Media transparency has been a hot-button issue in the marketing world of late. In June of this year, an independent study commissioned by the Association of National Advertisers was released by K2 Intelligence. Based on interviews with anonymous industry sources, the report claims that U.S. media agencies are regularly engaged in undisclosed dealings, including media agency rebates, kickbacks, and principal-based buying.

While the methodology and conclusions of this study have sparked significant debate, there’s plenty for advertisers to learn from them. The following list provides a synopsis of the alleged non-transparency issues found by the study, including recommendations on up-front questions to ask to ensure the terms and conditions of your media agreement are clear from the get-go.

Non-Transparent Supplier Partnerships

WHAT’S HAPPENING
Some large media agencies have been profiting from suppliers that they have an equity stake in without disclosing the relationship to their clients. This often occurs when an agency owns a “trading desk” under a different name, which recommends inventory from its own media suppliers—a practice found to be largely supported and encouraged by senior management.

HOW TO AVOID IT
When searching for potential media partners, always ask the following:

  • Do you have an ownership stake in any media supplier or ad technology?
  • Do you have any contractual obligation requiring the use of specific media?
  • Do you sell any inventory that you own? And if so, are you required to use it within a specific time period?
  • Am I free to direct you to use a different media supplier or ad technology partner?
Non-Disclosed Rebates

WHAT’S HAPPENING
Agencies that spend a certain cash amount on media are given rebates in three ways: a straight cash discount, a “service agreement” in which rebates are paid under the guise of “non-agency services” such as “research” or “consulting,” or free media inventory credits. In all three cases, some agencies have not disclosed that a rebate was received and no savings are passed onto the client. Even worse, some agencies are reselling free inventory credits back to clients at a later date, essentially “double-dipping” on the client spend.

HOW TO AVOID IT
When searching for potential media partners, always ask the following:

  • Do you receive any rebates from media suppliers?
  • Do you disclose all added value that you receive from media suppliers?
  • Do you ever resell media that you receive as added value?
  • Do you ever accept payment in any form from a media supplier?
Mark-Ups

WHAT’S HAPPENING
Large holding companies purchase a high percentage of their inventory through preferred “principal” suppliers, negotiated at essentially bulk rates. Once the inventory is purchased cheaply, media buyers are given directives from the top down to direct client spend toward this inventory at significant mark-ups, which are negotiated using separate rate cards.

HOW TO AVOID IT
When searching for potential media partners, always ask the following:

  • Do you ever mark up any media costs?
  • Are you charging me the same amount you are paying for the inventory?
  • Do you sell inventory you already own?
Additional Recommendations

The ANA recommends taking the following steps to ensure full transparency in your media partnerships:

  • Re-examine all existing media agency contracts and meticulously review all terms and conditions. As appropriate, use an expert, independent third party to provide insight and contractual expertise to optimize transparency, upgrade reporting and analytics, and substantially expand audit rights if necessary.
  • Implement media management training, particularly in the areas of contract development and management of the digital media supply chain.
  • Confirm and reaffirm the basis on which your media agency is conducting your media business. Be critically clear and comfortable with the agency’s role as agent and principal. Ensure there are no conflicts of interest, and that there are clear processes in place for resolving conflicts that might emerge.
  • Assess whether contract terms permit you to “follow the money” by having full accountability for every dollar that is invested with a media agency. It is recommended that audit rights cover not only the media agency but the holding company and any affiliated companies that touch your business.
In conclusion

As an advertiser, it’s crucial to understand where your brand’s dollars are being spent. Start asking your agency partners more questions to get down to how they made these media supplier decisions and why that’s the best decision for your brand and your marketing objectives.

Original ANA Report here: http://www.ana.net/content/show/id/pr-media-transparency?st3=160607-k2-mem

Author
Melissa Palmer
Melissa Palmer

CFO/COO

mpalmer@butlertill.com
Share
Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

Stay ahead of the curve

Get our FREE newsletter, Brain Waves. Fresh topics. Hot tips. Smart analysis from the brightest minds in the media biz.