While rebates are a known — if controversial — practice in the U.K., hidden fees are different. In the latest installment of the Digiday Confessions series, where we grant anonymity in exchange for candor, a media agency veteran with over three decades of experience in advertising lifts the lid on the murky world of programmatic margins. Pressure from holding companies and clients has lead media agencies in a “downward spiral” to prioritize cost above all else, this person tells us.

In response to these undisclosed fees, some clients are asking agencies for sweeteners of their own, while others are hiring internal and external talent to bring greater transparency to their programmatic trading. But whichever path brands choose, they’ll be hearing a lot more about the issue in 2017.

Answers have been lightly edited for clarity.

Despite calls for greater transparency following last year’s ANA report, you’ve said murky practices in programmatic media buying persist. 
On one side, there are kickbacks given by media owners to agencies. Over and above that, as programmatic trading increases there are opportunities that are being taken up on a regular basis. The client is getting what they’ve agreed for the money they’ve agreed, but agencies may well be negotiating that at a lower rate. When programmatic is half a percent, it’s not going to keep everybody awake at night. But when it is 50 percent of ad spend, this becomes a fundamental issue.

How are some of these costs being buried?
What an agency is potentially able to buy at and what they’ve agreed with the client they are going to buy at could be 40-60 percent different. That’s an awful lot of money over time. The worst kind of margin I’ve seen is a campaign reported at £1.20 ($1.45) when it was acquired at 30p (36 cents).

What are the driving forces behind this?
Media agencies are trying to make as much margin as they can because of the kind of profits they need to help support their [parent company]. At the same time, the client is putting downward pressure on their fees and commissions through procurement, which puts more pressure on the agency to find alternative ways of generating profits. It’s a downward spiral. The driving down of costs has reached a tipping point where value is falling at a faster rate than cost.

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A lot of this seems to start with clients.
Clients need to invest in harder-to-find but nevertheless valuable new customers. However, procurement requires the agencies to deliver a cheap price. This means retargeting, not prospecting, as known customers are the cheapest and easiest for the agency to get. The short-term nature of marketers means that’s what the agency will be held accountable for. It’s occurring far too much and the optimal outcome for the client isn’t something that’s being achieved at all. Probably, quite the reverse.

Are many media agency staff aware of these hidden programmatic fees? Is it a top-down issue?
Well, it’s not a bottom-up problem. Junior members of trading teams work to instruction. It’s not like the old days where buyers had the responsibility of doing what we thought was right. Individuals these days are working to very clearly defined objectives so arrangements are made at a more senior level.

And what about brands, how of many of them are aware?
Any client who doesn’t think there are issues with the ways trading is being done on their behalf has their head in the sand. Some clients don’t get into the minutiae but create an insurance policy by putting downward pressure on the overall arrangement mechanism. They’ll say, “We want another million pounds-worth of value taken off the costs next year, or we’ll move the business.” It’s a blunt instrument.

And the savvy clients, how are they responding?
Those with a history of media investment are far wiser as to exactly what is going on as they involve themselves with the media owners anyway. Programmatic systems now allow clients to acquire digital impacts without having to use an agency.

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Does this doom agencies?
Agencies know how to best reach the right audiences over time. But if that’s compromised by putting price above everything else, then who’s to say the client isn’t better doing it directly? They may have less expertise, but at least they have complete transparency.

Do you think this issue will tarnish programmatic’s reputation?
This issue potentially indicts programmatic, and that’s wrong. We can’t sully it because it’s here to stay. You used to buy TV spots that could reach 15 million people in one go, but now we need a machine to do 15 million individual transactions. The technology is great, the opportunity is great, but some of the practices being employed are opportunistic and have to stop.

How does the situation in the U.K. compare with the U.S.? 
The Americans are the first to say, “How can this possibly have happened?” when some of the largest advertisers in the world are American. They’re the ones who backed large aggregated agency leverage to extract the most value for their spend. They felt that would save them. For the ANA to suggest clients are completely ignorant when it comes to kickbacks is, frankly, bollocks.

So how will all this play out in 2017? What’s the solution here?

It’s going to be a big year. People will turn to self-serve systems to provide greater transparency. I also predict calls for an amnesty on what has happened, fair remuneration for agencies and a standardized framework for transparency. Drawing a line in the sand is the most obvious way to move forward rather than recriminating eight years of stuff. I do believe everybody is jointly responsible.

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