Six months ago Foxtel’s new risk management team decided they would start a sweeping review of internal and external processes and partners at the pay TV group which ultimately enveloped MediaCom and triggered the TV trading fallout which hit the headlines last Friday.
As part of the Foxtel internal audit process, MediaCom was asked for data around Foxtel’s post-buying TV TARP analysis. It set off alarm bells within the media agency for irregularities in the trading team which handled Foxtel, Yum! Brands – parent company to KFC and Pizza Hut – and at least one other blue chip brand. The particular Mediacom trading unit under the spotlight is thought to be responsible for about $160 million in combined billings.
As part of its own audit and risk procedures, GroupM’s regional and possibly global audit specialists were urgently called in. They uncovered discrepancies in the claimed post-reporting analysis of TV schedules for Foxtel, sparking a covert audit of all GroupM’s media agencies and trading units in Australia in recent weeks. That audit is believed to have just concluded and appears to have cleared all but the particular Mediacom trading team on Foxtel and Yum!.
When MediaCom uncovered the irregularities - around inflated results of what level of TARPS was delivered in TV schedules - the agency went on the front foot, raising its concerns with Foxtel and Yum! Brands.
When asked on the weekend about the scenario, Foxtel’s executive director of sales and marketing Ed Smith said: “Foxtel’s audit processes identified some irregularities with our media agency which we are working through.”
There remains confounding questions as to why up to three individuals within the trading group at MediaCom did what is alleged.
“It seems so stupid,” says one broadcast executive who did not want to be named. “TV TARP trading is massively audited. It’s always going to get picked up. Everyone talks about digital being the most scrutinised but it’s a croc of shit. There are millions and millions of pieces of inventory online. It’s impossible to get the audit visibility TV is subjected to.”
Indeed, if the rumblings are true, both Foxtel and Yum are in the TV audit pool of the old Faulkner Media, now Ebiquity. If so, it points to more uncertainty about why these irregularities were not picked up earlier at Mediacom. As to why those working on these accounts did what is alleged, some theories include a lack of willingness by individuals caught up in the mess to have hard conversations about underperformance with their clients. But there are other scenarios too.
“Foxtel and Yum are aggressive TV trading clients,” says one observer. “They’re unforgiving. I can see how the pressure might have popped these managers. It’s by no means any justification for what looks like has happened but I can see how they might have got into it. I am surprised it didn’t get picked up earlier.”
To be sure, there is no clear picture yet of what really transpired yet other than at least three people have resigned or have been dismissed. The stream of other departures at MediaCom in recent weeks are said to be more linked with broader cultural challenges at the agency and perhaps some wanting to put distance between themselves and the unfolding controversy they had no hand in.
It is early days in these developments but the smoke signals coming from GroupM suggest its top brass are comfortable the practice is isolated after completing its sweeping internal review. GroupM agencies were informed an audit process was taking place in recent weeks but were not aware of why.
And GroupM chairman John Steedman told the Financial Review today: “There has been irregularities in post-buying reporting [of TV airtime] and they have been discovered through regular checks we do across all the businesses. It’s confined to Mediacom and a select number of clients. Those clients have been informed about the irregularities. We have been open and transparent on the matter. No-one has financially gained, either individuals or the business.”
GroupM has now commissioned Ernst and Young (EY) to conduct an external audit in a move to independently verify the conclusions from its own internal audit findings. If EY comes to similar conclusions as GroupM’s audit team, the company will use it to help clear the air around the reputation of all its agencies and put pressure on rivals to do likewise. Not all communications groups, however, are bound by Sarbanes-Oxley [SOX] regulations on disclosure for public companies. There is no inference of insufficient oversight and reporting whatsoever on Dentsu but Aegis and Carat, for instance, are not bound by SOX compliance given their Japanese-ownership.
Already AdNews is aware a number of agency groups are scrambling to ensure their own house is in order and Foxtel too is said to be appointing an external auditor to investigate.
This individual Mediacom case might indeed end up being an isolated occurance – systemic questionable practices in the global banking, equity and foreign exchange markets are a regular occurance inside some of the sector’s most reputable institutions, despite all their protocols.
But the current MediaCom flare does threaten to blow open a broader debate about the pressure many agencies are under with current remuneration levels in traditional media planning and buying, the flaws in the TV buying and selling system and perhaps other less transparent practices which fuel plenty of industry discussion in the shadows.
For more news:
MediaCom: What now - will a raft of agency audits kick off?
MediaCom exits linked to Foxtel and KFC overcharging
Raft of sudden exits hit MediaCom
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