A US report that shows a "fundamental disconnect" between how agencies and clients view their relationship is likely to raise questions about the dynamics of the Australian media market, in particular complex fee structures and whether media planning is self-serving.
The Association of National Advertisers (ANA) commissioned report found pervasive media rebates and non-transparent business practices in the US media buying ecosystem, and that agencies made media planning decisions that were not always in the best interest of clients.
The US has strict laws banning media rebates, but in Australia the practice is legal provided there is full disclosure to clients.
However, the report is likely to shine a light on whether incentives, such as rebates, commissions or value banks, encourage media planning decisions that serve the interests of agencies rather than clients.
Pitch Perfect Advisors managing director Peter McDonald tells AdNews marketers don't fully understand complex fee structures, particularly around the way digital inventory is traded and the value derived from it.
“The elasticity of some of the commissions paid for online were crazy. We're talking 10%, 20%, 30% to get people involved in the medium. It's a complex area if you are dealing with the array of media alternatives,” he says.
McDonald provides advice to companies during the pitching process and has previously helped clients "break apart" the complexity of fee structures to better understand how they can influence media planning decisions.
"It's a complex area if you are dealing with the array of media alternatives. For Tourism Australia and Commonwealth Bank they had people on both sides who understood how different commissions applied to different media rather than your standard 10%. The party you are dealing with has to be prepared to put it on the table so the client fully understands."
McDonald says it is important to remove any risk of agencies making decisions that provide advantage to themselves without client knowledge.
One example he cites is media agencies buying volumes of inventory from one particular TV network because it provides them with greater value when a client campaign would be better served having inventory across all three commercial networks.
“It's an area that needs to be unpacked and an area where the MFA, if it has any teeth, and I'm not sure it does, needs to be more comprehensive than the one-page response they had around the time the MediaCom thing was exploding,” he adds.
AdNews has independently heard from marketers about agencies buying inventory on certain TV networks while ignoring others.
One agency boss, that did not want to go on the record, says it is a personal bugbear that can compromise the integrity of planning decisions.
Sustainability at risk
Simon Rutherford, CEO of independent agency Slingshot, understands the frustration agency chiefs have about the broad-brush approach of the ANA report, saying it is unfair to slight a whole industry in such a way when in reality all elements - clients, agencies and media owners - contribute to the current state of play.
“Transparency should be a given in any business relationship, the essence of which needs to be captured in contracts and ways of working. However, for me, the bigger problem that is not being discussed is around sustainability," he tells AdNews.
"At the moment it feels like a blame game without any of the parties acknowledging and taking responsibility for their contribution to the mess that has been created. Clients pointing the finger at agencies for a lack of transparency, agencies pointing the finger at clients for forcing fees to the bottom, and media owners largely being the ones that cop it and have to fund and support business models and a system that is inherently unstable."
Rutherford believes agencies need to push back on unrealistic client demands that might drive them to find creative ways to make money.
"If the agency doesn’t value the services they provide to a client and isn’t prepared to charge appropriately for it, then don’t expect the client to value those services. So why not say no?," he says.
"Clients should demand transparency, however they should also want to know that their agency is profitable and able to sustain itself long term. The cost of re-pitching and moving your business on a regular basis far outweighs any savings that the procurement department might make each time you move the account.
"And what if the media owners were to say 'no'? There are media owners – at least a couple I'm aware of - that have said 'no' to extra commissions or free media for value banks and lost business over it, so I understand the pressure on them, but is it good business to keep saying 'yes'?” he says.
Contributing to the pressure, adds Rutherford, are “global masters” wanting year-on-year growth constantly, forcing local agencies to pitch for “everything that moves” and “lower profit margins to get volume in the door”.
Full disclosure
Global agency networks have robustly defended their businesses, arguing they do not take part in non-transparent practices.
Australian agencies, while reluctant to go on the record, privately say their contracts fully disclose fee structures and clients are made aware of these. This sentiment was echoed by another consultant close to the media buying ecosystem who did not wish to be named.
"If the definition of rebates is secret retention of commissions, or whatever you want to call it, then I honestly don't think that happens secretly," the consultant says.
"If the definition of rebates is like your Xaxis and your trading platforms and so on, trading between any of the brands... and the retention of fees at group level, then 'yes' that's absolutely happening. But the clients know that, they all sign an opt in."
When media agencies act as agents and media owners (via DSPs within the group), AdNews has been told there can be internal pressure to drive revenue to "digital coffers". However, AdNews is aware that not all networks compel agencies to use their own DSPs.
While such practices are disclosed and there is no suggestion of any wrongdoing, pricing around trading is still an opaque area as its not clear how much mark-up is being derived and whether this value is returned to clients.
'Most audited'
As a candle is held to local media buying practices, it will provide agencies an opportunity to reassure clients they are above board and have learnt lessons from problems in the past.
Yesterday, GroupM released a statement arguing it is the "most audited media group in Australia".
"Working with EY we have improved our systems and processes to even greater levels of compliance and quality assurance. We have the only dedicated compliance team in the country, which oversees a consistent national compliance process across all GroupM Australia agencies," the statement reads.
"Among a number of improvements implemented by the compliance team was the introduction of guidelines and a process that guarantees trading accuracy. In rare cases, any compliance concerns identified have been resolved totally to our client’s satisfaction."
AdNews will continue to follow the fallout from the ANA report. If you have any views, please email: arvindhickman@yaffa.com.au
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