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Episode Seven: Man And Machine
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Media agency rebates and kickbacks, long thought to be something that happened overseas -- or only in pockets of the U.S. market -- are actually widespread, said former Mediacom CEO Jon Mandel, so much so that it caused him to leave the agency business. Mr. Mandel made his remarks in a blistering presentation to the Association of National Advertisers Media Leadership Conference on Thursday in Hollywood, Fla.
Mr. Mandel, who left Mediacom as CEO in 2006 and later served three years as CEO of the NielsenConnect unit, made his remarks as CEO of media consultancy Dogsled Enterprises. He's also CEO of marketing-analytics firm PrecisionDemand and board member or advisor to ad-tech firms, including online targeting firm eXelate.
While Mr. Mandel hasn't led a media agency for nearly a decade, he based his remarks largely on what he said were private not-for-attribution conversations with media executives. His presentation included an image of one heavily redacted document that he said showed a media agency agreeing with an unnamed media vendor to an industry-standard 2% commission, but as much as 9% in volume-based incentives.
Mr. Mandel worked with other consultants in studying the issue at the behest of an ANA Media Transparency Task Force made up of about 20 ANA members whom Group Exec-VP Bill Duggan declined to name. But he said they include several packaged-goods marketers as well as executives from retail, pharmaceutical, finance and other industries.
"I personally believe we're living through the least transparent time for the media industry in our careers," Mr. Duggan said.
Media agencies aren't living up to their fiduciary duties to clients and "cross the line of acceptable conduct in a partnership," Mr. Mandel said. "They are not transparent about their actions. They recommend or implement media that is off strategy or off target if it works for their financial gain."
Rebates, "kickbacks," and other incentives for agencies that are at least potentially adverse to client interests, are happening virtually everywhere in the U.S. media landscape, including TV, he said. Mr. Mandel said the practice has migrated from cash incentives to free inventory, which agencies may then deal back to clients in scatter buys or sell via "dark pools" that are either traded programmatically or liquidated in barter transactions.
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"Have you ever wondered why fees to agencies have gone down and yet the declared profits to these agencies are up?" Mr. Mandel said. He said that advertising spending broadly has long stayed within a narrow band of 1% to 1.25% of gross domestic product globally. "So if agencies are growing at a higher-than-GDP basis, the money is coming from somewhere."
Most of the rebates and other non-transparent dealings occur at the holding-company level, where it's harder to track or audit, Mr. Mandel claims.
He added that he believes clients should ask why agency chief financial officers and merger-and-acquisition executives are getting involved in media buys or ad-tech deals. He said they should also question agencies taking equity stakes in vendors that could be adverse to client interests. Mr. Mandel recommended clients periodically check with ad-tech vendors who weren't placed on the "recommended list" by their media agencies to get an idea of why they weren't included.
Mr. Mandel's outlook was considerably harsher than that of Procter & Gamble Co. Global Brand Officer Marc Pritchard, who spoke on the subject earlier in the day.
"We trust our agencies," Mr. Pritchard said after hearing Mr. Mandel's talk. "It's not something we take for granted, because it's a trust-but-verify approach. …What I don't know is how broadscale the stories he's talking about are. In my view, he's got to produce some evidence."
In an e-mail statement, Nancy Hill, CEO of the American Association of Advertising Agencies, said: "The 4A's and the ANA are, and will continue to be, in deep, high-level discussions on this issue. But as of right now, we have not been shown any data or information that warrants such allegations. Our position is that the financial arrangements between agency and client are just that, between those parties and confidential."