Tag Archives: FBI

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.

 

 

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