Down the Media Buying Rabbit Hole

If your job has anything to do with advertising media buying and your boss reads the Wall Street Journal, we suggest you read this.

In late September, the Wall Street Journal reported that Federal prosecutors in Manhattan opened an investigation into media buying practices by advertising agencies. This is, by far, the most important news on the media transparency front to come out since the ANA (Association of National Advertisers) published its report on media transparency two years ago.

Why this changes the game:
Subpoena Power: Investigators are now empowered to compel disclosure across all holding company units and any other party or vendor involved in the supply chain.

Digging Power: They will be able to follow transactions across the entire ecosystem, starting with the advertiser, through the agency (and affiliates) to media vendors, other downstream re-sellers, and publishers. They will not be limited by any advertiser/agency contract and have the full resources of the U.S. Government at their disposal.

Perjury Power: Investigators will also be able to interview all parties involved. The FBI is looking to ascertain truth. (It is not a good idea to lie to the FBI.)
It will be interesting to see how far they go in looking at holding company units outside the U.S., as it is possible that payment of rebates and self-dealing (buying from a party controlled by or related to the holding company) might have taken place via a non-U.S. party.

While many advertisers are reporting unprecedented low levels of trust toward their agencies, let's be clear that not all agencies are engaging in mischief and not every advertiser is affected. However, it is likely that investigators will find instances of unsavory practices at some of the advertising holding companies.

What they are likely to find:
Rebates: Rebates may have been paid to agencies and not returned to advertisers as required by contract. Even if the advertiser/agency contract does not require the return of rebates, this could be an issue if the agency was acting as agent for a disclosed principal.

Revenue from Opt-in Transactions: Agencies are making money on opt-in media buys, where the advertiser has agreed to forego transparency, the agency buys as principal, and the advertiser understands that the agency is likely to make a margin. Provided that the advertiser opted into this, the agency is likely to be in the clear. However, if they were careless and the advertiser was not asked to opt-in, this could also be an issue.

Up to this point, we don't expect agencies to have a major financial exposure since most have been very careful to enter into contracts that clearly state how rebates and principal transactions should be managed, and agencies have made efforts to govern themselves accordingly. However, they may face significant reputational risk if these practices are further exposed by the investigation. Government contracts could present additional complications for agencies.

Wait, we are not done yet. They may also find:...

Read The Full Article

 

0 Comments Write your comment

    1. Loading...