Amazon’s recent media review underscored what’s become a major flashpoint in the industry—the growing power of retail media networks, and how that is affecting media agency reviews and producing a ripple effect on agencies’ other clients.

The massive review, which concluded this month, split the business between Omnicom Media Group and WPP. Although it was denied by both OMG and Amazon (GroupM declined to comment), seven executives with insight into the process said that a deciding factor was how much retail media inventory the holding company battling for Amazon’s business would be able and willing to sell to their clients.

One media agency executive involved in the pitch said Amazon required its pitching agencies to agree to “an obscene amount of money towards the Amazon full media ecosystem, including retail media,” to win. That person did not know the exact amount holding companies promised Amazon. All seven people said the discussions were held verbally and not in writing.

“We conducted an extensive, thorough and objective review to find the right agency partners,” Margaret Callahan, an Amazon spokesperson, said in a statement to Ad Age. “In that process, we evaluated agencies’ ability to reach our customers based on their marketplace expertise, media planning experience, media pricing, measurement abilities and account management across all geographic regions. Any suggestion otherwise is false and misleading.”

“We can confirm that there are no media or other spend commitments made in conjunction with Omnicom Media Group being awarded the Amazon Americas media business,” said OMG in a statement. “OMG does not engage in such business practices. The investment recommendations of our agencies are always made in the best interests of our clients and are subject to rigorous policies and strict review processes to ensure that standard.”

The ethics of buying and selling

Denials aside, these types of backroom deals are becoming increasingly common between media agencies and retail media networks, according to 13 people, including agency executives involved in the deals, marketers and consultants. These ad executives described deals in which holding company agencies in a pitch to win retail accounts are committing to provide tens of millions of dollars in retail media network inventory placements for their collective clients.

These negotiations are conducted verbally, oftentimes in new business pitches, so there is no paper trail. While these deals can be legal if agencies add the right language into their contracts with other clients, they also can be viewed as unethical, an advertising lawyer said.

These deals are possible because of the changing nature of how media agencies operate. There has been renewed scrutiny on principal-based buying, where media agencies buy media and resell it to clients, which first started getting heat during the transparency controversy that emerged in 2015.

Nonetheless, it’s now commonplace in the industry that major holding company media agencies are no longer just buying media on behalf of clients—they are also selling it to their other clients, according to the people interviewed for this story. 

“Some of the retail clients are saying to their media agencies, ‘You are our partners, but if you expect to keep our retail media accounts we expect you to invest heavily into our retail media network,’” said Simon Francis, founder and executive chairman of consultancy Flock Associates. “So the media network commits heavily into their clients RMN and then has to somewhat artificially move other clients money to it.”

Marketers are increasingly viewing these deals as concerning conflicts of interest and making them question their investments in this nascent but growing space of retail media, several people, including procurement executives, said. And just like with principal-based buying, marketers often don’t know their agencies have cut these deals with retail media networks, according to multiple marketers, agency executives and consultants. They said clients are particularly concerned that they are being pushed to invest in retail media networks because their agencies are incentivized to sell them this inventory but that these buys may not ultimately be in their best interests.

“The retail media world, and really the broader media marketplace, is now riddled with backroom deals and principal buying models that are leading to a muddled marketplace where many brands are losing out‚ and they don't even know it,” said Sean Corcoran, former U.S. CEO of Interpublic Group of Cos.’ Mediahub who recently became BarkleyOKRP’s first president of media and analytics.

There are now more than 200 retail media networks worldwide, as advertising dollars increasingly flow into this space.

Some of the top retail media networks based on size and effectiveness, aside from the largest player, Amazon, include Walmart, Kroger, Target and Instacart, as rated by marketing agency Tinuiti. None of those retailers were named by sources in connection to these backroom deals. Ad Age reached out to those retailers, but most either did not respond for comment or declined to comment. 

“With first-party purchase signals in-hand, retailers have a responsibility to make advertising performance more transparent—not less,” Cara Pratt, senior VP of Kroger Precision Marketing, wrote in an email to Ad Age. “Undisclosed incentives would muddy the water and hurt everyone. We want retail media—like any advertising—to stand on its own merits. Retail media is highly performant, and the results should speak for themselves.”

Several people interviewed for this story were granted anonymity to speak freely about backdoor dealmaking.

