The Association of National Advertisers officially released its report that says that ad agencies get rebates from media companies that their clients are unaware of.
The big companies that own the major media buying agencies questioned the report because it doesn’t name the agencies that receive rebates.
According to the 58-page report from the ANA, working in conjunction with K2 Intelligence, there was a difference in the view of the business relationship between agencies and their clients, with advertisers expressing a belief that their agencies were duty-bound to act in their best interest. Meanwhile, many agency executives interviewed said their relationship to advertisers was solely defined by the contract between the two parties, according to the ANA.
Related: Media Agency Execs Size Up 2016-17 Shows
“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.”
In addition to rebates, the report outlines other ways in which agencies can make extra money by steering clients to buy from certain media organizations that provide financial incentives of which the clients are not aware.
The report comes at a time when many huge marketers have switched media agencies. And as media has become more complex, compensation schemes by clients have made it increasingly difficult for media buyers to make money.
Related: Most Networks Plan to Use C7 in Upfront
Among the findings of the report:
- Contracts for rebates and other non-transparent business practices were negotiated and sometimes signed by high-level agency executives.
- Cash rebates from media companies were provided to agencies with payments based on the amount spent on media. Advertisers interviewed in the K2 Intelligence study indicated they did not receive rebates or were unaware of any rebates being returned.
- Rebates in the form of free media inventory credits.
- Rebates structured as “service agreements” in which 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 ranged from approximately 30% to 90%, 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.
Related: ANA Asks FCC to Extend Broadband CPNI Comment Deadline
The report included detailed source accounts from dozens of confidential, personal interviews as well as documentary evidence. The report does not specifically identify any companies or individuals.
“From the beginning, this has been a study designed to shed light on certain non-transparent practices in the media-buying landscape — not an investigation or an audit,” said Richard Plansky, executive managing director of K2 Intelligence. “At the ANA’s insistence, this has never been about pointing a finger at any individual or company.”
The K2 Intelligence assessment was conducted from Oct. 20, 2015, through May 31, 2016, and was based on interviews with 150 individual sources, including marketers, media suppliers, ad tech vendors, current and former advertising and media agency professionals, trade association executives, industry consultants, attorneys, barter company employees, and post-production professionals.
All interviewees were granted anonymity, and the ANA says it is unaware of their identities.
K2 said an additional 131 interviews were requested. Of those, 61 declined while the remaining 70 failed to respond. Five of the six major agency holding companies and their affiliated companies declined formal requests to make any of their current executives available to be interviewed.
(Photo via Pictures of Money's Flickr. Image taken on Sept. 17, 2015 and used per Creative Commons 2.0 license. The photo was cropped to fit 3x4 aspect ratio.)
