Wall Street shrugs at agency-transparency report

Stocks for Omnicom, IPG and WPP all closed slightly higher at market close Tuesday, underlining how difficult it is to really quantify the impact of the Association of National Advertisers report that found that non-transparent practices existed in many corners of the media agency landscape.

IPG closed about 1 percent higher at $23.96; Omnicom also about 1 percent at $83.27, and WPP closed at $116.27, 1.7 percent higher. No investment banks changed their ratings on big holding company stocks.

This might have been surprising to those watching to see how the market would respond to the findings of the report, which said, among other things, that rebates were pervasive and senior executives at agencies were aware of certain business practices that remained undisclosed to clients, including funneling business to owned (and higher margin) trading desks for programmatic ad buying.

“The report is not inconsistent with what we expected,” said Brian Wieser, analyst at Pivotal. “Only if you were an investor that slept through last year would you say, ‘oh my God’.”

The report was a result of an eight-month-long investigation after former Mediacom CEO Jon Mandel took the stage at an ANA event and said rebates were widespread in the U.S. market. In a research note at the time, Pivotal tried to figure out the material impact of that speed: It downgraded holding company stocks, but noted that it was too hard to figure out exactly the impact. Coverage does not disclose gross revenue versus revenues coming from media trading. And so investors can’t figure out how much agency growth has been supported by these non-transparent activities.

Another thing adding to the confusion is that a lot of this took place in the digital media space, which also isn’t broken out. And rebates are a problem in the U.S., and it’s hard also to ascertain the impact here versus globally.

One thing that might see more of an effect, said Wieser, is if investors start to appreciate the impact this will have on clients. If clients decide to use this report to cut fees or scrutinize contracts — the ANA certainly recommends the latter — it would have somewhat more of a material impact. “Then they can see it laid out clearly,” he said.


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