Experts suggest ways brands can protect themselves in media agency contracts.
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Marketers’ trust in media agencies is eroding—a growing number of brands feel that when they walk “into a media agency that they’re going to pick your pockets,” as one consultant put it when discussing the backroom dealmaking currently happening between shops and retail media networks.
As previously reported, these deals involve mainly media agencies that invest in retail media networks in order to win their buying and planning business, and then commit to sell that inventory back to their other clients, sometimes at a marked-up price and without necessarily disclosing to clients the deals that were made.
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Transparency issues such as this are causing brands to be wary and cautious in their media agency relationships, according to industry experts, including lawyers and consultants, who spoke with Ad Age. They shared tips to help marketers protect themselves, including best practices for running audits and what clauses to include in contracts. Below, we unravel questions and offer some solutions.
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Principal-based buying, where media agencies buy ad inventory and resell it to clients, is getting renewed scrutiny and is at the heart of many of the current transparency issues. The process came to light during the industry’s 2015 transparency controversy—which exposed the rebates agencies were getting that they weren’t necessarily disclosing or passing back to clients.
Principal-based media buying was mainly criticized back then because shops were receiving certain incentives to sell that inventory without disclosing them to clients. In response, agencies instead started to use their clout to negotiate the best possible deals with media companies and then resell the inventory at a markup under contracts where clients opt in. The new way of engaging in principal-based media buying eliminated questions about who should receive incentives, but it didn’t eliminate the controversy surrounding the process, nor build trust.
“First, the name principal-based media buying is misleading, the better description for these services is non-transparent or non-disclosed services,” said Keri Bruce, a partner in the Entertainment and Media Industry Group at law firm Reed Smith, who advises on advertising and media agency agreements. “Calling it principal-based media buying makes it sound as if the agency is actually putting itself at risk by buying as a principal, when it is very likely they are not.”
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“Let’s not refer to any media buying service that engages in both buying and selling media as an agency,” said Kamran Asghar, CEO and co-founder of independent media agency Crossmedia. “True agencies are fiduciaries for their clients, acting solely in the client’s interest.”
Asghar said Crossmedia does not participate in principal-based buying but, in response to its recent rise, the agency created Cross Connect, which is available to all clients and other independent agencies. Essentially it gives the shop access to certain wholesale and secondary media marketplaces, setting up a bidding process that returns cost savings to marketers.
Principal-based media buying is an “inherent conflict of interest,” Bruce said, but brands are more concerned that they are losing the right to audit or “other rights to information about their media buy” because it’s being resold and they don’t “know the true price of their media.”
Principal-based media buying “can lead to a lack of transparency regarding the actual costs and markups,” said Roch Glowacki, managing associate on the digital, commerce and creative team at law firm Lewis Silkin. “This means that a brand may not always be getting the best value for its money and that the agency prioritizes its own profit margins over its clients’ best interests.”
Conflicts of interest are not new, but marketers are starting to “wake up” to the fact that agencies are not always exclusively acting in their best interest, which is the role of the pure agent, said David Dweck, senior VP of paid media at independent media agency Wpromote, and a former executive for holding company media agencies including WPP’s Mindshare. Wpromote does not engage in principal-based media buying.
But agencies are likely never going to go back to being pure agents and they’re boosting their investments on the sell side to build profits.
The Association of National Advertisers’ media transparency report released in 2016 suggested that principal-based buying was a relatively small part of agency dealings, and mainly only in digital media. But, as Ad Age previously reported, the practice now extends across digital media, linear and streaming TV, out-of-home, radio and just about any kind of media buy. Interpublic Group of Cos. CEO Philippe Krakowsky disclosed on the holding company’s third-quarter earnings call in October that the company will be investing more in this practice.
“I don’t think we’re going to see a world where [agencies] go back to purely being agents at this point,” Dweck said. “They’re too far gone. It’d be too difficult for them to revert.”
A lot of being able to protect your best interests as a brand comes down to having the right clauses and protections in your agency contract. After the transparency issues of 2015-2016 emerged, the ANA put together a guide on how best to craft contracts that protect marketers’ best interests. One piece of advice in the guide was to put caps on markups on media into contracts.
Bruce, who advised on the ANA’s contract guide, declined to comment on specific contracts she’s overseen but said that, in general, brands need to “require their agency to disclose if a vendor is also a client as well as other potential conflicts of interest. They should also keep track of this information.”
“Brands need to dig deep and ask lots of questions to the agency about the non-transparent service offering and ensure they truly understand how it works and what they are giving up,” she said.
Marketers should consult an auditor, media consultant or lawyer to add “robust provisions in their contract to address approval for principal-based media buying or any other non-transparent service,” Bruce said. Brands should require “ongoing reporting of the amount being spent on these services” and get that in writing.
