ANA: Advertisers Wary That Media Rebates to Agencies Are Spreading in U.S.

Fearful the Practice Impairs Objectivity, Group Proposes New Contract Language Specifying That Rebates Go to Clients

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Rebates and incentives from media companies to agencies, widely thought to only happen overseas, are becoming more common in the U.S., and marketers are getting concerned, according to a study by the Association of National Advertisers.

In a survey prompted by concern over rebates expressed by a member to the ANA earlier this year, 28% of the 180 respondents said they were aware of media rebates or incentives being given in the U.S., while 32% were aware of such rebates elsewhere in the world. More than half, 51%, weren't aware of the issue at all.

"I personally found it surprising this activity is happening here in the U.S.," said Bill Duggan, group exec VP of the ANA. "It's not limited to far-away places like Brazil and China. ... And, frankly, what I find personally surprising is that agencies are doing this. It's in my opinion a totally inappropriate practice."

Mr. Duggan said he was also surprised how many advertisers don't have safeguards in place, specifically language in their contracts with agencies dealing with rebates.

A whopping 85% of marketers surveyed by ANA believed agencies should hand any rebates they receive over to their clients, with 63% believing agencies keeping the payments could impair objectivity in media choices.

But only 34% of respondents said they now have contract language requiring agencies to pass all the rebates they receive along to the client, while 1% said their contracts let agencies keep some of the rebates. The vast majority (64%) either had no contract provision on media rebates with their agencies or didn't know if they did.

The survey also found that 30% of marketers do periodic audits to look for undisclosed rebates, but 45% don't and the other 25% weren't sure.

In a white paper to be issued July 16, the ANA recommends contract language drafted by law firm Reed Smith calling for any rebates to be fully disclosed, documented and passed along to clients.

Media rebates aren't top of mind for many marketers; only 13% said they incorporate them into their U.S. media-management plans, according to the survey. But Mr. Duggan said he believes that 's because relatively few marketers are aware of the issue, not because they aren't concerned when they are.

Verbatim responses from the survey suggested significant concern among some marketers, whose responses were reported anonymously.

"This is a dark and murky area of our business that needs greater transparency and protective language in all contracts," said one respondent.

"If this practice of media rebates to agencies is going on, it is wrong in two ways," said another respondent, adding that "it's the client's money" and that rebates may be "influencing the decision on what's best for your business."

"I am appalled by this practice," said another respondent. "If I find that our media agency is taking incentives or rebates, they will no longer be buying media for us."

Another respondent listed rebates as one issue eroding trust between clients and agencies and said some agencies may begin using "transparency and trust" as a way to compete for business.

While some industry buzz in recent months has focused on the rebate issue surfacing in digital media, the ANA survey suggests it's widespread across U.S. media, with 27% of respondents saying they were aware of rebates in TV media, 17% in radio and 14% in online and magazines.

A spokeswoman for the 4A's said that since rebates and policies about passing them along have to do with pricing, that could raise anti-trust issues, so the group doesn't have a policy regarding them and can't comment on them.

But one senior media-agency executive who asked not to be identified said he hasn't seen any rebates being offered and certainly hasn't asked for them, but couldn't comment on what others may be doing. His own agency's policy, he said, is not to accept incremental rebates beyond the commissions that are standard in some media deals, and he believes any rebates agencies receive should be disclosed to clients. Given the increasingly global nature of marketing and media, he said it wouldn't be surprising for overseas practices such as rebates to become more common in the U.S.

The rebate issue has become somewhat intertwined, he said, with those around agency trading desks, the automated, algorithmic systems that buy digital media in real time. While not directly related to rebates, trading desks may make different margins on different digital buys and not disclose those margins to clients.

Executives of WPP's Xaxiis and Interpublic's Mediabrands Digital Exchange in a panel at the ANA Financial Management Conference in May in Boca Raton, Fla., said volume-based rebates may be offered by some digital-media players and accepted by some trading operations, but that their own policies are not to accept them.

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