With focus on transparency, barter agencies get more scrutiny
The recent focus on transparency in how agencies handle clients’ media budgets has led to further scrutiny of the opaque practices of so-called barter agencies, set up by holding companies to exchange extra goods for media space. The two Association of National Advertisers’ agency transparency reports mention the practice nearly 50 times.
Barter agencies originally set up to help brands unload unsold products in exchange for media. For example, an audio products maker may have 1,000 unsold headphones with a total face value of $50,000 at the end of the year. The company doesn’t want to keep those headphones on the books. It transfers them to a barter agency in exchange for media space bought at a discount. The barter agency then resells the goods through other channels.
Every major holding company, except for Publicis Groupe, has its own barter agency: Interpublic Group’s Orion, Omnicom’s Icon International, WPP’s Midas Exchange and Dentsu Aegis’ Amplifi. Independent agency Horizon also has a barter division called Eden Road Trading. All of them declined to comment for this story.
Barter deals have long existed and gained traction during the 2009 recession when brands weren’t able to sell products, so media agencies expanded their barter capabilities to take clients’ unsold products. It was a pragmatic approach for both agencies and clients when the economy tanked. But interestingly, the stigma still exists today when the economy has become much better and barter deals get even murkier in the digital space.
“The ‘alchemy’ of barter as it pertains to digital is rooted in the fact that it is much more difficult to place a hard value on inventory when compared with more tightly controlled ecosystems like TV, radio and print,” said an agency executive who prefers anonymity.
He explained that TV inventory is relatively homogeneous and rates tend to be more benchmarked, while digital is extraordinarily disparate due to variance in inventory quality, the number of intermediaries, and the fact that impressions can be transacted on an individual basis and advertisers value those impressions differently based on the individual user.
Of course, non-transparent activities go both ways: Publishers can sell cheap or fake inventory, advertisers can sell expired or crap products and mark it up in accounting and the barter agency being a broker can make everything shady by arbitraging both sides into very high margins, with clients rarely having a neutral third party overseeing their measurement, according to Mani Gandham, CEO for content syndication platform Instinctive.
“Nobody checks what equivalent really means so barter agencies can switch out supposedly premium inventory with whatever cheap or fake media they want,” he said.
Holding companies often tout that their ability to buy media in bulk gives them a price advantage. But at the same time, they can swap the media across client rosters. And in a programmatic context, an agency trading desk can buy cheap inventory on its own account across the ad exchanges and then effectively sell it to clients through real-time bidding, said Domenico Tassone, evp of digital solutions for business analytics company The Encima Group. The swapped media could perform better than the non-swapped, but nobody would know.
For example, a campaign that a client expects to run on AOL might have been swapped in part for TV deal leftovers or low-quality inventory from ad exchanges. As long as the campaign hits a certain number of impressions, the client is none the wiser.
“Digital agencies exclusively control how ad campaigns are labeled and the associated costs that are put into ad servers during the ad trafficking process,” said Tassone. “As a downstream analytics consultancy, it is kind of a ‘garbage in, garbage out’ world for us. So if [the media] is not named or flagged differently, it all looks the same. We wouldn’t be able to tell the difference.”
There are no solid stats on media spend through barter agencies. Omnicom’s ICON International indicated that its number is greater than $1 billion, while WPP’s Midas Exchange is smaller, followed by IPG’s Orion, said Brian Wieser, senior research analyst for Pivotal.
And with clients left in the dark, they don’t get to weigh in on the process. It’s possible they might not even mind, said Tassone, given that barter agencies help them get rid of unused assets.
IPG’s Arun Kumar says the time has passed for the ad industry to regulate itself
Tech giants and government regulators are cracking down on digital tracking, and the ad industry has failed to convince people of tracking's trade-offs, IPG's data and technology officer said in the latest episode of the Digiday Podcast.
Member ExclusiveMarketing Briefing: ‘This year is tougher’: Another virtual Cannes Lions shifts focus to creativity as agency execs count on a return next year
The return of in-person meetings for some vaccinated execs is more appealing that sitting in on another virtual conference. That’s not to say people won’t be attending Cannes but the excitement is more palpable for in-person business meetings, according to agency execs and industry observers.
Member ExclusiveDigiday Research: TikTok has already surpassed Snapchat in the eyes of brands and agencies
Snapchat and TikTok have quickly gotten traction with brands and agencies. Read the latest Digiday Research.
SponsoredIdentity solution fatigue is setting in: How to keep moving
By Kristina Prokop, CEO and co-founder, Eyeota As we move deeper into 2021, the desperate search for identity solutions that can smooth marketing organizations’ transitions to a cookieless world is reaching a fever pitch. There’s no shortage of new identifiers and identity technologies vying for attention — and that’s a big part of the problem. […]
‘People are looking for ways to work together asynchronously’: Tech providers rush to meet needs of hybrid workplaces
Tech businesses are falling over themselves to arm employers and workforces with what's needed in a hybrid working world.
The pandemic’s negative—and possibly long-term—toll on Gen X
Despite the weight of the crisis easing, many Gen Xers are still coping with the pandemic’s negative and far-reaching implications on their psychological, physical and financial health.