Backroom deals

One holding company executive argued that part of the media agency’s role is to serve as “media publisher” as well as an agent of their buys, but that helps unlock price advantages for their other clients and is transparent. “In that process, there is absolutely spend commitments. If we hit those investment thresholds, here are the advantages that we want to be able to unlock for our clients at the aggregate and those advantages get applied to our entire portfolio. That’s what we bring to the table with the scale of our global investment,” the executive said.

Still, one procurement executive for a major advertiser said brands are increasingly wary of how media agencies are being incentivized to fuel investment into retail media networks, questioning the recommendations they’re being given by their media agencies. And this person said they’re not entirely sure what’s going on. The incentives themselves, this person said, “I don’t think would be a surprise to anyone.”

Two media agency executives described how, within some holding companies, an agency team will create a media plan for their client, but then will have to get that approved by a larger, centralized holding company team. One person who directly experienced this said that the holding company team will often try to make changes, for example, telling the agency team to invest in one ad platform “because we’re managing those deals” versus another rival ad platform, based on what incentives the holding company is getting from selling certain inventory.

The media agency executive who directly experienced this process expressed frustration, saying sometimes the buys don’t make sense, but it is on the account team to try to sell their client on them, which jeopardizes the relationship. In some cases, this person said, the team would tell their clients to reject the amended media plan so they could go back to the holding company and tell them the client rejected it and that the agency would lose the business if they keep pushing.

Agencies are “basically running [media plans] through a machine and the machine says ‘yes’ or ‘no,’” this media agency executive said. “And the machine is building dashboards for this stuff where it's like, ‘here’s not only what’s good for your client to buy, but how good it is for us.’ Those things exist, which to me is pretty gross.”

Several media agency executives also said some agencies are getting kickbacks as they buy and resell retail media inventory.

This came up in the transparency report from the ANA nine years ago that found media agencies were not disclosing those kickbacks, or the percentage of spend or additional inventory that an agency receives as a bonus from a publisher. It’s not clear if agencies are disclosing them now either. In the U.S., this issue has received a ton of scrutiny since 2015 but, abroad the practice is more accepted by marketers.

“When a media agency wins media AOR from an entertainment company, there is always a paid media commitment made as part of the pitch and the negotiation. It’s common practice. ‘If you choose our media agency as your media AOR, I will commit $X to you in the upfront or scatter,’” another media agency executive told Ad Age. “What also frequently occurs, is that if you make a major commitment to buy on some platforms, the publisher will send your agency a rebate. Again, standard practice, but the question of whether agencies pass that rebate back to clients or not, depends on the agency and their deal with their client. Accordingly, some RMNs offer a rebate. This is not something they will want you to know, and they won’t acknowledge it. But again, common practice.”

On the other side, holding companies argue that they’re being squeezed by shrinking budgets and margins and have to make money somewhere.

“That’s the fundamental thing for me: I’m selling you stuff and yet also being your agent so that I can pad my numbers because I’m a public company and we’re getting our ass kicked and part of it is the client's not paying right?” the media agency executive said. “[Marketers] can just squeeze everyone to death and then the agency is sitting there going, ‘We have a whole legacy system of creative and PR that isn't doing well. Now our media shop needs to make a 50% margin just to keep up with Wall Street, which doesn’t understand that they probably shouldn't compare the holding companies to an Adobe or a Salesforce. The whole system is broken.”

Still, there is growing mistrust between marketers and their agencies.

“Marketers don’t trust their media agencies,” said one consultant. “There is this assumption that if you walk into a media agency that they’re going to pick your pockets. It’s all happy and flowy, and you go to nice restaurants and Cannes. But deep down, marketers, if they could build their own capabilities and manage media themselves, they would do it,” the consultant said. 

“Media agencies, they’ve got a small window right now and they've got to figure this out—if they work for brands and they go back to being agents, or if they’re on the sale side, which is fine,” the consultant added. “If you want to be a broker of retail media network inventory, fine. You can make a lot of money, but you can't walk on both.”

Scrutiny grows on retail media network investment

Several media agency executives and consultants said media agencies doing these types of backroom deals with publishers is a longstanding, widespread practice not just related to retail media. If, for example, an agency won a TV network’s account, that agency may have promised a certain level of commitment to invest other clients’ budgets into that network, some executives said. But retail media is getting scrutiny lately because of the urgency being placed on brands to invest there while the performance hasn’t been quite proven out. Retail media networks are also going direct to brands to demand they increase their annual spend to secure premium shelf space, according to multiple sources.

