On the one-year anniversary of the Association of National Advertisers' landmark study and subsequent recommendations on media transparency, it's time to review the issues in this ongoing debate and see where we stand today.
The issues raised in the subsequent transparency debate are complex, and if the allegations against the agencies are true, the behavior is reminiscent of past high-profile financial scandals.
- What happened? On June 7, 2016, K2 Intelligence released an ANA-commissioned report detailing how rebates and other incentives that media buying agencies receive from media owners are being retained by the media buying agencies instead of being passed back to advertisers.
- What does the K2 report mean to an advertiser? Using a six-year statute of limitations in an action for breach of contract, an annual spend of $100 million equates to $600 million over that time frame. Estimates are that the retention by media buying agencies could be five percent to 20 percent. Assuming this is the case, an advertiser with a $100 million annual spend may have claims from $30 million to $120 million. Regardless of the margin of error, the amounts remain staggering for any major advertiser. Even assuming an advertiser elects not to pursue a claim, the advertiser should ensure that the continued diversion of assets stops.
- It is real? Top-level executives of some of the media buying agencies railed against the K2 report, assuring the marketing community that their companies never engage in the behavior reported by K2. But the K2 report's detailed findings -- deeming the behavior pervasive and systematic throughout the ecosystem -- make it difficult to believe the sincerity of these pleas of innocence.
- Is it serious? Whether the denials are real or feigned isn't the immediate issue. For now, transparency is the center of attention. Eventually, any media buying agencies that previously did or continue to engage in the subterfuge reported by K2 will most likely get caught and the behavior will be stopped. At some point, executives complicit in the alleged behavior may also face consequences.
- What has been the aftermath so far? One year ago this week ANA and Ebiquity/FirmDecisions published a series of recommendations in "Media Transparency: Prescriptions, Principles and Processes for Advertiser." Since the K2 report was published, the industry has taken steps toward reconciliation and change. They include:
- Significant increases in renegotiation of contracts.
- Significant settlements.
- RFPs that now include transparency as a key requirement to participate.
- Industry concern over an ongoing investigation by the U.S. Department of Justice into transparency in production and the possible expansion of that probe. The recent silence from the DOJ should not be seen as a positive.
- Are advertisers pleased with the results one year in?
- Advertisers that have addressed the issues and renegotiated contracts or held firm on RFP requirements are making progress. According to press reports, some advertisers have settled for millions of dollars in various forms, e.g., cash, credits, free media, etc. How much is dependent upon many factors, e.g., media spend, geographic scope, existing relationships, etc.
- According to a recent agency compensation study by the ANA, 25 percent of the advertisers surveyed were not aware of the transparency issue. Of the remaining 75 percent, only half have addressed it. It's impossible to know the percentage of those in that group that have achieved satisfactory results.
- Advertisers are not blindly accepting claims by agencies that the agencies are Sarbanes-Oxley compliant, as if such an assertion proves financial accountability. As far as transparency is concerned, such an assurance is meaningless. Nor does it satisfy the advertiser's obligations to its shareholders.
- Advertisers have a new concern following the recent ANA Programmatic Transparency report in which the trading desks of the major agency holding chose not to participate. The report shows:
- Full transparency in digital is possible despite agency protestations to the contrary.
- Excuses for non-transparency, e.g., NDAs, non-cooperation, etc., lack merit and have been eliminated by strong-willed advertisers like those who participated in the study.
- The solution is for advertisers to make transparency a condition of programmatic buying.
In addition, advertisers need to reassess whether buying sourced traffic should continue, given its propensity for fraud and non-human traffic. Advertisers and digital media platforms must also increase efforts to protect brand safety amid allegations that the monies flowing to criminals in the ecosystem are used to support illegal activities, including terrorism.
Click here to read additional ANA commentary on:
- How are agencies responding?
- What can be done with existing contracts?
- Can there be transparency when the agency is buying media as a principal and reselling it to the advertiser -- the so-called "principal transactions"?
- What should an advertiser do now?
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