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Madison Avenue Ad-Buying Practices Under Federal Scrutiny (Report)

The opaque nature of media buying practices is under new scrutiny, with federal prosecutors in Manhattan believed to have opened an investigation into the matter, according to a report in The Wall Street Journal, and issuing subpoenas as part of their work.

The investigation is examining agencies getting rebates from media outlets, the Journal said, citing people familiar with the matter. Havas, the French company that is owned by Vivendi SA, is being looked at as part of the investigation, the report said. A Havas spokesperson could not be reached for immediate comment.

Much of the media business could not operate without the flow of ad dollars, and five big advertising companies – Interpublic Group. Omnicom Group. WPP. Publicis Groupe of France and Havas – allocate billions of dollars in Madison Avenue cash thanks to their control over big agencies like Wavemaker, Spark Foundry, Initiative, and OMD. In 2016. an influential trade organization, the Association of National Advertisers, released a report alleging that various media companies offer rebates to big media-buying firms in exchange for a greater amount of ad dollars – a prospect that suggests the potential allocation of billions of dollars in advertising may be influenced by a desire for a sort of kickback, rather than being done in the interests of big-spending clients.

Relying on interviews with 150 people conducted by K2, an investigations firm, the ANA found that 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 organization 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. Evidence suggested that 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 areas where a markup might be possible, the report stated.

These sorts of arrangements are common in Europe and Latin America but have long been viewed skeptically in the U.S. Some media executives have suggested that 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.

The ANA study opened a rift between advertisers and their agencies and prompted many to outline new polices demanding transparency about how ad dollars are spent and allocated.

It remained unclear whether other ad companies were being examined by federal prosecutors.

 

 

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