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Tag Archives: media transparency

Has France Solved the Media Transparency Issue?

24 Feb

French Flag

Earlier this month the French government passed a new edict extending the coverage of Loi Sapin, their anti-corruption law passed in the early 90’s which made the process of buying media more transparent. 

There are two key tenants of Loi Sapin, which afford French advertisers a level of protection related to certain non-transparent revenue sources which the Association of National Advertisers (ANA)/ K2 2016 media transparency study showed were prevalent in the U.S. (and elsewhere around the globe). Specifically, we are referring to the practice of media owners and publishers paying rebates to the agency and the use of media arbitrage, where agencies purchase inventory on their own to be resold to their clients at a higher rate.

Loi Sapin prohibits agencies from selling media to their clients that the agency had purchased in its name. In today’s parlance, it prohibits media arbitrage or “principal-based” media buys. Secondly, the law clearly stipulates that the ad agencies cannot derive revenue from a media owner, stating that agencies can only be paid by advertisers.

To France’s credit, the new decree, which will take effect in January of 2018, expands the coverage of the anti-corruption law to include digital advertising and digital advertising services. Of note, this includes agency trading desks, which sometimes buy and resell digital media to their clients. Yes, agencies will still be able to provide programmatic media buying services through their trading desk operations to advertisers, they will simply have to disclose to their clients, upfront, those affiliates or entities where they or the agency holding company have an ownership interest.

Interestingly, the decree will also require the media owner to direct bill the advertiser and compels them to provide detailed information about the services that they provided to the advertiser. This particular aspect of the law will further enhance advertiser transparency and virtually eliminates the ability of an ad agency to blindly mark-up said services.

As U.S. advertisers and the Association of National Advertisers (ANA), continue to evaluate the most effective means of improving media transparency, France’s anti-corruption law and its new decree covering digital media services certainly provides some interesting food for thought.

 

 

 

May You Live in Interesting Times

23 Dec

confuciousOften referred to as the “Chinese Curse” this popular saying derives from the English Politician Sir Austen Chamberlain in the early twentieth century. Used ironically, the phrase has been used to suggest a set of outcomes that are a little more ominous, “May you experience much disorder and trouble in your life.”

As we reflect on what has been a tumultuous 2016, those working in the marketing and advertising industry most certainly would agree that we are living in interesting times. Recent news suggests that the industry’s troubles will not abate much in the coming year. The year began with evidence suggesting that the level of digital ad fraud would eclipse $8.0 billion in 2016, this was followed by the blockbuster findings from the Association of National Advertisers (ANA) / K2 study on “Media Transparency” which rocked the global ad industry.  Sadly, the industry is winding down 2016 with a litany of additional actions and outcomes that pose serious threats to the level of trust, already shaken, between stakeholders in the $540 billion global advertising marketplace.

In the last two weeks, the industry heard once again from Facebook that it had made yet another audience reporting faux pas, its third of the year, which many in the ad agency community have been all too willing to forgive. Who could possibly be surprised with advertisers for being genuinely perplexed as to why the media agency community hasn’t more thoroughly scrutinized Facebook’s audience measurement reporting or pushed more aggressively for independent verification of those results.

Concurrently, halfway around the globe, Australia’s three largest magazine publishers (News Corp, Bauer Media and Pac Mags) decided to cease their participation in the Audited Media Association of Australia’s (AMAA) magazine circulation service leaving advertisers no other choice but to rely on these publishers’ self-reported “readership” numbers, rather than audited circulations figures.

In the United States, the federal government’s Department of Justice has subpoenaed agencies from four of the world’s largest holding companies; WPP, Omnicom, IPG and Publicis as part of its investigation into illegal bid-rigging for commercial production jobs. It is alleged that these agencies coerced and or rewarded independent production houses to submit inflated bids, ostensibly to manipulate the process in favor of agency in-house production resources. Many believe that the DOJ’s investigation will have a profound impact on both the estimated $5 billion production sector and potentially the rest of the business. Let’s not forget, the DOJ has not yet weighed in regarding agency practices identified in the ANA/ K2 study on media transparency.

