A new report slated to go public as soon as tomorrow is expected to find that agencies are collecting media rebates from vendors based on deals they make in the U.S., according to industry executives. The results are the product of an eight-month investigation by the Association of National Advertisers.
The report likely won't mention agencies or holding companies by name, but contains information pointing to the collection of rebates, these people said.
Although agency groups don't yet know what the full report contains, some are preparing their communications accordingly, drafting message points for clients and employees, according to industry sources.
Clients are also bracing for the news. According to a marketing executive who has been briefed on the matter, the investigators found a series of what they are calling "non-transparent" practices. Those range from rebates from media vendors to media agencies, which are then channeled through an offshore entity, to selling data or services that don't have much value as a way for media to send a check to an agency, said the executive.
The advertiser trade association hired two companies, K2 and Ebiquity, last fall to investigate agencies' media-buying practices amid client concern following allegations that agencies were collecting undisclosed rebates from vendors.
The "non-transparent" practices cited in the report are mainly being linked to agency holding companies, said the marketing executive. The report, this executive said, won't name specific names, but finds that these practices in one form or another are pervasive across multiple large holding companies and a number of operating media agencies owned and independent.
While the report simply calls the practices "non-transparent," this executive said the findings could trigger potential disclosures to the SEC.
"It's going to give the agency industry another black eye and it's going to further erode the trust that clients and agencies have," this person said. "It is one more blow to the trust and transparency and candor that everybody assumes you should have with your agency."
"We are going to expect a response," said a senior media executive at a large brand familiar with the investigation, who anticipates that the report will reveal that agencies are collecting rebates in the U.S. "Business as usual needs to change. It's not a sustainable relationship model."
When asked what kind of response he'll expect, he said, it might come down to clients asking to see the contracts that the agencies have with their media vendors. It could also change a client company's agency decisions going forwad, he said. Still, he said he doesn't want to rush to judgment until the report comes out.
The ANA declined to comment at this time. Nancy Hill, CEO of the agency trade association 4A's, said: "As always, we continue to preach full transparency to our members and will act accordingly when we have seen the details."
"We will not comment at this time on a report we haven't yet seen," said Publicis Groupe in response to a request to comment.
WPP's GroupM responded: "GroupM serves the best interests of our clients as defined by the goals they themselves set out in our contracts. This means negotiating contracts in good faith, complying with them to the letter and acting not only lawfully but ethically. We have not seen the report and don't comment on anonymous and unspecific allegations. We have always maintained that if individual clients have questions of us they should contact us directly. However, if there are allegations that are specific to GroupM, we will demand to see the details so that we can fully investigate and fulfill our contractual obligations. If the details are not forthcoming, we will take steps to compel the ANA or their investigators or their advisors to provide the material."
"We have and will continue to modernize our transparency practices as the industry evolves," said Interpublic Group of Cos. in a statement. "IPG has been an industry leader on this issue for over a decade, which has resulted in a high degree of clarity in our contracts with both clients and media owners regarding our respective roles and interests. In the US, we do not partake in volume rebates with our media partners and do not use any value realized by our media agencies to drive trade credits to other lines of business."
Collecting rebates in the U.S. creates an inherent conflict of interest in which the agency is incentivized to work with vendors that pay up, versus with the vendors that can best service the client strategy.
The issue surrounding the alleged behavior dates back to March of last year, when former media agency executive Jon Mandel, in a speech at an ANA event, alleged that media agencies were letting undisclosed rebates from vendors influence their work on behalf of clients. That led the ANA and 4A's to create a joint task force to tackle the issue and assuage concern among clients and agencies.
That collaboration was short-lived, however. In October, the ANA hired K2 and Ebiquity/Firm Decisions to investigate the issue. The 4A's responded by admonishing the solo effort; requesting that the ANA let it hire a third investigative firm from one of its review finalists; and asking the ANA to agree to the release of new principles that the 4A's and ANA had drafted together as part of the joint task force.
The ANA did not change its plan. In January, the 4A's released its "Transparency Guiding Principles of Conduct" without the ANA's support, once again creating a rift between the agency and advertiser trade groups amid concern around media buying and planning practices.
The ANA then responded with an official statement acknowledging its dissatisfaction with the principles, and starting a hotline to aid the investigation by K2 Intelligence.