• by Steve McClellan  @mp_mcclellan, June 7, 2016

After months of anticipation, the Association of National Advertisers finally released its study of the media-buying ecosystem. While the study, conducted by K2 Intelligence concluded that so-called “non-transparent” activity was “pervasive” throughout the process, a couple of things are certain: No criminal probes have been launched and nobody is going to jail. The full report can be downloaded here.  

Another certainty: the holding companies think the report is seriously flawed and has done little, if anything, to bridge differences between agencies and clients on the transparency front. 

Publicis Groupe, for example, issued a response that stated in part that “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. Despite repeated urging by Publicis Groupe and others in the industry to include names and sources in its report, the document hides behind suspicions and anonymity rather than encouraging real accountability.” The Groupe added: “We are committed to understanding and respecting our clients’ transparency requirements in all situations, and this is a standard part of our client contract negotiation process. We are crystal clear: we are committed to full compliance with the terms of the client-agency agreements we sign, and we have strict internal rules that serve as controls on our practices.” 

Interpublic was also critical of the report’s blanket anonymity: “The broad and anonymous nature of the report’s allegations is unfortunate and inflammatory, the firm stated. “The picture the report describes is not consistent with our actual business practices.” IPG stated that it “has been a leader in terms of media transparency since 2005 when we proactively confronted the types of non-transparent” activity in the wake of a lengthy SEC probe. “We eliminated these practices from our organization, issued public disclosures, and strengthened our governance controls.” 

Added GroupM: "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.  As we stated from the outset of the ANA’s exploration, 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. As we’ve already indicated, we insist that the ANA share any specifics relating to our group with us so that we can ensure continuing contract compliance. If clients have any questions, they should contact us.”  

The report addresses the resale of purchased inventory by agencies to clients, finding mark-ups that ranged from 30% to 90%. 

Omnicom’s statement: “We have not yet had a chance to fully review the ANA study, however based on the overview provided in the press release 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; in so doing, it does not serve the best interests of the clients that the ANA purports to represent. 

As we have said since the ANA first launched its study last year, we believe that trust and disclosure are the cornerstone of every client relationship.  This means that all of our US media agency clients receive all value negotiated on their behalf in the form it is received. 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. “

Jerry Buhlman, CEO Dentsu Aegis Network stated: "Today’s ANA Report (June 7^th) is an insubstantive report with subjective methodologies and anonymous input. The business practices referenced in this report do not exist within our US business. Our media buying process is robust and transparent for our clients, is subject to rigorous compliance processes and all our clients have the ability to audit us. Furthermore, we pride ourselves on our focused and extensive efforts on compliance policies, practices and controls.”

The 4As, which had been working with the ANA to jointly address transparency issues until a split over differences earlier this year, also commented: “A healthy and constructive debate about media buying can only happen with a bipartisan, engaged, industry-wide approach -- and that is precisely the opposite of what the ANA has pursued. The immense shortcomings of the K2 report released today -- anonymous, inconclusive, and one-sided -- undercut the integrity of its findings. 

The agency association added, “We call upon the ANA in the strongest terms to make available to specific agencies on a confidential basis all of the materials related to them. Without an opportunity for agencies to assess and address the veracity of information provided to K2, sweeping allegations will continue to drive attention-grabbing headlines; this does nothing to foster a productive conversation or to move our industry forward.” 

Not everyone was as critical of the report. Tom Denford, co-founder of media and marketing consultant ID Comms said the report was insightful. “The report has provided clarity where previously suspicion and speculation had created a highly troubled relationship between major advertisers and their media agencies,” Denford Stated. “The evidence presented by K2 gives companies much needed insight into what has become a complex, opaque and confusing area of their marketing investment. We are very concerned at some of the practices that have been uncovered and it would be good to know whether these problems are focused on particular holding companies.” 

In a briefing Tuesday morning ANA and K2 executives stressed that from the outset of the endeavor, which began last fall, finger-pointing was not part of the mission. Also, they said, determining whether any of the non-transparent activity fell out of legal bounds was “beyond the scope of the report,” as Richard Plansky, creative managing director K2 Intelligence put it. Also not part of the scope was to determine to what extent if any contractual violations occurred. 

The report’s big take away is that there is a substantial “disconnect” between how advertisers define their relationship with media agencies and how the agencies view it. According to the report, clients believe that by definition agencies must serve in their “best interests,” with no ifs, ands or buts. Agencies, on the other hand, believe the relationship is defined by the contractual agreement signed by the parties. 