Most recently, WhiteOps, a U.S. a cyber security firm providing ad viewability and fraud detection supporting the advertising industry, announced that it had uncovered a Russian led digital fraud effort that was literally stealing up to $5 million per day from advertisers. It was reported by the NY Times that the fraudsters impersonated more that “6,100 news and content publishers” while delivering up to 300 million fake ad views per day. How were they able to do this? By creating over one-half million bots that replicated the web surfing patterns of humans, starting and stopping videos and moving and clicking the cursor. 

If client organizations were experiencing a “crisis of trust” hangover following 2015, it certainly wasn’t remedied in 2016. Going into the New Year advertisers have every right to step back and ask, “Who can we trust?” Our agency partners? Ad tech vendors? Media Owners? Measurement Services? And who would blame advertisers for taking matters into their own hands and make a New Year Resolution to more directly deal with these issues. After all, it is their monetary inputs that fuel the entire industry and they certainly deserve better that what they’re getting right now. In the words of the iconic American actor, Clint Eastwood:

Sometimes if you want to see a change for the better, you have to take things into your own hands.”

 

Is It Too Late for the 4A’s on the Topic of Transparency?

26 Sep

too lateEarlier this month, the 4A’s announced that it was pulling out of the Association of National Advertisers (ANA) “Transparency” panel scheduled during Advertising Week in New York City.

In light of the organization’s decision to break from ANA / 4A’s joint media transparency initiative earlier this spring, ostensibly to chart its own course, this move comes as no surprise. However, it is nonetheless disappointing. After all, why wouldn’t the 4A’s and it member agencies want to share the stage with the ANA to address advertisers on the topic of transparency?

The quest for improved standards and performance related to transparency would benefit mightily from the involvement of the 4A’s. The ANA, advertisers and many within the agency community have sought the 4A’s cooperation on this issue and would welcome a united effort to address this topic.

Clearly a full-court press is necessary if the industry is going to improve both transparency and ultimately the level of trust between advertisers, agencies and publishers. Aside from the eye opening findings from ANA / K2 study on media transparency, there have been two recent announcements that certainly seem to bolster the results of this study. First, just this past week Facebook indicated that it had misrepresented average viewing times for video ads played on its site. Secondly, the global agency holding company Dentsu came forward and cited multiple instances where there were “failures of placement,” “false reporting” and “inappropriate operations” which impacted over 100 of their clients. Dentsu’s CEO, Tadashi Ishii issued a statement saying that there were “instances where our invoices did not reflect actual results, resulting in unjust, overcharged billings.”

In fact, the impact of the 4a’s decision has resulted in two agencies, Empower and Mediasmith, pulling out of the 4A’s citing the associations failure to take a more progressive stance when it comes to working more closely with the ANA to resolve the issue of media transparency.

From the perspective of advertisers, they are rightly concerned about the issue of transparency and are taking matters into their own hands. Consider the September 23rd article in the Wall Street Journal; “Major Marketers Audit Agencies“ in which firms such as J.P. Morgan, General Electric Nationwide Mutual Insurance and Sears Holdings Corp. indicated that they “had hired outside counsel” to conduct audits, due in part to the ANA study. Additionally, the article identified more than a half-dozen other firms that are “trying to get more liberal auditing rights” to improve the protections afforded them under their Client/ Agency agreements.

Given the importance of transparency and full-disclosure in establishing productive, long-term relationships between advertisers and agencies it is unclear what the 4A’S hopes to gain with its current approach. While the 4A’s has issued transparency guidelines of their own, advertisers and many industry observers have indicated unequivocally that these guidelines are inherently biased in favor of the agency holding companies and that they simply don’t go far enough to address advertiser transparency concerns.

