Justice Department Reportedly Investigating Ad Agencies on Production Contracts

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The Robert F. Kennedy Building in Washington, D.C., is the headquarters of the U.S. Department of Justice.
The Robert F. Kennedy Building in Washington, D.C., is the headquarters of the U.S. Department of Justice. Credit: Courtesy Department of Justice

The Department of Justice has launched an investigation into whether ad agencies have been unfairly directing production business to their in-house departments over independent shops, according to The Wall Street Journal.

Rebecca Meiklejohn, an antitrust attorney for the Justice Department who was cited in the Journal story as interviewing ad industry professionals on the matter, declined to comment.

Advertising agencies, which have been increasingly producing work for clients in-house, are being investigated for allegedly fixing the bidding process by encouraging production houses to increase their prices so the contract is given to the agency's in-house team, the Journal reported.

The Association of National Advertisers, which has been pushing the topic of transparency related to media throughout the year, finds the information about the investigation "very disturbing," according to a statement from ANA CEO Bob Liodice.

"It's especially interesting to note that this revelation comes only six months after we released the results of our own investigation with K2 Intelligence into allegations of rebates, non-transparency, and related issues in the U.S. media ecosystem," he added in the statement. "This new development raises even more concerns about trust between advertisers and their agencies and we plan to follow it closely as it develops."

Over the summer, the ANA released the results of an investigation conducted by independent firm K2 Intelligence in a 58-page report, which found that rebates, including "cash rebates," and "other non-transparent practices" are pervasive in the U.S. media buying ecosystem.

In the first draft of the report, which was not released publicly, the ANA originally put in a page to address non-transparent issues related to agencies guiding production work to in-house arms, according to people with knowledge of the matter. The people said the page was later taken out because it did not address overall media transparency, but the ANA had planned to revisit the matter and is currently doing so.

Nancy Hill, president-CEO of the 4's, said "It goes without saying that we require our member agencies and their staffs to follow the letter of the law."

Two years ago, the Association of Independent Creative Editors made similar allegations, claiming there were transparency, competition and ethical concerns with post-production capabilities moving in-house at agencies.

At the time, AICE claimed that agencies were steering post-production work to their own facilities in an overt conflict of interest. The association also said in 2014 that "agencies have an "unfair advantage" when it comes to post production, given their direct access to clients that post houses don't have.

Representatives from AICE were not immediately available for comment.

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