ANA Report on Media Transparency: One Year Later

The issues raised in the subsequent transparency debate are complex and if the allegations against the agencies are true the behavior is reminiscent of past highprofile financial scandalsWhat happenedamp160 On June 7 2016 K2 Intelligence released an ANAcommissioned report detailing how rebates and other incentives that media buying agencies receive from media owners are being retained by the media buying agencies instead of being passed back to advertisersWhat does the K2 report mean to an advertiseramp160 Using a sixyear statute of limitations in an action for breach of contract an annual spend of 100 million equates to 600 million over that time frame amp160Estimates are that the retention by media buying agencies could be fiveamp160percent to 20 percent amp160Assuming this is the case an advertiser with a 100 million annual spend may have claims from 30 million to 120 million amp160Regardless of the margin of error the amounts remain staggering for any major advertiser amp160Even assuming an advertiser elects not to pursue a claim the advertiser should ensure that the continued diversion of assets stopsIt is realamp160 Toplevel executives of some of the media buying agencies railed against the K2 report assuring the marketing community that their companies never engage in the behavior reported by K2 amp160But the K2 report39s detailed findings amp160deeming the behavior pervasive and systematic throughout the ecosystem make it difficult to believe the sincerity of these pleas of innocenceIs it seriousamp160 Whether the denials are real or feigned isn39t the immediate issue amp160For now transparency is the center of attention Eventually any media buying agencies that previously did or continue to engage in the subterfuge reported by K2 will most likely get caught and the behavior will be stopped amp160At some point executives complicit in the alleged behavior may also face consequencesWhat has been the aftermath so faramp160 One year ago this week ANA and EbiquityFirmDecisions published a series of recommendations in quotMedia Transparency Prescriptions Principlesamp160and Processes for Advertiserquot amp160Since the K2 report was published the industry has taken steps toward reconciliation and change amp160They includeSignificant increases in renegotiation of contractsSignificant settlementsRFPs that now include transparency as a key requirement to participateIndustry concernamp160over an ongoing investigation by the US Department of Justice into transparency in production and the possible expansion of that probe amp160The recent silence from the DOJ should not be seen as a positiveAre advertisers pleased with the results one year inAdvertisers that have addressed the issues and renegotiated contracts or held firm on RFP requirements are making progress amp160According to press reports some advertisers have settled for millions of dollars in various forms eg cash credits free media etc amp160How muchamp160is dependent upon many factors eg media spend geographic scope existing relationships etcAccording to a recent agency compensation study by the ANA 25 percent of the advertisers surveyed were not aware of the transparency issue amp160Of the remaining 75 percent only half have addressed it amp160It39s impossible to know the percentage of those in that group that have achieved satisfactory resultsAdvertisers are not blindly accepting claims by agencies that the agencies are SarbanesOxley compliant as if such an assertion proves financial accountability amp160As far as transparency is concerned such an assurance is meaningless amp160Nor does it satisfy the advertiser39s obligations to its shareholdersAdvertisers have a new concern following the recent ANA Programmatic Transparency report in which the trading desks of the major agency holding chose not to participate amp160The report showsFull transparency in digital is possible despite agency protestations to the contraryExcuses for nontransparency eg NDAs noncooperation etc lack merit and have been eliminated by strongwilled advertisers like those who participated in the studyThe solution is for advertisers to make transparency a condition of programmatic buyingIn addition advertisers need to reassess whether buying sourced traffic should continue given its propensity for fraud and nonhuman traffic Advertisers and digital media platforms must also increase efforts to protect brand safety amid allegations that the monies flowing to criminals in the ecosystem are used to support illegal activities including terrorismHow are agencies respondingamp160 It depends on the agency amp160Some media buying agencies particularly those now owned by one of the holding companies publicly support full transparency amp160Others have been forthcoming in private meetings and agreed to greater transparency or have been honest about situations where transparency is not acceptable amp160Many continue to be uncooperative and in denial amp160Their hope appears to be to create enough fatigue in the process that advertisers lose interest in further negotiations amp160Delay is to their advantage amp160But that is becoming a failed strategy as the issues become more public and advertisers make transparency a prime initiativeamp160What can be done with existing contractsamp160 If an advertiser has a signed a contract that is not up for renewal any time soon it does not mean renegotiation is inappropriate amp160An advertiser can always renegotiate a