“Common protections include ensuring that the relevant definitions such as those relating to rebates and incentives are clearly defined, negotiating robust audit rights, specifying detailed performance metrics and KPIs, and insisting on provisions dealing with conflicts of interests and the agency’s transparency obligations,” Glowacki advised.
Asghar said media agencies will use any of the following terms to disclose principal-based media buying: “proprietary media inventory, media inventory management, media inventory opportunities, private marketplaces, agency trading desks, corporate trade, arbitrage, reseller or aggregator … Brands should look out for any terms that suggest ownership or selling of media, as these indicate a conflict of interest,” he said.
Tom Denford, CEO and co-founder of consultancy ID Comms, noted the practice isn’t all bad for brands.
“The loss of transparency presents risks for marketers, but it can provide discounted media impressions for brands willing to allow their agency permission to add this into their media plans,” Denford said.
In cases when brands allow principal-based buys on their plans, they need “to agree on strict quality guidelines and caps” to these types of buys, he said. “Demand clear explanations for all media purchases, including costs and benefits … Generally, if the agency can’t justify the use and value of [principal-based media buys], then we encourage marketers to use good judgment and avoid it.”
Brands should also “enforce penalties or refunds” if they find their agency is overspending, delivering poor quality media or failing to follow approval procedures, Denford added.
Although a lot of the recent heat has been on principal-based media buying, there are other issues in media to watch out for and protections to add into contracts, including around the use of data and complex programmatic ad buys.
“Data and access to data about buys” has to be disclosed in contracts, Bruce said.
“The ever-increasing digital ad spend brings programmatic advertising, viewability and ad fraud to the top of many brands’ agenda,” Glowacki said. “The complexity of the programmatic ecosystem can obscure the flow of money and data, making it difficult for brands to understand where their ad spend is going and how it is being used.”
Several experts advised that brands should watch out for markups or rebates agencies might receive on ad tech—the ANA’s 2016 investigative report first exposed incentives agencies were getting from ad tech platforms to mark up programmatic media buys, and it’s still a top concern for marketers.
Denford said he always advises brands to get in writing that there are no markups on any ad tech services used by their agencies.
He also advises brands to require in writing that they have full access to all digital buying platforms, alongside their agency partner; are ensuring “clauses around rebates include media platforms” such as Google and Pubmatic (not just media owners); and be sure that data is available for the brand to see, “down to site, app, keyword, placement level.”
Denford said he advises brands to audit their media investments by “an independent and objective third party” every year. Of course, not all brands have the money to run a full audit of their agency activity, he said, but even a “small” audit is beneficial.
ID Comms’ digital audits start at $50,000 a year, but Denford said some larger clients might spend $250,000 a year. Audits can generally cost “less than 0.5% of budget … [it] varies a little based on frequency of analysis, media mix and reporting preferences,” he said.
“Some advertisers engage us just to look at a sample of campaign spend, or certain channels only,” Denford said. “Conducting any form of professional audit signals to the agency that you are an advertiser that can, and will, audit them periodically.”
If you can’t audit at all, he said brands should “request regular post-campaign reports,” and make their own analysis and recommendations on any annual changes to the media plan to achieve their desired efficiencies.
“It should raise red flags if you spot sudden changes in media selection or increased dependency on a particular network from time to time if the underlying strategy or target audience has not changed,” Denford added.
Bruce said some auditors offer services which are "always on, meaning that the agency reports certain data at a regular cadence throughout a year, rather than only at audit time.”
Glowacki said audits are not always necessary if a brand just wants to check “that all rebates and incentives relating to the media purchases have been duly passed through.”
“Audits can be burdensome,” he said. “Locking in preferable commercial terms at the outset [can be] more valuable than exercising an audit, which may in practice not yield useful findings given supply chain transparency issues.”
It may seem obvious, but a brand that has a truly strong relationship with its media agency shouldn’t have to worry much.
“The best way to protect yourself is to build a relationship with your agency where you can ask tough questions and know they are being transparent with you,” said Chris Koehler, chief marketing officer of cloud communications company Twilio. “Ultimately at the end of the day, if you don’t feel comfortable and like they are forthcoming, then that’s not a partnership.”
One brand CMO who spoke anonymously said he wasn’t too concerned with principal-based media buying because his agency partnership is “very collaborative, the KPIs and metrics were set up so that it was like we both are winning—that’s another component.” Brands and agencies should have “aligned incentives,” so both parties feel like they’re winning,” this person said.
“The role of the agency is evolving,” this CMO said. “If the [selling] piece is a component where [the agency] sees it can go and add value, we’re open to at least looking and engaging.”
But it’s still early, the CMO said. Shops are “all trying to figure out, what does the agency of the future look like?”
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