By Suzanne Vranica
An eight-month probe by a marketing trade group revealed that ad
agencies are accepting rebates from media companies in the U.S.,
according to people familiar with the matter, findings that will
likely stoke concerns about transparency in the industry.
The Association of National Advertisers found that agencies are
getting rebates from media companies for spending a certain amount
on behalf of their marketing clients, the people said. The group
found that the practice was widespread within the sample it
studied.
The ANA, which represents big advertisers such as Procter &
Gamble Co. and Johnson & Johnson, briefed some advertisers last
week on its probe.
A spokesman for the trade group declined to discuss details of
the report and said "its release was imminent."
Rebates or agency-volume bonuses -- which can be cash, free ad
space or other services -- are a common business practice in Europe
and countries such as China and Brazil. However, historically,
rebates haven't been part of the way ad deals work in the U.S. Some
ad firms have publicly said they don't accept rebates in the
U.S.
The American Association of Advertising Agencies, which
represents ad agencies, said in prepared remarks, "We cannot at
this time comment on anonymous sources. We have not seen the study,
have always preached full transparency to our members, and will act
accordingly when the details are released."
The ad industry is dominated by a handful of ad giants including
WPP PLC, Omnicom Group Inc., Publicis Groupe SA, Interpublic Group
of Cos, Dentsu Corp., and Havas SA, who collectively control
hundreds of billions of dollars in spending on behalf of marketers
each year.
A spokeswoman for Publicis declined to comment.
"We comply with all regulations in the U.S., and we do not
accept rebates in the United States," said Colin Kinsella, chief
executive of Havas Media North America. "On the transparency side,
we work with clients to achieve desirable levels of transparency in
all facets of our business," he added.
"We do not accept non-disclosed rebates, and we believe our
existing process as it stands is robust and transparent for our
clients and our business," said Dentsu Aegis Network in prepared
remarks. "Our media buying process is clear, audited and subject to
rigorous compliance processes, and all our clients have the ability
to audit us," the statement continued.
WPP's GroupM said that "like the 4As, we don't comment on
anonymous and unspecific allegations. We have also not seen the
report. We have always maintained that if individual clients have
questions of us they should contact us directly."
The company added in its prepared statement that "if there are
allegations that are specific to GroupM, we will demand to see the
details so that we can fully investigate and fulfill our
contractual obligations. If the details are not forthcoming, we
will take steps to compel the ANA or their investigators or their
advisors to provide the material."
Omnicom said, "While we have not seen ANA's study -- it is
disappointing to hear the results are broad-based allegations
against the entire advertising media industry."
"In order to serve advertisers," the statement continued, "it
seems to us that the specific findings of the study need to be
shared with the advertisers and agencies that are implicated in
practices that are indeed identified as troublesome. If such issues
exists, how else are advertisers to resolve them with their
agencies?"
The ANA initiated the probe, which it described as a
"fact-finding mission," and hired corporate-investigations firm K2
Intelligence, which has confidentially interviewed roughly 150
people in the ad business, according to some of the people familiar
with the matter.
The ANA is expected to issue a report shortly, according to
people familiar. The report isn't expected to name individuals or
specific companies that have allegedly received rebates, those
people say.
The report will likely intensify the concerns of marketers who
are worried that agencies don't have their best interests at heart
and could be allocating ad dollars in ways that benefit their own
businesses, as opposed to those of their clients.
"There was some belief that this was just one bad apple, but it
seems to be pervasive," said one marketer who attended the
meeting.
The lack of transparency and existence of rebates may be an
outgrowth of the enormous pricing pressure that marketers have
placed on their agencies as they seek to cut their advertising
costs, according to ad executives and marketers. Executives said
that has forced ad companies to look for other revenue sources.
During last week's meeting, K2 executives walked advertisers
through examples of how rebates have occurred in the U.S.
In some cases, media companies effectively provided a rebate by
paying an agency for services such as research, according to some
of the people familiar with the matter. Agencies also received free
media inventory that could be banked and resold to clients for a
profit, one of the people said. And in some cases, cash rebates
were given to agencies based on the amount they spent on media.
The trade group told advertisers that while some of the
practices it uncovered didn't violate marketers' contracts with
agencies, they weren't transparent. And the group said problematic
practices extend beyond digital advertising to other media
including television, print and outdoor advertising, the people
familiar with the matter said.
As a result of the findings, some marketers said they would
likely spend the next few months auditing their ad agencies and
rewriting contract language to make sure they are more explicit
about how rebates are disclosed and handled in the U.S.
Trust between ad agencies and marketers has been deteriorating
for several years. In 2014, the ANA and Forrester Research
conducted a survey of about 150 senior marketers and found 46% of
those polled expressed concern about the transparency of their
media buys.
"The reality is that the (ad agency) holding companies are so
large, interconnected and incestuous that it's very easy to have
very little transparency in that world," Joe Tripodi, now chief
marketing of Subway, said last year.
Write to Suzanne Vranica at suzanne.vranica@wsj.com
(END) Dow Jones Newswires
June 02, 2016 13:47 ET (17:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
WPP (NYSE:WPP)
Historical Stock Chart
From Sep 2024 to Oct 2024
WPP (NYSE:WPP)
Historical Stock Chart
From Oct 2023 to Oct 2024