Mark Ritson: Agency kickbacks are turning media buying into a black box

With the major investigation into media buying kickbacks in the USA by the ANA about to conclude, and our own ISBA recently making headlines about the poor state of media agencies in the UK, Mark Ritson reviews what we have learned so far.

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Just over a year ago Jon Mandel, the former CEO of media agency Mediacom, stood up to speak at the Association of National Advertisers media conference in Miami. Mandel was the fourth of four to discuss the topic of transparency. As he rose there was little anticipation of what was to come.

Three slides in, everything changed. “I have never seen a room react like that,” Mandel later told Mumbrella magazine. “I mean, when I do a presentation I’m pretty fucking good at reading the room, and usually you do this at a conference and you see people on their computer or answering their email or doing Facebook, or whatever…There was absolute silence. It was like somebody had died in the room.”

The death in question was media neutrality. Mandel went on to detail the extensive kickbacks that exist within media agencies and which result in them earning money twice for the same piece of work. First, they are paid legitimately by an advertising client who uses their expertise and buying systems to purchase media on their behalf. Second, from incentives paid to the agency by the media seller or ad tech vendor who supplies the media.

READ MORE: Why agencies’ reluctance to talk about rebates is making marketers nervous

It’s a tale as old as advertising itself and comes with a host of different titles. Discounts, consulting fees, surcommissions, over-riders, black pools, volume deals, school fees – they all mean the same thing. The media supplier pays the media agency.

It’s a little greasy but it’s not illegal. When I bought a new conservatory last year I was pretty sure that the builder I employed was able to get a discount on the wooden flooring he used that I, as a regular Joe, simply could not have achieved. Such are the advantages of trade relations and scale buying. But what if the flooring he selected was sub-optimal for my needs and picked purely because it offered my builder a significantly better kickback? And what if, when I asked him why he bought that particular flooring, he did not reveal the superior trade discount that he was offered on that product and claimed instead that it was the quality that won him over?

That’s where the issue of media kickbacks becomes more complex and potentially divisive. Jon Mandel did not just reveal the prevalence of kickbacks, he also examined the endemic attempts of agencies to hide them from clients and the drastic ramifications this inherent conflict of interest has for media buying.

“This issue is cultural. The issue is they are hiding things in barter, they are hiding things in programmatic, they have all kinds of ways to hide things from their clients,” he explained to his increasingly alarmed audience. “They are not transparent about their actions,” Mandel continued, “They recommend or implement media that is off-strategy or off-target if it works for their financial gain.”

That’s the killer sentence. That last line of the last paragraph. Go back and read it again.

Things are little better back in the UK. Deborah Morrison from advertisers’ association ISBA recently made headlines when she told the Financial Times that UK advertising was at “tipping point”. “I don’t believe that [media agencies] have got the best interest of their clients at heart any more.” Morrison notes that the issue of kickbacks is hardly new but the situation has been exacerbated by the growth in digital spend. “As that has grown the whole thing has become more and more opaque and right now marketers are really asking what can they do about this.”

Life has never been more complex for marketers. There are too many options, changing too quickly and using too many different measurement systems to keep up. The need for media expertise has never been greater. But that expertise is now clearly compromised by yet more complexity in the form of kickbacks and incentives. And what does this say about the future of programmatic? The bright shiny automation of advertising is rapidly turning into a shadowy black box filled with turds and spiders.

Of course our tactically oriented advertising press is not too concerned with any of this. Oh no. They fill their pages with bright, flowery stories of new social media platforms and the latest virtual reality nonsense. If they were war correspondents covering D-Day, instead of the battle strategy they would be writing about the diameter of the machine guns and who has the best dressed infantry.

This shit is serious. The most influential advertising body in the UK does not think that media agencies operate in the best interests of their clients. The ex-CEO of one of the world’s biggest media agencies says his industry recommends media that is off-strategy because they make more money that way. If I were a client I would not just take my media buying in-house, I’d lock the door and close the curtains too.

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Comments
  • Chris Blythe 24 May 2016 at 8:49 am

    Sadly Mark (as you may well know) this issue has been around for a long time. I recall a media agency 20 years ago that worked on 2% commission for its clients reporting annual profits on sales of nearly 10%. Not hard to spot that something was amiss….

  • andymturner 24 May 2016 at 9:24 am

    Wonder how much of this is the result of procurement-driven clients screwing agencies down on margins?

    • Zbiggy 25 May 2016 at 5:59 am

      Fair point, it always takes two to tango. Sadly and I don’t just think it is procurement departments alone that are to blame, too much short termism in business means an obsession with cost cutting, rather than growth and hence a vicious spiral.

    • Shanghai61 30 May 2016 at 12:45 am

      Indeed. If all you’re wiling to pay is peanuts, you’d better be prepared for a lot of monkey business.

  • @NatSchooler 24 May 2016 at 12:04 pm

    This is prevalent in every area of business, this is where ethics are key and looking after clients needs!

  • Derek 7 Jun 2016 at 3:55 pm

    Let’s just put this in context, if the AMA report was about financial institutions rather than advertising, people would be going to jail.

  • KyleTC 12 Jul 2016 at 5:04 pm

    Theirs a couple new solutions built exactly for these non-transparency issues. Liquid AdX will be launching a new saas based Programmatic-as-a-service for both buy and sell sides to gain full control and transparency over their programmatic efforts .

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