Tag Archives: rebates

Exchanges Seek Outside Support to Reform

18 Oct

Tag LogoMuch needed reforms could be coming to the programmatic digital media marketplace. Earlier this week it was reported that several of the top exchanges had reached out to the Trustworthy Accountability Group (TAG) for help in cleaning up some of the non-toward practices that have plagued advertisers.

Of note, these exchanges have agreed to not to charge hidden fees or give rebates to unduly influence agency holding companies. Further, they pledge to notify buyers in advance if they change auction dynamics, to clearly mark first-price and second-price auctions and not to bid cache without notice.  

Translation, the exchanges 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 decideRead More

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.

Is the Ad Industry on the Verge of a Revolution?

25 May

White clock with words Time for Action on its face

“It was the best of times, it was the worst of times…” Charles Dickens evocative opening to his book; “A Tale of Two Cities” described the period leading up to the French revolution. It may also be an apt description of where the ad industry and advertisers stand on the topics of transparency, fraud and trust.

As an industry, all stakeholders, including advertisers, agencies, ad tech firms, media sellers and the various associations, which serve these constituencies have long been talking about the need to implement corrective measures. Joint task forces have been formed, initiatives launched and guidelines published, yet little progress has been made in addressing these issues. As evidence of the quagmire, one need look no further than the 2016 Association of National Advertisers (ANA) and White Ops report on digital ad fraud, which saw the estimated level of thievery increase by $1 billion in 2015 to an estimated $7 billion annually. This led Bob Liodice, CEO of the ANA to boldly and rightfully tell attendees at this year’s ANA “Agency Financial Management” conference that; “marketers are getting their money stolen.”

The ANA’s message has resonated with the C-Suite within advertiser organizations the world over as CEOs, CFOs CIAs and CPO’s are working with their chief marketing officers to both assess the risks to their organizations and in fashioning solutions to safeguard their advertising investments. From this pundit’s perspective, it was refreshing to see the ANA take such a strong stance and a welcomed leadership position on remedying these blights on our industry.

Some may view the ANA’s recent stance on fraud and transparency and the upcoming release of its study with K2 on the use of agency volume bonuses (AVBs) or rebates as incendiary. However, in light of the scope of the economic losses, financial and legal risks to advertisers and the havoc which transparency concerns have wreaked on advertiser/ agency relationships we view the ANA’s approach as a rational, measured and necessary stake in the ground.

Mr. Liodice was not casting blame when he suggested that the K2 survey would “be a black and white report that for us (ANA) will be unassailable documentation of what the truth is.” It is refreshing to see an industry association elevate dialog around the need for full-disclosure, moving from disparate opinions to establishing a fact-based perspective on the scope of this practice. To the ANA’s credit, this will be followed by a second report, authored by Ebiquity/ Firm Decisions, introducing guidelines for the industry to proactively address the issue.

To be clear, it is not a level playing field for advertisers. There are many forces at play as a variety of entities look to siphon off portions of an advertisers media investment for their own financial gain. Thus, we’re hopeful that the ANA’s message to marketers to “take responsibility” for their financial and contractual affairs when it comes to protecting their advertising investment takes hold.

In our experience, the path forward for advertisers is clear. It begins with re-evaluating their marketing service agency contracts to integrate “best practice” language that provides the requisite legal and financial safeguards. Additionally, this document should clearly establish performance expectations for each of their agency partners, introducing guidelines to minimize the impact of fraud, including mandating the use of fraud prevention and traffic validation technology, banning the use of publisher sites that employ traffic sourcing and establishing a full-disclosure, principal-agent relationship with their agency partners.

Experience suggests that another key element of a well-rounded accountability initiative should include the ongoing, systematic monitoring of agency contract compliance and financial management performance to evaluate progress. Of note, wherever possible, these controls and practices should extend to direct non-agency vendors and third-party vendors involved with the planning, creation and distribution of and advertisers messaging.

The advertising industry is on the verge of a revolution and for the sake of advertisers we hope so. One that can usher in positive change and allow all legitimate stakeholders to refocus their collective energies on building productive relationships predicated on trust. It is our belief that knowledge and transparency are critical cornerstones in this process:

“I believe in innovation – and that the way you get innovation is you learn the basic facts.”

                                                                                                                                                  ~ Bill Gates

What is the True Cost of Opacity? (part 1 of 2)

29 Apr

icebergPart 1 in a two-part look advertiser concerns regarding “transparency” and the impact it is having on client-agency relations.

Ad industry concerns regarding the issue of transparency and the trust which exists between advertisers and their agencies have taken a new, decidedly negative turn over the course of the last month.  What had been largely an “in-house” debate focused on items such as AVBs, programmatic buying, media arbitrage and concerns over digital media viewability was thrust into the limelight as the result of one Wall Street analyst’s recommendation that ad agency holding company investors “sell their shares.”

The recent revelations about the utilization of media rebates or AVBs in the U.S. marketplace and the resulting firestorm in the advertising trade press seems to have been the tipping point that spurred Brian Wieser a Senior Analyst from Pivotal Research Group to downgrade the stocks of IPG, Omnicom, WPP and Publicis and to recommend that investors exit the category. Mr. Wieser’s recommendation provoked an additional round of denials by some holding company CEOs regarding the practice of agencies accepting rebates in the U.S. and spurred some debate amongst the holding companies about the transparency of their revenue realization processes. One notable CEO, Sir Martin Sorrell of WPP reiterated his company’s policy regarding rebates and encouraged WPP’s competitors to be more forthcoming on that front; “We said what the model is in the U.S., the way it’s a non-rebate model. We’ve made that quite clear. I would urge greater transparency in what’s happening to net sales and revenues, then we would have less black box and more open box.”

