Agency transparency has been a hot topic for a couple of years, but in 2015, the issue came to a head. Agencies were finally forced to be more open about what they do and who they really work for — and whether they truly are “agents” working in clients’ best interests. Here are the five big things we learned about agency transparency and its effects this year.
Rebates are widespread.
In March, Mediacom CEO Jon Mandel became the first person to flatly and publicly say that agency rebates were a matter of fact across the industry. In March, he told attendees at an ANA conference that agencies have long had arrangements in place with sellers that basically get them rewards in exchange for choosing those sellers.
“It’s been happening in a big formal way for a decade,” Mandel told the group, referring to rebates. “It’s gotten so big that agencies have developed new divisions just to monetize all the gains.” Mandel even showed a contract between an agency and a seller showing a 2 percent commission and an addition 9 percent for the agency — just for placing media with that seller.
The key point: clients are usually unaware that these arrangements have been made — which means they’re losing out on money that they should be getting, since it’s their budget on the line.
They happened because agencies are squeezed for money.
Whether or not they’re shared with clients, these rebates — or, let’s call them kickbacks — come out of media agencies getting tiny commissions by advertisers. Especially with digital advertising, which has increased the scope of services but hasn’t really grown budgets to go alongside — the money agencies are paid has shrunk. So kickbacks came about as a way to make a little extra dough on the side. And programmatic advertising makes auditing those rebates even more complicated since it’s all a “black box.”
Agencies are also involved in other things.
When the ANA created a “task force” to look into the issue of rebates, it also decided to tackle a decidedly larger concern: Agency executives and agencies often have a stake in media or technology companies that potentially could pose a conflict of interest. (This is usually, again, because they are being squeezed on fees in many cases and need to make more money on the side.)
There’s also the other big problem caused by the growth of digital advertising. While rebates and kickbacks are decidedly financial sleights of hands, on the operations side, agencies are also being asked about paid ad labeling, where ads are actually being seen and if they are being seen at all. At the IAB Annual Leadership Meeting in February, viewability and what it means was a top issue.
How much of the total budget is actually “working media” dollars is up for debate, but one study by Audience Science said that it’s about 24 percent. The rest goes towards the agency, the DMP and other costs.
Transparency means different things to different people.
What transparency means is varied. For example, WPP is largely seen as being immunized from the rebates debate because its position has always been that it is transparent about not being transparent. WPP is the only holding company that discloses gross revenue and media trading revenue so clients are aware of the difference. “WPP’s Xaxis has an unambiguously clear position as an entity which makes money while taking principal positions in media,” Pivotal analyst Brian Wieser wrote earlier this year. “The resulting profits it generates can help it continue to reinvest in its business, which is a good thing for those marketers who like the performance it delivers.”
Other agencies say that it isn’t enough, that shops in fact need to be completely transparent about what goes into the sausage. Others, of course, say this just isn’t even happening.
Clients are wising up.
An ANA and Forrester study last year found that clients were increasingly concerned about new tools that facilitate media buying, and whether they obscure understanding of the process. (Three years ago, by comparison, most marketers were unfamiliar with rebates as a concept, at least in the U.S.) Almost half of the respondents surveyed were concerned about the transparency of their buys. And more than half noted “a high level of concern over the possibility that agencies may receive a rebate from the media sellers.”
Marketers, potentially driven by this, also put up a combined $26 billion worth of accounts for review this year.
But what happens next is yet to be seen: Procter & Gamble, for example was one of the clients many pointed at last year as one of those bringing more programmatic advertising in-house. It invested in that last year and it was seen as a possible start of an avalanche for large media companies — more clients will follow, people argued. But just this month, P&G moved its account to Omnicom, arguably showing that agencies are needed for programmatic — but perhaps that it’s going to be smarter about it this time around.