Asked whether the big issue was a failure to communicate, ANA Bob Liodice responded that “communication is one of several elements that is at play. With such specific facts now on the table, it will be interesting to see how the agency community communicates its perspectives on the findings.” 

But there are two deeper issues at play, Liodice added. “The first is the complexity of our environment has changed the rules of the game… and I don’t think all parties have appropriately caught up with those new ‘rules of engagement.’ The second -- that is somewhat tied to the first -- is that marketers need to understand that the agency acting as principal requires a different relationship. The agencies are duty bound to their shareholders and their clients -- and that becomes a different line to straddle that the marketers must be far more sensitive to than they have in the past.” 

The report does cite specific instances of rebates being issued in the U.S., although the identities of all the interviewed parties are anonymous, which the ANA and K2 said was essential to encouraging cooperation with the study. Here’s one example: 

“Among the sources who stated that rebates are provided to agencies in the U.S. market was an executive at a large online media supplier who described a cash rebate program currently in operation at his company. According to the executive, several years ago the media supplier proactively established an incentive program designed to encourage agencies to direct a greater amount of spend toward a certain type of this media supplier’s ad space. The media to which this program applies is purchased at a pre-negotiated and fixed cost, rather than on a public exchange. The incentive program, which is open to individual agencies, establishes certain thresholds for both overall spend and year-over-year growth, above which agencies receive a cash rebate at the end of the year. The metrics required to trigger the rebate, and the percentage of rebates provided, are determined on an agency-by-agency basis. According to the executive, the rebate received in the U.S. is linked to the volume of U.S. spend; at the end of the year, the media supplier sends each agency a spreadsheet detailing its total annual spend by advertiser and noting the rebate generated by each advertiser’s expenditure. He stated that agencies at Agency Holding Companies received rebates in this program and noted that all rebates provided through this program were transmitted in cash.” 

What remains unclear, however, is whether the rebates described above were passed back to the clients or not. “During the interview, K2 noted that certain Agency Holding Company executives have stated publicly that rebates do not occur in the United States. In response, the source stated that, based upon his conversations with agency staff, he believed that the agencies that received rebates from his company were “absolutely” passing the benefits back to their clients. In an attempt to reconcile these public statements with the rebate program, he opined that perhaps the agencies do not consider these cash back payments to be rebates, since the agencies have said they are passing the funds back to their clients. The source reiterated that the only basis for his belief that the funds were being returned to the clients was what the agencies had told him. K2 did not attempt to verify whether these rebates were, in fact, being provided to advertisers in order to avoid compromising the executive’s confidentiality.” 

The report uncovered rebate activity in the outdoor and TV sectors as well as the online space. In addition to cash and free media rebates, it also reported on rebates structured as “service agreements” where media companies pay agencies for research or consulting initiatives often tied to volume of agency spend.

The report also cites instances where “rebate contracts” were agreed to. In one such instance “An ad tech executive provided K2 with a copy of a rebate contract between his company and an independent agency effective for the 2015 calendar year. The contract included a provision for the payment of a “referral fee” representing 10% of agency spend, which the ad tech executive described as a rebate by another name. The executive also provided K2 with internal company emails from the period in which the deal was being negotiated. In these emails, the ad tech company employee in charge of managing the agency relationship reported that the agency wanted to make a profit from the ad tech firm and was therefore requesting a rebate of 10% up to a certain spend threshold and 15% above that threshold. The agreement was to be active through the rest of the calendar year with the rebate to be paid in the first quarter of the following year.”

K2 acknowledged that five of the six holding companies declined to participate in the study, leading some to question just how comprehensive the study could be. According to Plansky,“Five of the six Agency Holding Companies declined formal requests to make executives available for interviews. However, among our sources were current and/or former high-level employees of all six Agency Holding Companies.” The total number of sources interviewed was 150 comprised of marketers, media suppliers, ad tech vendors, current and former advertising and media agency professionals, trade association executives, consultants, attorneys, barter company staffers and members of the post-production community. 

With respect to the rebates, 41 sources reported their occurrence and 34 said they weren't disclosed or returned. Does that equate to pervasiveness?  Plansky responded: “Within the study sample, these practices were pervasive, in the sense that they were widespread throughout the cross-section we reviewed. “ 

“Just to clarify, 41 sources provided information regarding the practice of rebates -- not individual instances of rebates. Many of these sources described rebates as an ongoing practice as opposed to isolated incidents.” 

“These sources provided detailed firsthand accounts of rebate deals in which they had personal involvement. Many of these instances were corroborated by documentary evidence, like e-mails and contracts. Whether or not these rebates violated any contractual provisions was beyond the scope of our mandate.”