Media agencies in the US have been given cash rebates by media companies for spending a certain amount of their clients' budgets with them, a probe by an American industry trade body has found.
Agencies are expected to act in the best interests of their clients, and such rebates are banned in the States.
A "pervasive" problem
The study, which was conducted by the Association for National Advertisers (ANA) and K2 Intelligence, found that the size of cash rebates given to agencies was linked to the amount they had spent on advertising with that media company. Rebates had been paid to agencies, and entities affiliated with them, to the tune of between 1.67 and 20 per cent of aggregate media spending.
The report said that numerous non-transparent practices were “pervasive” within the sample of the US media ad buying ecosystem which was studied, suggesting that the same problems were probably at play in the industry as a whole.
It also found evidence of transactions where an agency or its holding company had purchased media first and then sold it to a client at an elevated price, with mark-ups of between 30 and 90 per cent in some instances.
Those at the top were found to be aware of these practices, with senior executives at agencies and their holding companies mandating some non-transparent activity.
Both agency holding companies and independents were involved, although the ANA kept names confidential.
"The media business system is not transparent and marketers are not getting full disclosure on the information they need to make informed [media decisions],” said Bob Liodice, ANA's chief executive.
The UK take
The revelations will have an impact in the UK, said Debbie Morrison, director of consultancy and best practice at ISBA, a UK advertising body. “This investigation may have been US focussed but it has impacts for any company working with a media agency in any territory, we operate in a global industry, in a global market, with global ways of working.”
She warned that the report exposes some naivety on the behalf of the client community. “Many have not up-dated their terms in 10 years and even those who had, had no concept of whether their terms covered them on transparency issues.” She suggested that clients should consider hiring in-house media specialists. “In most companies media spend is their second biggest expenditure after capital investment, yet there are so few heads of media [on the] client side.”