Advertisers are increasingly spending more on retail media, as these networks provide an opportunity to get their hands on valuable first-party data. Consumer packaged goods brands are particularly investing in retail media, as they try to woo consumers that are increasingly scaling back on purchasing due to price inflation. A new report from Cadent Consulting Group, “2024 Marketing Spending Industry Study: Finding Solid Ground with CPG Under Pressure,” found that 73% of all CPG marketing spend is funneled through retailers today, but the firm questioned if it should be. “Questions surround digital strategies, including retail media, which are perceived as highly effective by brands but far less effective by shoppers,” according to the report.

And while EMarketer estimated that retail media will make up more than one-fifth of U.S. media spend by 2027, a recent ANA report, “Retail Media Networks: Optimism Tempered with Caution,” found that many marketers are concerned with the lack of measurement attribution and standardization across retail media networks.

Also read: Retail media networks have a measurement issue

The share of spend in retail media for many consumer brands is “into the mid- to high-teen percentage of paid media budgets,” said Tom Denford, CEO and co-founder of consultancy ID Comms. But Denford said he predicts that growth will slow as marketers demand more accountability.

“Retail media is another area of significant media investment where the lack of transparency and the eroding of trust is causing marketers concern,” Denford said. “There is a lot at stake; it’s a relatively nascent media channel but has captured a large share of spend.”

Ross Martin, president of data-driven marketing agency Known, said his agency has been working to fix some of the issues concerning retail media networks. “Reporting is a disaster,” he said.

“RMNs are still building out the capabilities that more traditional players already have.  Right now, there is a lack of standardization, reporting and too much opacity,” Martin said. “While RMNs are really awesome in some ways, it's early days, and there’s a lot of work to be done.”

Many nascent retail media networks don’t actually have a lot of high-quality inventory so “they’re augmenting that inventory with social, search, programmatic,” he said. “That can be misleading [for marketers]. Many RMNs don't even disclose exactly where your media is going to run.”

Outside of that, the measurement issue is a problem, Martin said. “You can see on-site, in social, search and programmatic, and the cost for each channel, but most don't provide impressions or CPM’s, which makes it hard to calculate relative value.”

Several media agency executives described retail media networks as the new walled gardens and each retailer has different standards for the process of sharing their data.

These issues, coupled with new transparency concerns, have marketers calling retail media network investment into question.

“Some marketers are raising concerns that they don’t understand the extent of the commercial relationships their media agencies have with the retail media networks, suspecting that rebate incentive deals may be encouraging agencies to bias towards certain retail media networks,” Denford said. “Added to that, when marketers hear of some large retailers pitching their media accounts and putting pressure on participating agencies to commit their client's budgets to those retail media networks, it risks eroding trust further."

Advice for marketers

Consultants interviewed for this story including Denford and Flock’s Francis, advised marketers to demand more transparency from their agencies regarding their retail media network buys.

“We are advising marketing and procurement leaders to demand greater transparency in retail media inventory and we are comparing the effectiveness of that investment against their other media investment decisions,” Denford said.

Bill Duggan, group executive VP of the ANA, said marketers should be speaking with legal experts and examine their contracts with agencies to see what language could exist in them that would allow them to get away with some of this questionable behavior. After the transparency issues of 2015 emerged, the ANA put together a guide on how best to craft contracts that protect marketers’ best interests.

“Most clients have shitty contracts,” Duggan said, noting that the ANA worked with lawyers to make recommendations, such as “having clauses like you're not allowed to take rebates from media companies without our knowledge.”

Agency contracts have changed a lot, even in the past year. Holding companies are introducing new terms for the different types of principal-based buying and incentives they’re using on the sell side, with each company using its own terminology, according to the advertising lawyer. That’s why it can be confusing for marketers and hard for them to keep up, this lawyer said.

Another executive on the procurement side said she understands “agencies are stuck between a rock and a hard place” when it comes to these deals. On one hand, they need to make up margins and win these big accounts. But these backroom deals are “pissing off the entire industry,” including other clients and smaller agencies losing business, because they don’t have the scale to make such investment commitments, along with other sellers of media, such as TV networks losing money to the investments being re-funneled into retail media networks.