Agency kickbacks in focus - US ANA launches industry-wide review

James McGrath
By James McGrath | 19 June 2015

The US Association of National Advertisers (ANA) is looking to draw a line in the sand under the media transparency issues plaguing the US, looking for a third party to run an investigation into practices in the market.

The investigation was prompted by comments made by former MediaCom CEO Jon Mandel, who said in March that the issue of rebates and kickbacks were widespread in the US industry.

“They [media agencies] are not transparent about their actions,” Mandel was quoted as saying by AdAge. “They recommend or implement media that is off strategy or off target if it works for the financial gain.”

The frank discussion of alleged media agency rebates and kickbacks unleashed a wave of speculation in the industry on how these were allegedly operating, and who was leading the charge.

The ANA said the issue was first brought to its attention three years ago, but in light of the firestorm unleashed by Mandel's comments, it is looking for a third party to provide a definitive guide as to what's happening in the industry.

“It is the ANA's belief that the industry requires and independent, objective individual or organisation to provide indisputable marketplace clarity and to help set the issue straight,” it said in a statement.

The issue of media transparency is thought to have been partially behind the recent raft of media reviews underway led out of the US, but with global consequences.

These include big name accounts such as Mondelez (held locally by Carat), 21st Century Fox (held locally by ZenithOptimedia), Procter & Gamble (held locally by MediaCom), Sony (held locally by UM, MediaCom, and OMD), and Johnson & Johnson (held locally by OMD) among a host of others.

Locally, the market is trying to figure out which of the host of accounts will be up for review locally and which reviews will be led out of the US, with local agencies merely passing on market information up the line.

According to the RFP put out by the organisation, the third party tasked with the investigation will have to cast its net wide.

“This should not be confined to just rebates/agency volume bonuses; rather, it should examine the broad landscape that covers inventory selection and management, barter, arbitrage, “dark pools”, agency trading desks, and global inventory management/swaps,” it said in the formal RFP document.

The review will also reportedly look at the role of large agency groups in the issues.

“With global resources, extraordinary process complexity, and many subsidiary organisations to support them (agency trading desks, barter organisations, global scale, cross-country inventory management organisations, etc.), holding companies would appear to have the assets and resources to perpetuate transparency issues,” it said.

However, agency bosses have previously denied all suggestions that they were not transparent about their models, and how they are deriving income.

The ANA also acknowledged the issues were in the context of media agencies being used by clients are procurement houses, meaning that agency margins were being squeezed at every turn.

“What has seemingly remained the same, however, is the agency call for marketers to reverse the tide of reduced fees and extended terms, apparently engineered by procurement units,” it said.

“Profit pressures have been experienced by holding companies and independents alike, and experiments with newer forms of incentive compensation have been actively pursued.”

The Australian angle

AdNews has reached out to the Media Federation of Australia and the Australian Association of National Advertisers on the issue, but they have not commented at this stage.

The investigation will take place in the US market, but the background issues are present in the Australian market too, as they are in other global markets.

Spurred on by revelations on the misreporting of post-campaign TV analysis from MediaCom, GroupM called in auditors Ernst & Young to take a closer look at its processes.

Among the revelations out of the report was that GroupM operated vlaue banks, and then on-sold so-called “bonus inventory” onto clients, something which it insisted it would stop with processes put in place to address the issues.

“Value bank on selling – it was a situation that was against the ethics and regulations within GroupM Australia – no on charging of value banks is allowable. It’s not illegal but it’s against the ethics of our company and not acceptable,” then GroupM chairman John Steedman told AdNews in March.

The clients were refunded the money they were charged in November 2014  but Steedman would not be drawn on the value of those refunds.

"Clients received the airtime they wanted – but it was in breach of GroupM’s policy to charge for it. From now on, new procedures and controls are being put in place to make sure it doesn’t happen again," he said.

In February, The Australian wrote that Dentsu Aegis chief executive admitted the use of so-called value banks, something which he denied to AdNews.