contract due to materially changed circumstances The ANA reports on media and programmatic transparency together with the soontobe released report on production transparency materially change the landscape amp160If a contract is ending and the advertiser has chosen a new agency then it should also consider a full exit audit of the previous agency amp160Regardless of any prospect of renegotiation every advertiser needs to talk to its agency on the issues conduct at least a perfunctory internal investigation on its contracts and audit history and satisfy its financial control requirements under SarbanesOxley at least in the United Statesamp160Can there be transparency when the agency is buying media as a principal and reselling it to the advertiser the socalled quotprincipal transactionsquotamp160 Whether an agency is acting as an agent or a principal is irrelevant when it comes to transparency amp160A contract can require transparency regardless of the agency39s status amp160It39s simply something to negotiate amp160On the other hand if an agency is purchasing as a principal and not as an agent absent contractual language to the contrary status as a principal carries additional liabilities amp160A principal is generally responsible for the integrity and performance of its products and services amp160It cannot avoid liability to its customer by claiming it is not responsible for the suppliers it uses to manufacture what it sells amp160Where an agency is reselling media an advertiser has every right to demand responsibility from agencies throughout the supply chain just as the advertiser is responsible to consumers who buy the advertiser39s products and servicesamp160What should an advertiser do nowamp160 What is frontandcenter is whether agencies are going to be transparent or not with their advertiser clients on rebates and other incentives they receive amp160Who gets to keep the dollars the agency or its advertiser amp160more often than not depends on vague contracts no contracts at all or common law basics governing agents for a disclosed principal Bringing greater formality to the market is long overdueamp160An advertiser has a right to know if it is receiving a fair share of rebates and incentives earned by its agencies using the advertiser39s spending either individually or in the aggregate to secure concessions amp160No one can legitimately deny that agencies are receiving rebates and other incentives all over the world including in the United States according to K2 amp160In the aggregate billions of dollars are involvedStep One amp8211 A Look Inside amp160Advertisers may want to conduct an internal investigation that will provide an early assessment of potential claims and risks amp160This assessment should determineWhether the advertiser has been receiving its fair share of rebates and incentives earned by agencies using the advertiser39s spend either individually or in the aggregate amp160If not why notWhether the advertiser was aware of an agency39s retention of rebates and incentives and if so why was that permitted and how did it factor into agency compensationWhether the advertiser is SarbanesOxleycompliant with respect to financial controls to address the issuesWhether current contracts are lacking protections sufficient to warrant renegotiation or amendmentWhether RFPs include transparency obligationsStep Two amp8211 A Look Outside amp160Advertisers may want to audit their agencies to determineWhat their agencies are doing with rebates and other incentivesIf an advertiser39s agencies are retaining benefits including via the schemes alleged in the K2 report the approximate amount of the advertiser39s claim and how it will be reconciledIf the agencies are not forthcoming or if their answers lack clarity advertisers must consider steps necessary to protect the interests of the advertiser and its shareholders In light of the K2 report and other revelations in the past year simply trusting an agency39s promise that it does not engage in questionable activities is no longer sufficient amp160There must be verificationStep Three amp8211 A Look to the Futureamp160 As an advertiser looks forward in this new era of transparency it should undertake at least two initiativesRenegotiate current contracts andor identify the best provisions to insert in agreementsInsure transparency is a cornerstone in all future RFPsThe industry is on the road to restoring trust but has a long way to go amp160To preserve marketplace integrity and protect shareholder values advertisers cannot let upamp160and must continue to pressure agencies for complete transparency amp160The delays and public denials by agencies despite reality cannot continue amp160Agencies should prove their sincerity through cooperation in audits and legitimate contractual provisions that insure transparency or make it clear where an agency refuses to embrace itRead what the ANA39s Nick Manning has to say about transparency issues hereClick the social buttons above or below to share this story with your friends and colleaguesThe opinions and points of view expressed in this content are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated writers

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ANA Report on Media Transparency: One Year Later

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ANA Report on Media Transparency: One Year Later

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Bob Liodice

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