one of the trends that we have noted over the last several years has been the increased level of advertiser billings which are running through agency production services groups. Perhaps more importantly, beyond the publication of a “rate card” for select production services, there is little in the way of transparency into the composition or competitiveness of those rates. Yet here to for it is an area that has attracted little in the way of advertiser attention.

Interested in learning more? You can read the AICE’s post in its entirety by clicking here.

Are Advertisers Fully Realizing the Benefits of These Production Trends?

2 May

digital production managementPerhaps one of the more significant trends within the advertising industry in the last decade has been the advent of digital asset management platforms and the continued move toward the decoupling of creative development and cross platform production.  

These innovations have resulted in a number of meaningful benefits for advertisers including; the ability to maintain consistent brand standards across the globe, minimizing required production lead times and reducing expenses in this area.  Agency holding companies to have been the beneficiaries of improved efficiencies tied to their horizontal strategy of creating in-network production centers to serve clients across their network of agencies.  There have been numerous reports from agencies indicating that this de-coupled, centralized approach to advertising production can generate savings for their clients in the range of 20% to 50%. 

There is another trend which is positively impacting production efficiencies… “offshoring.”  Ironically, the practice of offshoring is not talked about quite as openly or as often between advertisers and agencies.  Considered a global best practice in the digital production sector, the ability to leverage an advertiser’s digital asset repository from anywhere in the world has fueled the rise of digital production hubs in markets such as Bogota, Colombia, Sao Palo, Brazil and New Delhi, India.  The reason is straight forward.  These markets provide access to a growing talent pool of digital production specialists, while offering comparatively low labor costs that can be as much as 70% below that of North American and Western European markets.  

In our agency contract compliance auditing practice we review numerous client-agency agreements complete with agency staffing plans, labor and studio rate sheets and direct labor cost work-ups.  Of note, it is rare that these documents provide any transparency into an agency’s use of in-network production centers or their utilization of an offshoring strategy.  Rather, we see agency overhead and direct labor rates by function, which reflect more traditional staffing models and costs affiliated with U.S. creative hubs such as New York, San Francisco and Chicago.     

The obvious question to be asked is; “Are advertisers fully participating in the efficiency gains related to these practices?”  Based upon our experience, too often advertisers do not have the requisite transparency into this area to assess the extent to which any realized production efficiencies are flowing through to their bottom line.  As the twentieth-century U.S. architect and engineer, Richard Buckminster Fuller once said: 

“None of the world’s problems will have a solution until the world’s individuals become thoroughly self-educated.” 

Interested in learning more about your true production costs?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com to schedule your complimentary consultation on this important topic today. 

 

Is the Notion of Uncoupling Production from Creative Really That Foreign?

5 Mar

There is an interesting approach in the creative services procurement area that has been gaining traction among large, multi-national advertisers… the “unbundling” of creative and production services. As part of this unbundling process, advertisers turn to a production specialist, rather than their creative agencies as a resource for generating creative outputs.

At first glance, this seemed an unusual move fraught with agency management challenges and the risk of sub-standard creative outputs tied to the uncoupling process. However, upon further reflection, the approach is not dissimilar to the process employed today. The chief difference is that the advertiser serves on point in sourcing and managing the production resource rather than the agency. Aside from the obvious improvement in agency fee transparency tied to the segregation of services, the benefits are certainly intriguing.

With the advent of technology enhancements in the area of digital brand asset management systems, a production resource that can provide support across multiple regions and generate outputs for a myriad of media touch points could improve the effectiveness and efficiency of the advertiser’s creative development process. How? Effectiveness can be enhanced by the ability to manage brand expressions on a consistent basis, around the globe and across media. From an efficiency perspective the centralized control afforded by a brand asset management system and a client sourced production resource will improve the level of repurposing of creative assets, thus reducing the need to recreate the wheel time and time again across an advertiser’s creative agency network.

Finally, in a market where response time is a highly prized commodity, this approach will help advertisers carve time out of the creative development cycle. Interested.in an agency professional’s take on this approach? Check out the following blog by Steve Puttock, Managing Director of Schwak London Read More.

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