In the background is the prospect of the Australian Consumer and Competition Commission (ACCC) launching its own investigation into the issues.

It had repeatedly refused to comment on whether it would move to investigate whether any of the alleged behaviour constitutes a misuse of market power or whether it had received requests to look into the industry.

Enquiries to the ACCC this morning were met with a dead bat, with the organisation telling AdNews that it would not comment on the issue, referring back to a previous general statement it had made on the issue.

“Depending upon the circumstance, the size of the rebates and the manner in which they are secured may raise concerns under the unconscionable conduct provisions of the Competition and Consumer Act 2010,” it said.

“Where a business takes advantage of its superior bargaining position to use undue influence and unfair tactics to engage in transactions or dealings which are deliberate, involve serious misconduct or involve conduct which is clearly unfair and unreasonable, this may be considered unconscionable conduct.”

Digging deep with agencies

See here for the ANA's core reasons for launching the RFP:

  • Demystify the landscape. While there are many opinions about what is or what is not happening, a clarifying perspective is critical to establish an appropriate foundation for solutions and longer-term quality business practices. An objective third-party should conduct its own investigative analysis — interviewing marketers, agencies, publishers, vendors, and other players to develop a fundamental understanding that can be shared with the industry at large. This should not be confined to just rebates/agency volume bonuses; rather, it should examine the broad landscape that covers inventory selection and management, barter, arbitrage, "dark pools," agency trading desks, and global inventory management/swaps.
  • Understand the role of holding companies and their levels of engagement. In tandem with the work of the ANA Media Transparency Task Force, many knowledgeable individuals alluded to the substantial role of holding companies and their contribution to the current debate. Some suggested that holding companies are the foundational component of the media transparency issue. With global resources, extraordinary process complexity, and many subsidiary organizations to support them (agency trading desks, barter organizations, global scale, cross-country inventory management organizations, etc.), holding companies would appear to have the assets and resources to perpetuate transparency issues. However, on repeated occasions, the leaders of holding companies have denied involvement and have been emphatic that their organizations conduct business openly and with integrity. Furthermore, they point to the depth of audit procedures that reinforce their ability to optimize transparency to clients/marketers. This is a significant conflict that underpins the issue and requires clarification. That perception gap should be bridged and the role of holding companies better understood.
  • Understand if media plans are being compromised. There is a hypothesis that a lack of transparency could potentially result in suboptimal media recommendations, which would not be in the best interests of a client's business.
  • Develop practical solutions and best-practice behaviors that serve as industry standards. Such an approach will provide guidance as to what marketers and agencies should expect from each other and ensure that there is total transparency so that a marketer's investment can be fully understood and tracked. A client should have a clear understanding of the total compensation an agency secures from its media investment. These standards should be rigorously adhered to and vigilantly reinforced. It is important to note that the third-party organization would be expected to provide useful input to the joint 4A's/ANA working group and contribute to (a) the development of a code of conduct for clients, agencies, and other related marketing organizations and (b) the improvement of media buying contracts between clients and agencies.
  • Determine where marketers' behavior may be "pushing the limits. "Let's look at the total ecosystem. Marketers should come under the same level of scrutiny that is being suggested for the agency business system. Are marketers squeezing the agencies so hard that agencies have had to resort to less transparent behavior? This requires an objective viewpoint for greater understanding.

 

It went on to say it will investigate, identify truth, set the record straight and let there be no misunderstandings.

"Dig deep with agencies, marketers, media, suppliers, and vendors, as much is not understood about what is taking place throughout the ecosystem. Conduct this analysis without bias. Demonstrate objectivity and integrity throughout to ensure that the study is beyond reproach," it said.

 

AdNews covered a series of articles looking at the GroupM MediaCom audit. Read the rest below:
GroupM reveals findings of MediaCom audit: outlines overhaul of processes 
MediaCom admits misuse of value banks – pledges no more 
MediaCom faces losing at least one major client 
Q&A: Yum! Brands on MediaCom - ‘As clients we’ve got to be fair 
Timeline: MediaCom’s audit process

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