Shady practices such as taking cash rebates as kickbacks from media owners and marking up the cost of ad space are pervasive in the $200bn (£137bn) US media buying market, according to a new report that is set to send shockwaves through the global advertising market.
The report – commissioned by the Association of National Advertisers, which represents US marketers controlling about $200bn of annual spend – paints a damning picture.
It identifies practices including agencies purchasing media space on their own behalf and later reselling it to a client after marking up the cost by anywhere between 30% and 90%.
The report, conducted with K2 Intelligence, the consultancy founded by Jeremy and Jules Kroll, found that “non-transparent” practices such as taking rebates are “pervasive” in theUS.
It found there were “systemic elements” to some of the practices, suggesting senior executives had sanctioned them, and they were therefore part of their “regular course of business”.
While the report does not name specific agencies, it will nevertheless shake the global advertising market.
This is because the six biggest advertising and marketing holding companies control about 60% of the $500bn spent on buying media space worldwide.
“From the beginning, this has been a study designed to shed light on certain non-transparent practices in the media buying landscape,” said Richard Plansky, executive managing director of K2 Intelligence. “At the ANA’s insistence, this has never been about pointing a finger at any individual or company.”
All the major holding companies have denied any improper behaviour.
GroupM, the global media buying arm of Sir Martin Sorrell’s WPP, re-iterated its propriety and went as far as questioning the “objectivity of [the report and its] authors and advisors”.
“The report should not be allowed to tarnish the entire industry, nor every company in it,” said a spokesman for GroupM. “GroupM does not seek, nor accept, rebates or hidden revenues in any form from media partners in the US. Nor do we accept service fees from vendors that are not disclosed to clients. We insist that the ANA share any specifics relating to our group with us so that we can ensure continuing contract compliance.”
The report defined a non-transparent business practice as one in which “relevant information is not disclosed or intentionally obscured from one party to a transaction”.
Advertisers interviewed during the course of the investigation by K2 intelligence and a division of auditors Ebiquity indicated they did not receive rebates or were unaware of any rebates being returned.
“Advertisers and their agencies are lacking full disclosure as the cornerstone principle of their media management practices,” said Bob Liodice, chief executive of the ANA. “Such disclosure is absolutely essential if they are to build trust as the foundation of their relationships with long-term business partners.”
K2’s Plansky said the question of whether any of the practices uncovered in the investigation were illegal was “beyond the scope of what we were asked to do”.
“K2 could not accurately trace the flow of funds in individual cases from a media supplier to an agency to an advertiser without revealing names and, therefore, declined to do so,” the report said. “Investigative and/or auditing work such as this was beyond the scope of the study.”
The American Association of Advertising Agencies, known as the 4As, was scathing in its assessment of the report, which it said undermined advertiser and agency relations and could cause significant economic damage to the industry.
“The immense shortcomings of the K2 report released today – anonymous, inconclusive, and one-sided – undercut the integrity of its findings,” said a spokeswoman for the 4As.
“Without an opportunity for agencies to assess and address the veracity of information provided to K2, sweeping allegations will continue to drive attention-grabbing headlines. agencies are hard-pressed to defend themselves, which could cause substantial economic damage to all media agencies.”
