8 June, 2016

Media Rebates Rife In Media Buying Claims Damning Industry Report

By Emma Mackenzie

There’s a number of dodgy practices afoot in the media buying landscape in the States, a new study has found.

Industry body for US Adland, the National Association of Advertisers (ANA), has released a damning report of buying practices, claiming a number of cash rebates and non-transparent practices from media agencies were rife in the US landscape. The report also found a disconnect between the way media agencies and clients think of each other. Clients believe the agencies will act in their best interests, many agencies said they just fulfill contractual obligations.

The practices within the report were not limited to any one kind of medium or particular type of agency. The findings were detailed in the 58 page report, which you can download here.

“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 in a statement.

“Such disclosure is absolutely essential if they are to build trust as the foundation of their relationships with their long-term business partners.

“Whether acting as agency or principal, vast changes in technology, the complex digital supply chain, and the proliferation of media outlets provided agencies with additional opportunities to increase their profit margins beyond agency fees.

“This has led to disconcerting conflicts of interest and a lack of transparency.”

The study was conducted by research company K2. K2 interviewed 150 individual sources in all aspects of media buying over eight months. The ANA wanted to conduct a proper analysis of the current landscape due to the mounting concern in the States of lack of transparency and a lack of common perspective regarding what practices were appropriate or not. K2 said it was not intended as a ‘pointing-the-finger’ blame game.

During a conference call about this report, Liodice said he couldn’t comment on the legalities of the widespread practices found in the report, according to AdAge. However, many media agencies have already hit back at the report, claiming inconsistencies and “subjective methodologies”.

Below is further detail on the report.

Rebate Deals

In this context, the study defined a rebate broadly as “a benefit that a media supplier provides to a media agency”. And of the 150 sources interviewed for the study, 41 had firsthand knowledge of these kinds of deals happening, with 34 saying the deals hadn’t been disclosed to the advertiser.

The report said the rebate deals were conducted in different ways. Some were incentives in the form of cash or free media, and others were service agreements – however the service suggested, such as research or consulting, was often not carried out.

And many of the rebates were not disclosed to the advertiser. This lack of transparency had K2 suggesting it forged “potentially problematic conduct” – where the practices may not be in the best interests of the advertiser.

Another practice highlighted in the report was from agencies that held stakes in media suppliers. A number of former senior execs at these agencies said they’d felt pressure from higher up to spend in these suppliers because of the stakes held, the study claimed.

Client/Agency relationship disconnect

Another key finding from the report was a mismatch between how agencies and clients think of each other. Advertisers were under the belief agencies would act in the client’s best interests, with many adamant it would extend beyond just the agency’s contractual obligations. In the report, K2 cited a number of senior marketing execs who expressed similar connotations to “my agency has to be my agent”.

Generally speaking, there was the assumption the agency and client were in an equal partnership. And there were a number of agencies who felt the same and did their best to act in their clients’ best interests.

However, there were also a fair few agency side who said they were just there to fulfil their contractual obligations. Similarly, some agency heads were feeling the pressure from the agency’s holding groups to act in their best interests, which sometimes conflicts with the client’s best interests.

“The K2 Intelligence report unearthed a ‘fundamental disconnect’ between advertisers and their media agencies,” said ANA chairman Tony Pace.

“As media practices have become more complex, stewardship and oversight needs to become more precise, more thorough, and more fully transparent.”

Download the full study here.

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