Media agencies and their numerous conflicts of interest: a recipe for disaster

GroupM could have a conflict with Plista being owned and in the same building – do they recommend it over Outbrain?

Very interesting and useful article Nico, thank you.

Of course media agencies have been rorting their clients for ages. (along with creative agencies too)

I remember back in the late 90’s when agencies weren’t unbundled yet the GAD on one account increasing the media spend on a certain newspaper’s weekly advertising, just by presenting the media plan with the agreed spend and saying to the editor, “you know, I think we’re a bit light in the 20-30’s demographic this week – i think we should probably boost the media by 30%.

And the editor bought it every time. As we walked out of their offices, he told me who was very new – It’s like taking candy from a baby.

Not to mention why we boosted our spend on an FM station for a few weeks because the media buyer wanted to have a free skiing trip thanks to the station back then

Samuel what you’re saying makes no sense. Why would he present the media plan to an editor?

If you’re going to make up a story at least get the fake roles correct.

Very interesting article Nico.

Your list of a half dozen key roles begs the question … well why do advertisers only want to pay 3% of billings for all that.

Surely THAT is at the root of the problem.

JG, thanks for your contribution.
Let’s check the facts.
The ‘3%’ (as a proxy for low commission fees) you mention refers only to media buying/ retaining an account. Advertisers are happy to pay for the other services additionally (are you telling me there would be no extra costs for a trading desk or inhouse productions?). Unfortunately, clients often even pay a lot indirectly without their knowledge. This is the questionable and unsustainable model that is broken. It only works because of the lack of transparency. And it is a game focused on short-term gains.

Now my questions:
Why do media agencies accept a low fee on media buying?
No one forced them.
Simple answer: cheap media buying is often used as a door opener (trojan horse = own the client) to cross sell the other more profitable parts and roles (keyword: full service agency).
Sadly, this is not the idea of an trusted advisor or agent. It’s the exact opposite.
Let me be clear: what is standard in media presently, would be highly unethical and often illegal in other industries. Agents should avoid conflicts of interest, not create even more of them to make money.

As mentioned in the text, the large agencies make greater profits than ever (yes, check the link in the text). The six big holding groups have increased both their operating profits and revenues over the last years.
So, it’s seems ironic to complain about the business model. And don’t pretend that agencies are the victim here. They chose to do this.
In my view, strategically, big agencies have put themselves in a corner and management consultancies are happy to jump in. Why? You cannot be a neutral consultant when you are part of a big agency/ service network. Calling yourself a consultant does not make you one. As per definition, you should not have financial relationships with the suppliers you are supposed to evaluate.

@Nico. Good article, and definitely needs discussing.

Clients and agencies can only move forward with trust, and the basis of trust is transparency.

I would make 2 points:

1) Transparency has to be linked with Fair Remuneration. Agencies can provide one if they have the other.

Sadly, I have seen many clients – large ones and small ones alike – say time and again to my face – “I know its not fair on you and we need all the services you provide, but I need to show a 20% cost reduction in fees as its in our targets”. When clients stop demanding arbitrarily that agencies lower their fees just so that they can hit their own pre-determined targets, then we can begin the conversation of transparency. We are all businesses and we all need to make a profit.

2) I think you dangerously overstate the issue when you say : “Let me be clear: what is standard in media presently, would be highly unethical and often illegal in other industries.”
This is slander and libelous. What agencies do is governed by agreed contracts signed by lawyers and commercial people on both sides. No one is forced to do or sign anything, indeed there is usually a long process to win a client and agree terms. So unless you have proof that people are transacting with clients against their agreed terms – nothing is unethical or illegal. Its called a commercial agreement. And of course each client will negotiate its own set of terms that suit them. There are also many reasons a client will agree to terms that another client wont.. being a seasoned veteran of the industry you would understand why from the client side this happens too.
Also – what other industries are you talking about? Financial Services? Nope.. undeclared commissions and benefits and “conference trips” still happen without client disclosure. All legal.
Lawyers, Doctors, Accountants, all receive benefits – both cash commissions and in kind, from suppliers – all non disclosed and all legal.
In fact, I would think the only situation that is unethical (as opposed to illegal), is where a Doctor is recommending a drug to a patient because they are receiving some benefit on the side. Unethical because a patient’s health and wellbeing is at stake.

Dear ‘Facts please’. Many thanks for your comments.
I completely agree with you – 1) Transparency is needed and 2) let’s stick with facts. Unfortunately, then our views seem to be different.

1) This argument seems to come up a lot in conversations. To be honest, I am surprised about this. So the client wants to negotiate a lower price?
Have you considered simply saying ‘no’?
Why are consultancies able to offer ‘advising’ at a higher price? Could it be the broken business model that is the real issue (trying to keep an account at any price and finding profits later)?
In principle, I refuse to believe that low income/ market pressure justifies finding ways to generate revenue unethically (yes, unethically – as the role of neutral, trusted agent is often exploited).
2) Illegal or unethical in other industries – yes. Perhaps there is a misunderstanding, but I am referring to having multiple roles – as described in my article – which created multiple conflicts of interests (and without regulations). Could you imagine having a real-estate agent who sells you the software to evaluate the house prices/ market, provides you the mortgage for the house and does so using his inhouse bank?
BTW: auditors are by law required to be independent (so why are organisations that conduct media planning allowed to also do marketing mix modelling/ attribution/ research assessing their own service?).
Likewise, mortgage brokers must disclose the types of commissions they receive. See my text links and here: https://www.mfaa.com.au/AboutUs/Documents/AlternateRemuneration%20at%20070201.pdf
3) You ask for proof of unethical behaviour in media? How much evidence do you want that conflicts of interest have been exploited by bad actors? Keywords: ANA report, Dentsu, the discussions around agency trading desks etc.. The press has covered this topic extensively over the last years. Not every agency will do this, but the mounting evidence suggests it is time to act.
4) Other industries (real estate, insurance etc) have much more regulations than media (see links in text). Most important would be to disclose any income sources/ conflicts of interest. Shouldn’t we start here too?
Also, I like your example with health care: why do we have pharmacies and doctors? Depending on the jurisdiction, prescribing and dispensing drugs is illegal (see Korea), not just unethical. You also may want to read this: http://www.abc.net.au/news/201.....ic/6601840
5) Finally, I agree that other industries still need to improve (finance and health care). However, I hope your argument is not: if they are allowed to act unethically (or to have loopholes), we should be too. Let’s clean our own backyard first.
Overall, I am just saying that self-regulation does not work and that we should implement similar procedures and protocols as other industries (and improve these over time).
Why is this so bad? Is there anything to lose if you act ethically and in the interest of your clients?
Let’s fix the real issue, which is the broken business model, and not defend questionable practices and standards.

Very aptly put together the current situation on media transparency. However I wouldn’t blame the whole thing on the agencies. The corporates have been known to exploit opportunities wherever possible and in this case they have tasted their own medicine. The agencies put their foot in the door through setting up Media Sale shops which attracted the advertisers however the advertisers failed to see the expiry on the sale items. The agencies have just exploited the naivety of the advertiser towards getting more discounts and have taken up conflicting roles making it more complex for the advertisers to understand what was going on. It is simple math to understand that an agency cannot provide a brigade of trained personnel on such low commission / fee, and if they have agreed to provide then there is something wrong. I totally agree to the fact that before developing regulations the advertiser needs to develop capability within them to address the real problem.