For those of us in the industry, we have been waiting expectantly for the results of the 2015 ANA investigation into media transparency practices. Our wait is over and the report has called out activities that are not always in the client's best interests. It would seem that the prevalence of rebates within the U.S. media industry are "pervasive" and complex in the way they are routed to agencies.
Definition of rebate: "A deduction or discount on a sum of money due."
Interest in the investigation stems from concerns regarding trading practices between media agency groups and media owners. The party line from agency groups up until now has been, "rebates do not exist in the U.S. media market." This is why the investigation by K2 and Ebiquity has been an important initiative. And the findings are so important for one of the key tenets of a strong business relationship -- trust.
The report shines a light on practices that make advertisers doubt the levels of trust between themselves and their media agencies. Among the key concerns is not that the agency is making income on trading that is unreported, but that the agency is making decisions about media partners based on the prospect of cash (or services) being returned to the agency as a result of the media choice.
A key principle of a media agency's services to a client is media-neutral planning in order to find the most "effective and efficient" media mix to achieve the goals of the client. These goals are specific to each client, so their media plans should also be specific. If media decisions are being made prior to the planning process, clients should be curious as to the elements of the plan and whether they are right for them as a brand.
To be fair, clients have had a role in creating this problem due to the pursuit of increased value through reduced media rates. Agencies achieve competitive pricing from media owners by making commitments on behalf of their clients (often prior to plans being agreed upon). This media pricing is then distributed to the clients who reward the agency accordingly. These commitments then need to be met in order for the pricing to be honored by the media owners. Arguably, this means a certain portion of any client's media plan is already decided upon long before the planning process takes place.
So how should clients move forward on the heels of this report? We counsel all clients: trust, but verify. We assist clients in creating commercial arrangements that include media value targets and ensure that contractual arrangements clearly outline the obligations of the agency around rebates and undisclosed value. Further, there is a growing call for advertisers to assess the structure of their media agency relationships. Perhaps it's time to consider separating planning and buying relationships to ensure that the planning happens at the right time.
If clients have 100% confidence that their media plans are being created without any influence from the buy side (rebates and committed pricing) and know that they have clear, contractual agreements in place, they could take a lot more comfort that their media dollars were being spent completely in line with their objectives.