A new report alleging crooked practices by the nation’s largest ad buying firms is causing concern on Wall Street.
A bevy of big Madison Avenue media-buying agencies took aim at a seven-month probe conducted by the Association of National Advertisers suggesting the acceptance of rebates and other forms of kickbacks are “pervasive” among a cadre of ad firms that handle billions of promotional dollars for products ranging from Apple to Zyrtec. Among the allegations contained in the report released Tuesday are suggestions that big ad buyers accept cash and ad inventory from vendors in exchange for committing a greater volume of ad dollars to them. In some cases, the report alleged, the media buying firms might buy the inventory at one price, then sell it to their clients at a higher cost.
The report is “generally damning of the whole industry, which will likely contribute towards negative sentiment towards the whole group,” said Brian Wieser, a media-industry analyst for Pivotal Research Group, in a Tuesday research note.
The investigation throws a spotlight on the growing complexity of relations between advertisers and the companies that serve them. In a long-distant era, ad agencies would serve a client for decades, as Omnicom Group’s BBDO did for Pepsi or Interpublic Group’s McCann WorldGroup did for Coca-Cola.
But those days have receded as the practice of advertising has grown more difficult. Thanks to the rise of new technologies like mobile tablets, social media and streaming video, large swaths of consumers are harder to capture. That has resulted in a splintering of spending and a rise in experimentation in emerging venues. An ad budget, once largely committed to TV and print, now must stretch to encompass everything from Snapchat to Facebook – all the while supporting the old-school media as well. Meanwhile, the tenure of a chief marketing officer is no longer as long as it once was, when figuring out a way to reach consumers through media was much simpler. As a result, the alliance between advertiser and agency has become severely attenuated.
As those trends have blossomed, many companies have begun to scrutinize the way they compensate advertising allies. Ad executives have for years bristled at being examined by the procurement arms of their clients, which examine rates of pay and how to reduce costs. Compensation was once largely based on commissions derived from a portion of annual media spend, but many clients have set up a fee-based structure that can be tied to the number of employees allowed to work on an account.
Perhaps the challenge of keeping cash coming through the door has prompted a search for new means of compensation. The ANA report alleged the rebates and kickbacks were being authorized at very senior levels, with top executives pressuring ad buyers to commit dollars to venues where a holding company might have a larger deal or even an ownership stake in place.
The ANA report did not cite specific companies taking part in such practices, but alleged what it called “non-transparent business practices” were done as a matter of course in many U.S. media buying shops.
The 4As, a trade group that represents the nation’s advertising agencies, said the report, the result of a seven-month probe, was ” anonymous, inconclusive, and one-sided,” and several big ad buyers offered similar critiques of the findings.
“We believe that the key findings – neither quantified nor qualified, and based on a small sampling of unnamed sources – do not accurately portray how Omnicom’s agencies work on behalf of our clients,” Omnicom Group said in a prepared statement. “Compliance with each individual client contract has always been central to that trust at Omnicom – as is transparency in the structure and execution of each contract.” Omnicom operates ad buying units like PHD and OMD.
“The ANA report and the objectivity of its authors and advisors needs to be examined carefully. The report should not be allowed to tarnish the entire industry, nor every company in it,” said GroupM, the large media-buying consortium operated by WPP, in a statement. “GroupM does not seek, nor accept rebates or hidden revenues in any form from media partners in the U.S.; nor do we accept service fees from vendors that are not disclosed to clients. GroupM is straightforward with clients concerning our proprietary media products and the value they provide; clients always exercise an informed opt-in to participate.” GroupM oversees ad buying units including Mindshare, Maxxus and MEC.
Interpublic Group, which operates ad-buying shops like Initiative and Universal McCann, said it had made a push for transparency in media-buying more than a decade ago. “Here at IPG we do not accept rebates in the U.S., nor do we believe rebates should be part of U.S. market practices. Additionally, IPG does not buy ‘inventory media,’ where we pre-purchase media on our own account and re-sell it to clients – this decision has been a point of differentiation for our company,” the company said in a statement. “Our practices have been reviewed in numerous audits conducted at clients’ requests by a variety of firms, including ones that participated in creating the ANA report, and we are very proud of our track record.”
Publicis Group of France, which operates Publicis Media, called for the ANA to release the names of the agencies responsible for the alleged behavior. “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,” the company said in a statement.
Wieser, the analyst, said the statement “can only be interpreted as unhelpful, if not damaging, not least as it seems to ignore the very real concerns” of ANA members, who make use of Publicis services.
The financial implications of the report are not clear, said Wieser, though he expected marketers to start examining contacts more closely and, perhaps, to clamp down on the relationships they have with media buyers. “It may be a bumpy ride ahead,” he suggested, with advertisers riding closer herd on the ad agencies that serve them day in and day out.