Who: The Association of National Advertisers (“ANA”)
When: 7 June 2016
Law stated as at: 8 August 2016
The ANA commissioned a report by K2 Intelligence which looked at the prevalence of rebates and kickbacks in the media buying space. The report claims that such practices are “pervasive” in the industry and that there is a “fundamental disconnect” in the relationship between advertisers and agencies.
The report involved interviews with hundreds of sources which it says represent a cross-section of the US media-buying ecosystem. It can be read in full here. The key claims of the report were as follows:
- Cash rebates from media companies were often provided to agencies, such payments being based on the media spend. However, the advertisers interviewed in the study indicated they did not receive rebates or were unaware of any rebates being returned.
- Rebates often take the form of free media inventory credits. These don’t always get passed on to the same client as earned the credits.
- Rebates are often structured as “service agreements” in which media suppliers pay agencies for non-media services such as low-value research or consulting initiatives that are often tied to the volume of agency spend. Sources interviewed in the study said that that these services “were being used to obscure what was essentially a rebate.”
- The mark-ups on media sold through principal transactions often range from approximately 30% to 90%, and media buyers are sometimes pressured or incentivized by their agency holding companies to direct client spend to this media, regardless of whether such purchases are in the clients’ best interests.
- Dual rate cards are often used in which agencies and holding companies negotiate separate rates with media suppliers when acting as principals and as agents.
- Business practices in the U.S. market are often non-transparent as a result of agencies often holding equity stakes in media suppliers.
Why this matters:
The issues raised in the report are nothing new, and there was already broad awareness of them within the business community. However, the report and its somewhat emotive language have brought renewed focus on the area of transparency and agency financial arrangements. With the new (and not entirely satisfactory) ISBA media agency agreement template having already brought increased attention to this area earlier this year, transparency is becoming a key point for negotiation in media agency contracts. Whether the time and energy spent on this is always justified is perhaps debatable – and it is interesting to note that WPP are reported to be re-working their media agency agreement templates, presumably to try and address some of these issues head-on and help smooth the negotiation process.