The very fact that many agencies are deriving non-transparent revenue from the budgetary dollars entrusted to them by advertisers is an affront to a principal-agent relationship. And even if, as some agency leaders have suggested, not all client / agency contracts espouse a principal-agent relationship, it is simply not a good practice (and promotes distrust) for an agency to leverage an advertiser’s funds for its financial benefit without its knowledge. This is particularly true when such gains undermine the notion of “objectivity” when it comes to the media investment counsel being provided by these agencies to their clients.

Noted novelist, Thomas Hardy once said that; “The resolution to avoid an evil is seldom framed till the evil is so far advanced as to make avoidance impossible.” One might argue that as an industry, when it comes to transparency, trust and their impact on client / agency relationships the point in time to frame a resolution is long past due. Sadly, for the 4A’s, change is afoot and the organization’s actions may render it as an observer rather than a co-author of a doctrine for positive change.

 

 

 

 

 

 

Key to Media ROI: Chief Media Officer or Compliance Auditing Support?

14 Aug

accountabilityIn the wake of this spring’s Association of National Advertisers (ANA) “Media Transparency” study, conducted by K2, many in the industry have suggested that advertisers add a Chief Media Officer to staff to assist them in navigating what is clearly a complex, rapidly changing industry. For those advertisers that have the financial wherewithal to support such a position, the benefits could be significant when it comes to strategy development, planning and stewardship of their media agencies and extended supplier base.

That said, the dynamics which impact media return-on-investment require resources that go well beyond the reach, and sometimes knowledge, of a Chief Media Officer and create an entirely different set of challenges even for those organization’s that do have the luxury of adding a seasoned, media executive to their staff.

The findings of the ANA/K2 study dealt with non-transparent media agency practices effecting advertisers such as: rebates taken at the agency holding company level and not passed through to advertisers, media arbitrage, value banks, related party transactions and inappropriate mark-up on both media and non-media expenses. The economic and relationship impact of these practices, and the continued adverse effects of digital ad fraud and viewability challenges besetting the industry, all serve to greatly reduce the efficacy of an advertiser’s media investment.

Experience suggests that the key to resolving these issues is more likely rooted in the development of a sound, broad reaching media accountability program. One which focuses on improving client/agency contract language, client/ agency focused communications, financial and legal controls and enhancing advertiser transparency rights that allow clarity into the disposition of their funds at each stage of the media investment cycle.

This is not an easy task in an industry still largely reliant on an estimated billing model, with inordinately long campaign closing/reconciliation processes and multiple third-party vendors and middlemen, which all serve to negatively impact working media ratios.

Add to this the fact that the C-Suite within many advertiser organizations simply doesn’t pay much attention to media, in spite of the materiality of spend in this important area. Consider the results from a July ANA study, conducted by Advertiser Perceptions, following the release of the ANA/ K2 study:

Only one-quarter (25%) of advertisers surveyed were aware of the ANA’s media transparency study.

We believe that advertisers do care about how their media funds are being managed. However, we also know that very few organizations know what happens to their money, once an agency invoice has been paid.

It is for this reason that we believe strongly in the vast benefits that a structured, agency compliance and financial management auditing program. One that can also assist advertisers by providing a context for understanding the scope of the risks they face when it comes to building mitigating controls to optimize their media investment.

At present, few advertisers undertake such testing and even fewer have the requisite industry experience and specific media-based accounting, auditing and fraud examination experience represented in-house. Additionally, we have yet to evidence a client organization that has implemented the requisite software in their media function capable of processing and catching media billing discrepancies and performing other detailed financial analysis on their media investment.

We have learned over the years that the implementation of such controls yields tangible value far in excess of the cost to support such efforts.

The combination of financial loss related to approved but unspent media funds, earned but unprocessed credits and rebates, billing errors, unreconciled pass-through expenses and related party transparency issues can range between 2.0% and 5.0% of total agency billings. Once aware of the causes, savings are realized year-over-year by implementing improved process changes and treasury management.

