The transparency debate: what you need to know
This evening the Association of National Advertisers (ANA) will release what is tipped to be an explosive report into the practices surrounding media rebates and value banks. Nic Christensen sets out what you need to know about it, and what the local implications are likely to be.
Update June 8 – the K2 report has now been delivered and has found “pervasive” non-transparent practices, involving media rebates, credits and value banks across the US. Read the news story on the findings here.
In Australia the controversy around media rebates, credits and free space – often referred to as value banks – is a hot topic that exploded in March 2015.
In the midst of the misreporting scandal that engulfed Mediacom, parent GroupM was forced to admit that it had not only operated value banks but that it had charged four clients for advertising inventory that should have been passed on at no additional cost.
That startling admission confirmed something that until then had only been whispered about.
It is time for transparency and genuine agnostic advice for marketers, given without a vested interest in the outcome.
Everyone in advertising knows all of the alleged points to not just be utterly truthful, though to be barely scraping the sides.
The wider industry has descended into unnecessary unethical behaviour. ‘Things have to get worse before they get better’ bring on a new era of honesty; in every sense
All businesses engaging a media agency should ask themselves… “Does your media spend serve the interests of your brand or your agency?”
Shift to paying media buyers a consulting/servicing fee and maybe (just maybe) the agenda will change from which publisher, broadcaster or channel will best line their pockets, to one that is genuinely in the best interest of the clients’ business objectives.
When marketers ‘ark up’ do they do it in pairs?
It’s certainly interesting to see this and thanks for quite an informative article. It’s a bit confusing why this bloke Jon Mandel is being seen as any authority. I looked him up on LinkedIn and he doesn’t ever appear to have had a job outside the US and he left Mediacom 10 years ago. How would he know what’s common practice in Australia? Might as well ask my nan!
“GroupM’s revelations last year show there’s an issue locally…” for quite some time Group M were the issue locally. Nic, you are getting warmer. can I suggest you include ye olde ‘slip discount’ circa 2005 alongside ‘value bank’ etc. as that might jog a few memories..I still wonder what happened to all of the value generated by a client’s spend when they leave the agency in question. I can’t see how ‘ 4 clients’ could have accounted for such a massive weight of no charge inventory. I suspect there could be some publicly traded media companies who are carrying significant inventory obligations as result of said ‘slip discount’ and to this point haven’t been declaring them..
what’s happening is the result of agencies having to find new and inventive ways to earn money. the clients (and client procurement departments in particular) started this whole mess by demanding more service less money. in a background of staff shortages, increasing wages, 30% churn, its a bit hard for an agency to make money having to pay more for staff each year and have their revenue cut by procurement who go away telling their CFOs what a great job they have done.
what happens next is if agencies cant make money from the fee, then they look for other creative and for some, unethical ways to fix the gap.
all of this can be stopped.
the starting point is advertisers must pay fairly for the agency resources used.
then agencies must agree to give back all discounts/rebates/call it what you will
ironically, the auditors like Firm Decisions, Trinity, Ebiquity and others have contributed to this whole mess my helping clients screw down fees of agencies over the last few years. and these same auditors now have the cheek to ask clients to pay them again to help them manage their agency contracts. heathen.
Excellent and thoughtful piece. Thanks for writing it Nic. I hope this all inspires advertisers, agencies, media owners and the industry bodies in this country to proactively bottom out these issues and collectively clean up the business. My fear is that we are in for a rounds of denial, finger pointing and yet more reputational damage before anyone actually does something to change. We’ve seen this happen in other industries – alcohol, financial services and food industries for example. Regulate or be regulated.
In a market, saturated with agencies of all types, it is hardly the client’s fault for demanding the best price for services. That’s called supply and demand. I think it’s a bit rich saying that advertisers, wanting to get the best value for their money, have forced agencies into acting unethically.
In experiential agencies, “rebates” are straight-up kickbacks for using a particular supplier or venue. They’re clad in a dodgy invoicing practices, such as “consultation services” which the agency charges the venue or staging supplier, (usually after the project) so it has complete separation from the job number and any client auditing. It is disgraceful and it has been going on for years, with some of the most established agencies in it up to their arms, and the biggest brands of all not having a clue.
If you’re a client, ask why your agency always uses the same supplier; ask to see the competitive quotes, especially in the staging and AV aspect of your project. Better yet, have your agency head sign a Statutory Declaration that excludes these practices. You may not see your money again, but falsely swearing a Stat Dec can send them to jail.
As a non-accredited agency, a fair question to ask is how do Slingshot buy? How do they guarantee the transparency of their approach?
On further thought here I can say that this happens not just in offline media, that progrommatic is a big issue but so is broadcast and print production. ‘Slush funds’ is the expression there. How do you think agencies fund expensive pitches with expensive external suppliers. Print and Tv is a bit harder to catch after a production but media should be straight forward.
Clues – the agency invoices exactly what was estimated up front and no adjustments.