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ANA research challenges agencies

News, 08 June 2016

NEW YORK: The Association of National Advertisers (ANA) has identified a "pervasive" lack of transparency in the media-buying process – a trend pointing towards structural problems with the client–agency relationship, and, potentially, the entire agency revenue model.

The ANA partnered with investigative consulting firm K2 Intelligence – an assessment, compliance and cyber-defense services group – to explore the impact of rebates, agency mark-ups on resold media, and similar activities within the US media-buying ecosystem.

Based on interviews with 150 sources – including advertisers, agencies, media suppliers, ad-tech vendors, trade bodies, barter firms, and other groups – K2 stated that "non-transparent business practices were found to be pervasive". (For further details, read Warc's exclusive report: The rebates debate: Are broken client–agency relationships to blame?)

More specifically (and possibly more damaging to the agency model), among the 117 participants involved with media buying, fully 59 – effectively half of these respondents – had "direct experience with non-transparent business practices," the study revealed.

"The media business system is not transparent. Marketers are not getting full disclosure on the information they need to make informed, optimal business, marketing and media-management decisions," Bob Liodice, President/CEO of the ANA, said during a press briefing.

"There are billions of dollars at stake, and every marketer should have what it needs to optimise the utilisation of those resources."

In tracing the causes of this behaviour, the analysis pointed to "client pricing pressure" as a significant factor encouraging agencies to seek out sources of revenue beyond commissions.

These opportunities have, in turn, become more abundant as a result of the growing complexity of the media-buying industry.

One example is the advance of programmatic advertising, where processes are automated, enacted in real time, and often feature several intermediaries. Such arrangements make it challenging for brand custodians to carefully scrutinise spending initiated by their agencies.

Relatedly, advertisers' audit powers vary greatly depending on their contract with an agency. Some clients, for instance, regularly commission media performance and financial assessments, while others can only audit their agency of record.

As evidence of the combined impact of these industry failings, over 40 of K2's sources had direct experience of rebates, and 34 asserted that these kickbacks were not revealed or passed back to clients, and/or were "demanded by agencies".

K2's analysis also indicated that media suppliers paid rebates to agencies, or affiliated operators, ranging from 1.7% to 20% of aggregate media spending.

Another 33 contributors had experience with "principal transactions", where agency holding companies purchase media and then resell it to clients at a markup – with this figure typically standing at between 30% and 90%, according to the report.

In response to the ANA/K2 findings, agency trade body the 4A's (American Association of Advertising Agencies) criticised the report for being anonymous, one-sided and inconclusive.

"Without an opportunity for agencies to assess and address the veracity of information provided to K2, sweeping allegations will continue to drive attention-grabbing headlines," the organisation said in a statement.

"This does nothing to foster a productive conversation or to move our industry forward and could cause substantial economic damage to all media agencies."

Such a response highlights the size of the challenge facing the ad industry, especially when compared to one of the next steps identified by Liodice during the ANA's press briefing: "We hope that the facts embedded in this study will be used to open up a constructive dialogue with the 4A's and the agency industry in total."

Data sourced from ANA, Bloomberg; additional content by Warc staff