Feds media-buying probe is 'cloud that will hang over the industry'

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After years of industry claims about non-transparent practices in the media-buying industry, federal prosecutors are reportedly probing those practices and have begun issuing subpoenas.

The Wall Street Journal reported on the investigation Thursday, claiming that Havas SA is one advertising company under scrutiny, citing people familiar with the situation.

In a statement to Ad Age, Havas Media Group U.S. said it couldn't comment on an ongoing investigation within the industry.

"However, we would like to stress some important elements," the group said in a statement. "Our clients are invited to, and in most cases do, audit our records pertaining to their accounts so they can validate for themselves that we manage their accounts in accordance with our agreements with them. While the media buying function has become increasingly complex during the last few years with the emergence of digital, we are fully committed to conducting our business in a transparent and ethical manner. We review our business practices on an ongoing basis with a view to continually improving our services and practices to meet high industry standards.

"All of us at HMG are committed to earning and retaining the trust of our clients through transparent and open relationships," the statement concludes.

A spokeswoman for Omnicom said the company has not received any subpoenas from federal prosecutors. WPP, IPG and Publicis Groupe declined to comment. Dentsu did not immediately respond to a request for comment. The Federal Bureau of Investigations did not respond to a request for comment.

The news will likely raise concerns about holding companies, Liberum Capital said in a research note Friday. "In the short-term, it is likely to be another reason for investors to avoid the agency space."

The Liberium report said it was interesting Havas was mentioned "as it is not particularly known for media buying in the U.S., which suggests something specific has attracted prosecutors."

Liberum added that the probe is likely focused on the digital media buying practices at agencies, particularly in programmatic and rebates. Researchers in the note said they would be surprised if Interpublic "has any particular issues as it has always tried to be squeaky clean following the accounting scandals it had well over a decade ago," while noting that Publicis and WPP "will be in the spotlight" given large operations in the U.S.

Pivotal Research senior analyst Brian Wieser called the investigation "a cloud that will hang over the industry really until it's resolved, because trust is so low between agencies and marketers."

He said that most of the practices aren't likely anywhere as common as they were before the Association of National Advertisers bombshell 2016 report that claimed cash rebates and other non-transparent practices were pervasive in the U.S. media-buying ecosystem. Wieser said that prompted a lot of contract scrubbing, which is still ongoing.

"It's pretty clear there was a gap between what marketers understood was happening and what was happening," he said.

In June 2015, Ad Age reported on a contract template that two ad-tech vendors said they had received from executives at Havas Media U.S. as they neared deals with the agency. The template they were asked to sign was with a Havas entity in Spain called HM Alliance WW, according to the ad tech vendors, and required them to pay fees to HM Alliance that would be based on the amount of business Havas Media did with the vendors.

In that story, the vendors claimed they were unclear on what the Havas entity in Spain does for the fees, and said they did not receive any services for those fees. Dominique Delport, then global managing director at Havas (and now president of international and chief revenue officer at Vice Media) said at the time that HM Alliance was a Havas entity providing services like "digital campaign management and audience planning services and auditing." He said Havas charged only for appropriate services.

In 2016, an ANA report alleging rebates were rife drew criticism from agencies and the 4A's, a trade association representing agencies, that claimed the report was "anonymous, inconclusive, and one-sided." The report did not call out any specific companies.

The industry is still at odds. McKinsey & Co. released a report in April that claimed rebates and other "non-transparent" incentives from media companies to agencies "remain common." A former media-agency executive was quoted in the McKinsey report saying: "Most media-agency profitability is driven by non-client revenue. We would not have a business if we didn't have rebates." 4A's CEO Marla Kaplowitz responded in April by saying that the majority of agencies claimed they don't take rebates, or that when they do, they are disclosed to clients.

Then there's the ANA's response to the what has happened in the years since its report was released. President-CEO Bob Liodice said in May that "a great deal" has changed in the advertising, marketing and media industries to address media transparency, including clients updating their media agency contracts to assert that revenue earned by media agency and agency-related parties must solely come from fees and commissions outlined in the contract unless the advertiser agrees otherwise. He said many clients also incorporated more comprehensive audit rights into those agreements with their agencies.

The ANA declined to comment on the report of a federal investigation. The 4A's did not immediately provide a comment.

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