With this as a backdrop, imagine an organization investing tens of millions or hundreds of millions of dollars on media. The resulting financial benefits, combined with improved controls, enhanced risk mitigation and transparency most assuredly will secure the attention of the C-Suite and their support for media agency compliance auditing.

Interested in learning how to start improving your media transparency today? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation.

Agencies as Media Owners

17 Mar

agencies as media owners

Over the course of the last several decades media owners and media agencies pursued aggressive growth strategies largely fueled by merger and acquisition activity to consolidate their power and achieve a “leg up” in their respective negotiating positions.  So it comes as no surprise to anyone in the industry when you step back and assess the size and leverage of today’s top three agency networks; Publicis/ Ominicom, WPP and Interpublic Group.   

What complicates matters for advertisers is the emergence of the agency as “media owner” model ushered in by the rapid growth of programmatic buying and digital media arbitrage.  The essential question is clear:

“Doesn’t a media agency have a conflict of interest when it has a fiduciary obligation to secure the best available inventory at the most advantageous rates for an advertiser if they also resell media (as part of their recommended inventory) which they have purchased directly from publishers to achieve a financial gain?”

This is a dilemma complicated by the lack of transparency inherent with programmatic buying, which already limits advertiser transparency into the caliber of the inventory secured on their behalf and or the CPMs paid for those exposures.  

There are a number of dimensions that need to be addressed in the context of a traditional client-agency relationship in the wake of this phenomenon:

  1. How will an advertiser shape its media agency network and assign roles and responsibilities to protect its self-interests of objectivity, competitive pricing and an optimal return on its media investment?
  2. What media components might an advertiser bring in-house?
  3. In the ongoing dialog regarding “Big Data,” can advertisers realistically view their media agencies that are also media owners, as impartial partners, to be entrusted with sensitive, highly confidential data?
  4. How should media agency remuneration systems evolve to reign in the percentage of their gross media investment which is currently ending up in an agency’s pocket (i.e. fees, commissions, rebates, margin spreads, etc…)?

There is no standard, there are no guidelines… this is a “new chapter” in client-agency relations which is unfolding before our very eyes. 

So it was with great interest that I read a recent article on the More About Advertising website entitled; “Five ways for clients to find out what’s really going on as media agencies become media owners.”  The author, Andy Pearch, Director of MediaSense suggests that “the old media audit to pitch model has been broken by these developments” and that advertisers “legacy supplier management techniques need to evolve.”  The primary reason for this, in the author’s eyes, is that media agencies have become “market makers” where they, not the traditional media owner, sets the price of the media. 

In light of the growing leverage which agencies are able to exert on the media process, Mr. Pearch suggests that advertisers will have to learn how to “negotiate with their own agencies for a better market position.”  On the topic of transparency Pearch feels that “it is naïve to hope that the most dominant agencies will cede competitive advantage and margin by becoming sufficiently transparent.”

Two of his more intriguing recommendations include the need for advertisers to “take a tougher line on cases of non-transparent practice” and failure to comply with contract terms.  Additionally, Pearch suggests that advertisers both re-think their dependency on a single-supplier media agency model and, for larger organizations with the appropriate depth of resources, “consider setting up their own trading desks.”

We live in an interesting and dynamic time for the advertising industry with technology ushering in an era of rapid change that will continue to impact both consumer media consumption patterns and an advertiser’s ability to deliver their message in an appropriate, targeted manner.  It is our belief that during this time of sea change, advertiser transparency and control should not be sacrificed in the ongoing pursuit of cheaper CPMs.  The challenges identified here are not likely to be limited to digital media as the trading desks potentially expand their media coverage and agencies seek to extend media arbitrage opportunities.  In the words of Hippocrates:

“Extreme remedies are very appropriate for extreme diseases.”

 

 

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