Marketers Sluggish When Policing Financial Shenanigans

If Marketers Turn Blind Eye to Media Kickbacks, It's to Keep Agency Fees Low

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It's incredible how lethargic marketers are when it comes to policing the financial shenanigans of their agencies and the media.

Maybe they don't want to call attention to blatant digital fraud and media kickbacks to their agencies because it would call into question their entire advertising budget and strategy.

Marketers are putting more and more money into digital ads when they know how much of their money ends up in phony clicks on nonexistent websites. They chalk up such irresponsible spending to "incremental waste" much the way they view off-target ad placements. And marketers often don't challenge the extra money their agencies get from the media because agencies won't be as prone to squawk about lower fees.

The outside world, including investors, view companies that heavy-up on digital advertising and keep agency fees low as being cost-conscious and efficient, and CEOs hope that the stock market will take notice.

But as we pointed out in a cover story in February, some of the companies talking the most about increasing digital investments are simultaneously posting slower or disappointing sales results. Of course, the companies doing this don't blame digital -- they cite the strong dollar or changing consumer tastes for their lackluster results.

So maybe that's why Bob Liodice, CEO of the Association of National Advertisers, not only encountered some reluctance to believe that digital fraud was occurring but, he said, found even "less of an urgency" to address it.

The ANA wasn't quite so keen on moving forward accusations that ad agencies were receiving undisclosed media incentives after former Mediacom CEO Jon Mandel accused agencies of failing their fiduciary duty to clients.

"They are not transparent about their actions. Agencies recommend media that is off-strategy or off-target if it works for their financial gain," Mr. Mandel said.

Rebates, kickbacks and other agency incentives, Mr. Mandel asserted, are happening everywhere in the U.S. media landscape, and the practice has migrated from cash incentives to free inventory, which agencies can then deal back to clients in scatter buys or sell via "dark pools" that are either traded programmatically or liquidated in barter transactions.

"Have you ever wondered why fees to agencies have gone down and yetthe declared profits to those agencies are up?" Mr. Mandel asked.

What's surprising is the way the ANA distanced itself from Mr. Mandel's comments. "While the ANA cannot specifically identify the breadth and scope of such practices, we regret any impression that agencies in general are engaged in questionable activities and apologize to those who were offended," the group said.

But the ANA should have known about the bombshell that Mr. Mandel ignited. According to a lengthy story on the former Crain website, now owned by the site's editor and publisher Chuck Ross, the ANA's Media Transparency Task Force tapped Mr. Mandel's Dogsled Enterprises to conduct an investigation and prepare a presentation for the ANA Media Leadership conference in Florida. And ANA staffers reviewed the presentation before he delivered it, Chuck reports.

What's at stake here is the fees marketers pay their agencies. In a nutshell, some marketers don't much care how much revenue agencies get from other sources as long as clients can keep agency fees low.

In a column I did several years ago about why U.K. authorities didn't pursue an inquiry into agencies' "pooled buying" practices, it became clear that marketers didn't want to rock the boat.

As background, in most of the world (the U.S. excluded -- so far -- I think) ad agencies get rebates from media on their "pooled buying" power. In the most common scenario, an agency gets money back from TV networks for all the spending done by all its clients. The agency keeps the windfall unless the clients cut a deal to get some for themselves. In many cases, clients allow agencies to keep the rebates so clients can pay less in fees.

A survey of 36 international advertisers confirmed that a good percentage of advertisers allow agencies to keep rebates to pay down their media-buying fee, and even more took rebates in the form of free ads, according to the World Federation of Advertisers.

So if advertisers have a nagging feeling that they should be getting more of the booty, why didn't they show support for a U.K. inquiry on how TV ad time is traded? Maybe they didn't want to admit they weren't very good negotiators.

As Bob Wootton, director of media and advertising for The Incorporated Society of British Advertisers, told The Guardian: "The people in the market ... are not calling for the review. Most clients set nice, aggressive terms and don't worry about how the agency delivers them. In short, the advertisers know the buyers need profits and don't necessarily mind how they generate them as long as they don't feel obviously taken advantage of."

In the ANA survey, 51% in the U.S. said they weren't aware of rebates or incentives paid to their agencies. And the ones who knew this was going on are content to keep the status quo to keep their agency fees and ad spending down so they can be heroes to the CEO and the CEO can brag to Wall Street.

The only problem, of course, is with media "incentivizing" agencies to invest their clients' money, can agencies be relied on to give objective advice?

And the corollary: Is beating down agencies on their fees worth the risk?

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