The long-awaited report on transparency by the US-based Association of National Advertisers (ANA) found that “numerous non-transparent business practices”, including cash rebates to media agencies, were found to be widespread in the US advertising industry. The study also found “evidence of a fundamental disconnect in the advertising industry regarding the basic nature of the advertiser-agency relationship”. The ANA say advertisers expressed a belief that their agencies were duty-bound to act in their best interest, while “many agency executives interviewed said their relationship to advertisers was solely defined by the contract between the two parties”.
“Advertisers and their agencies are lacking ‘full disclosure’ as the cornerstone principle of their media management practices,” said Bob Liodice, president and CEO of the ANA. “Such disclosure is absolutely essential if they are to build trust as the foundation of their relationships with their long-term business partners.”
Some of the key findings included, which the reported conceded ‘may or may not have been contract-compliant, included the following:
- Cash rebates from media companies were paid to agencies based on the amount spent on media. The advertisers interviewed told the researchers they did not receive rebates or were unaware of any rebates being returned.
- Rebates were also paid in the form of free media inventory credits.
- Rebates were sometimes structured as “service agreements”, where media suppliers paid agencies for non-media services such as low-value research or consulting initiatives that were often tied to the volume of agency spend. Sources told K2 Intelligence that these services “were being used to obscure what was essentially a rebate.”
- Markups on media sold through ‘principal transactions’ — i.e. where the media agency buys it for itself and then sells it on to clients — ranged from approximately 30 percent to 90 percent, and media buyers were sometimes pressured or incentivized by their agency holding companies to direct client spend to this media, regardless of whether such purchases were in the clients’ best interests.
- Dual rate cards in which agencies and holding companies negotiated separate rates with media suppliers when acting as principals and as agents.
- Non-transparent business practices in the U.S. market resulting from agencies holding equity stakes in media suppliers.
Publicis Groupe, one of the world’s largest agencies, provided a strongly worded response. It stated, “The ANA has failed its members, advertisers, agencies and the entire industry by releasing a report that relies on allegations about situations involving unnamed companies and individuals to make broad, unsubstantiated and unverifiable assertions. Despite repeated urging by Publicis Groupe and others in the industry to include names and sources in its report, the document hides behind suspicions and anonymity rather than encouraging real accountability.”