Bring in the spooks

The US investigation into media rebates could now impact the UK – and precipitate a wholesale recalibration of remuneration and what is considered legitimate practice, writes ISBA’s Bob Wootton.

A couple of weeks ago, ISBA’s US counterpart (the ANA, or Association of National Advertisers) announced that it had appointed two firms to investigate media rebates and transparency issues, such were the concerns of its advertiser members.

As the next-largest and most influential advertiser body in the world, a lot of eyes swiftly turned to what we at ISBA might be doing in the UK so I thought it might be useful to set out some background before looking at implications and consequences.

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Transparency and rebates, visible or hidden, have been a familiar part of many countries’ media trading conversations for over 20 years, but it seems that they were less well-recognised in the US.

That all changed abruptly at the ANA’s May 2014 Advertising Financial Management conference in Naples, Florida, attended by some 700 advertiser delegates, where one Jon Mandel, previously CEO of MediaCom US, spilt the beans. ANA had also conducted some research amongst advertisers.

My ISBA colleague Debbie Morrison was speaking and avers that the atmosphere was pretty electric for such an event. In a single day, denial gave way to discovery, concern, even anger.

Fast forward to this year’s event, again in May but this time in Phoenix Arizona (they do hold these events in rather nice places) which naturally revisited the subject.

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Rightly anticipating keen delegate interest, ANA had worked behind the scenes to establish a joint task force with the American Association of Advertising Agencies (usually known as the 4A’s), which was announced at the event.

Delegates seemed satisfied that something was indeed happening. Invitations to tender and a request for proposals from relevant ‘research partners’ were issued, almost two dozen responses were received and meetings were held with about a dozen of the more promising ones.

(WPP trading arm Group M’s global CEO Irwin Gottlieb also spoke, albeit in very measured tones by all accounts – Tom Denford of IDComms was there and reported on the event).

Somewhere along the line ANA moved forward alone, then, in October, announced that it had appointed ebiquity and K2.

We all know ebiquity and its compliance subsidiary, Firm Decisions, but what about K2? It turns out that it is the second business to be set up by one Jules A Kroll.

His first, Kroll Inc., established in 1972, is the world’s largest corporate investigations and risk consulting firm. K2 Intelligence, launched in 2009, is his new(er) challenger brand in the same space and styles itself as “an investigative and integrity consulting firm”.

These are very serious companies indeed. They advise their mainly corporate, multinational clients on all matters of security, from setting up facilities and making their employees safe in new and sometimes hostile territories, to cyber security.

They recruit from the police, armed forces and intelligence services as often as the accounting, legal and consulting professions. Their services also don’t come at all cheap.

Press coverage suggests that the investigation may not be confined to the US alone.

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I’ve spent quite a bit of time this year thinking how we might best pursue a similar agenda for our members. With my knowledge of just how deep media and compliance auditing firms can currently reach, I started from a rather skeptical place.

My lightbulb moment came when I was chatting to an old bandmate who now heads up a big region for Kroll Inc. and almost accidentally started asking him ‘whether his firm did this kind of thing’. At last I had found the combination of tools I might need. Great minds must think alike, because it transpires that, quite independently, the ANA had reached the same conclusion.

The question which drives all this is a really simple one. “How can our agency ‘partners’ be posting margins which are not only rather greater than ours, (far from a sin, much more a reflection of a well-run business) but many times greater than what we know we and most others are paying them (Ouch)?”

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So what are the implications of all this? Well, the 4A’s withdrawal indicates that ANA is unlikely to get any agency help in its quest. Sir Martin Sorrell, chief executive of the world’s biggest agency holding group, WPP, has already implied otherwise, but I’d still expect agencies to play hardball.

Even with a K2 on board, things will surely pivot on the contracts which the advertisers have in place. That could be tricky.

From our own extensive work in the space, we know that despite our persistent encouragement, too few clients have really comprehensive and up-to-date contracts in place and fewer still have the crucial reach to probe the agency holding groups where many deals are done. Our understanding is that it’s no better and perhaps rather worse in the US.

Many advertisers report to us that they find the extremely protracted negotiations with their agencies too painful and distracting to pursue indefinitely. But whether a suitable contract is or is not in place, agency refusal to answer admittedly probing questions will signal confirmation to their clients that they do indeed have something (maybe plenty) to hide.

This will do nothing to rekindle the ‘trusted partner’ status agencies claim to crave, but which many have in truth already largely foregone by taking rebates and by becoming media vendors in their own rights.

No, agencies will surely resist this investigation vigorously because their very income is at stake. They certainly can’t make nearly enough to meet their owners’ demands for volume and margin growth from what their clients actually pay them, even though they themselves have been instrumental in driving those very incomes through the floor.

Jenny Biggam of The Seven Stars offered a valuable contribution to this debate just this week with a letter to Campaign in which she said agencies should not blame clients for their own transgressions.

Every agency I know claims it doesn’t sell itself down the river, simultaneously bemoaning its competitors’ suicidally-predatory pricing, but my conversations with advertisers suggest that pretty much everybody’s at it. (Sir Martin also joined this conversation this week. ‘Insane’ would surely have more pertinent meaning than ‘inane’, but perhaps that would have opened him up to litigation.)

As for the media owners, it’s an open secret that many, even amongst the biggest, are deeply concerned about the concentration of power that now lies with media agencies, so they could be quietly rooting for the lid to be lifted off things.

We continue to keep very close to our US colleagues so that we can keep our advertiser members informed and they can decide what action they might want us to take.

Just as ad-blocking is perhaps the ‘extinction event’ that could finally cause the industry to refrain from its excesses online, so this investigation could perhaps precipitate a wholesale recalibration of remuneration and what is considered legitimate practice.

Or, as my fellow columnist Dominic Mills has already suggested, it could simply end up being buried in a massive round of face-saving.

Watch this space…I don’t often deal in certainties, but here’s one.

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We so haven’t heard the last of ad-blocking. This just in courtesy of Paul Wright at Apple takes the biscuit. Is anyone out there still in denial about the harm we are wreaking in consumers’ eyes?

Update from the editor:

This article was updated on Thursday 19 November at 9am. The original said the 4A’s had withdrew from the task force, leaving the ANA to ‘paddle its own canoe’. The 4A’s maintain they had offered to participate in the selection of the agency.

“While the 4A’s favored the continuity and effectiveness of our joint efforts, the ANA has decided to move forward with its solo sponsorship of a fact-finding initiative into agency media practices,” a 4A’s statement said. “The 4A’s will continue to collaborate with ANA on media transparency to the fullest extent feasible.”