While the topic of rebates seems to have garnered a lion share of the attention, when it comes to transparency the rebate issue carries with it much less financial risk than the challenges associated with the rapidly evolving digital media landscape. Consider the fact that various research studies have suggested that digital media advertisers may be losing 50% + of their investment to click fraud, bots, piracy and excessive fees related to supply chain complexity.

Given that digital media now ranks second only to television in terms of media spending and that it continues to grow at double-digit rates the potential for Wall Street commentary regarding advertiser investment in this area could be much more problematic. For instance, at the recent ANA conference on “Agency Financial Management,” Peter Stabler, Managing Director, Senior Equities Analyst with Wells Fargo Securities raised concerns about one particular aspect of the digital media space… agency trading desks. Specifically, Mr. Stabler cited the inconsistent manner in which holding companies report on trading desk operations, the potential for the proceeds from trading desks to inflate revenues and create margin dissolution and the potential for conflict-of-interest concerns between advertisers and their agencies.

If there is a silver lining to this maelstrom, now that the genie is out of the proverbial bottle, perhaps the highly charged nature of these issues can serve as a galvanizing force to bring clients and agencies together to address these issues in an objective manner… without the emotion and finger-pointing which has characterized the discussions to date. Let’s face it, the last thing either party wants is to see their market capitalization rates decline because analysts and investors have concerns about how they transact business and or the state of client-agency relations. 

While the individual issues raised are substantive, many feel that they have taken on additional import as a result of an erosion of trust between clients and agencies. Thus, shoring up the strength of these strategic relationships could yield significant asset value both in the context of issue resolution and the ongoing business of building brands and generating demand. As automotive pioneer Henry Ford once said;

If everyone is moving forward together, then success takes care of itself.”

In our opinion, the best place to begin is to develop a sound client-agency letter-of-agreement, which clearly articulates both parties expectations and desired behaviors. Further, the agreement should specifically identify the level of disclosure required by the client of the agency, their related parties (i.e. holding companies, sister agencies, trading desk operations, in-house studios, etc…) and their third-party vendors. We believe that this is a critical first step in establishing accountability standards and controls.

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.

 

 

 

 

When Agencies Become Resellers

26 Nov

agencies as resellersEase of access, streamlined delivery, cost-efficiency and enhanced profitability are all viable bi-products of vertical integration.  There is no arguing that businesses can realize value by minimizing their own costs, while simultaneously influencing market rates and their competitors’ costs. 

But what if that business is an advertising agency?  Viewed through the eyes of an agency holding company and its shareowners, vertical integration is quite intriguing.  On the other hand, from the perspective of the clients they serve, the concept raises some moral and fiduciary concerns that should be addressed in the context of a client-agency agreement.

Some would argue that it is never appropriate for an agency to become a reseller of goods and or services.  Others might suggest that as long as it allows the agency to deliver better-than-market values or efficiencies, why not, the client is the beneficiary.  Where one stands on the issue is no longer material.  Why?  The proverbial “train has left the station” as agency holding companies have continued to rely on vertical integration strategies as an important means of driving agency revenues and profits. 

From a client perspective, the phrase; Caveat Emptor or Buyer Beware comes to mind.  When an advertiser hires a full-service advertising agency, media, digital or creative services shop or a specialty agency, they do so with the implied understanding that the agency will always act in the client’s best interest.  Is this a realistic expectation for agency holding companies whose acquisition strategies have directly fed vertical integration strategies that often generate significant below-the-line revenue opportunities? 

Unfortunately, too often there is a lack of transparency regarding how an agency holding company deploys certain services, their ownership position in those resources and or the nature of the remuneration they receive from “owned” or independent sellers.  It’s been our experience, that transparency is the fundamental issue when it comes to advertisers’ rights and agencies’ fiduciary responsibilities.  What has been divulged can be discussed.  In turn, these discussions can form the basis for negotiating terms of use and responsibilities that can then be laid out in the client-agency agreement, providing the requisite levels of transparency and control to protect both parties.  In the words of the German philosopher Friedrich Nietzsche, who wrote critical texts on morality:

“There are no facts, only interpretations.”

Surprisingly, too few contracts address the reality of agency brand and holding company inter-connectedness or the mode and level of compensation derived from the reselling of goods and services.  At a minimum, the following protections should be built into a letter-of-agreement:

  1. Advertiser “right to audit” clause
  2. Extension of contract terms and obligations beyond the agency brand to include the holding company and its subsidiaries along with wholly and or jointly owned entities
  3. Clear language regarding agency remuneration, sources, amounts and limits
  4. Assertion of advertiser rights to its pro-rata share of any and all discounts, rebates or incentives earned by the agency on the advertiser’s behalf
  5. Require agency to fully-disclose any commitments made to parent/sibling agency resources or to sellers offering agency incentives beyond commission
  6. Assertion of intent with regard to the agency’s obligation to competitively bid all creative, production and or media services
  7. Require agency to fully-disclose when services covered as part of a retainer or commission structure are sub-contracted to a parent/sibling agency or third-party.  To protect an advertiser from paying an agency for services it is not performing or is only partially performing, clear contract language needs to be established to address the circumstances that either reduce agency remuneration or reallocate unearned funds to other areas.

It is important to bear in mind the extent to which agencies have extended their supply chain “reach” with their vertical integration efforts.  These include ownership in: in-house studios, barter firms, broadcast production companies, ad exchanges, ad networks, media rep firms, staffing firms, original content production companies, and the like.

From an advertiser’s perspective, the goal is to establish contractual responsibilities and controls that will shape agency behaviors and performance in a manner that insures a level of objectivity and resource investment desired by the client.  Simple.  Right?  Not so much.  In the words of M.C. Escher one of the most renowned graphic artists of the twentieth-century:

Are you really sure that a floor can’t also be a ceiling?”

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.

 

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.

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