Madison Avenue Kickbacks? Trade Group Alleges ‘Pervasive’ Media-Buying Malfeasance

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An influential Madison Avenue trade organization unveiled an investigation that alleges kickbacks, unauthorized rebates and the undisclosed resale of ad inventory at higher prices could be “pervasive” in the arcane but important world of media buying.

The Association of National Advertisers on Tuesday released the findings of a seven-month probe into what it calls “non-transparent business practices” among media agencies: Forty-one  individuals interviewed by investigations firm K2 reported that they had firsthand knowledge of rebates being passed back to agencies. Of those 41 sources, 34 said the rebates were not disclosed to advertisers, were not passed through to advertisers, and may also have been demanded by agencies.  The firm interviewed 150 different sources overall.

“The media business ecosystem is not transparent. Marketers are not getting full disclosure on the information they need,” said Bob Liodice, chief executive of the organization, which represents the interests of hundreds of companies and the 15,000 brands they market with about $300 billion in spending, during a conference call Tuesday. “There are billions of dollars at stake.”

K2 said it found “a range of instances” in which media owners paid rebates to agencies, “in amounts ranging from 1.67% to approximately 20% of aggregate media spending, depending upon the deal.” In some cases,  the percentage of the rebate owed increased along with agency spend, the company’s report stated. The company also found instances in which media agencies could purchase advertising inventory from a supplier, then mark up the price as much as 30% to 90% before passing it along to a client. In some cases, a media agency’s owner, typically one of five or six global holding companies, may have pressured individual buyers to direct a client’s ad money to these areas where a markup might be possible, the report stated.

While the report stated the practices could be found across a range of media, including print, digital, TV and outdoor, the ANA declined to provide the names of the agencies where the alleged misbehavior is said to have taken place. According to Liodice, the goal of the investigation was not to seek legal remedy or punish; indeed, in some cases, terms allowing such practices may have been written into contracts.

What could be at issue are transactions involving the sale of new kinds of ad inventory that have gained new allure as technology makes the sales process easier. More advertisers have shown an interest in so-called “programmatic” inventory, which is purchased according to a predefined set of data put in place through software. Some of this inventory is sold through private exchanges, reducing the transparency around the purchase. One media executive familiar with the ANA report suggested some agencies may be buying up digital and programmatic inventory at one price, then selling it to clients at another price, making a profit in the process.

The ANA wishes to spark a broader conversation about media-buying practices, and alert its members to some of the issues that may be taking place under their aegis, Liodice said. The ANA intends to issue new guidelines about contracts that are struck with media agencies before the end of June, the executive said.

“This may be a troubling report” for the advertising industry, said Liodice, but it aims to navigate a “disconnect” that has grown between agencies and clients over the practices governing how advertising dollars ought to be spent.

At least one of the world’s big ad companies took umbrage at the report. “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,” said Publicis Groupe, the French holding company, in a prepared statement, noting that “the document hides behind suspicions and anonymity rather than encouraging real accountability.” Publicis recently restructured its media buying operations after one of its agencies, Starcom MediaVest, saw a passel of important clients defect to rivals.

Yet the controversy has brewed for some time. In March of 2014, a survey conducted by the ANA and Forrester Research found nearly half of respondents had concerns about the level of transparency between advertisers and their media agencies. The report found 42% had concerns about transparency that had increased over the past year. Only 13% said their concerns decreased.