The Association of National Advertisers has issued a sobering report on the lack of transparency in media buying.  The 58 page report is titled An Independent Study of Media Transparency in the US Advertising Industry.   The report is based on 142 interviews with outdoor, digital, TV and print media buyers and identifies the following abuses:

• Undisclosed rebates or “referral fees” from a media buyer to an agency of 2%-20% of the amount of aggregate media spending.  The report uses this example from the out of home industry:

“K2 reviewed a copy of a media authorization signed two years ago by an independent media agency and an independent OOH media agency that it had subcontracted for OOH services. The authorization relates to the purchase of outdoor advertising space, ultimately on behalf of an advertiser. The media authorization states that the media agency “acknowledges” that the OOH agency is “entitled to, and will retain” any rebates it collects from OOH media suppliers. The source who shared a copy of this contract with K2, and who has knowledge of the incident, said he learned from the advertiser that it was unaware of this rebate clause and did not benefit from any rebates. The source told K2 that the advertiser only discovered the rebate clause when it asked the media agency to hand over documents relating to its ad spend.”

• Undisclosed “service agreements” is which a fee is paid to an agency for work which is worthless or which is never performed.  Here’s an example from the outdoor industry:

“Another of these media suppliers who operates in the OOH space reported that he currently has what he classified as rebate agreements with two Agency Holding Company OOH affiliates. This individual stated that he paid “six-figure sums” for a series of market research reports, each about ten pages in length, which were worthless to him. This media supplier stated that he received regular invoices for “market research” services tied to the volume of aggregate client spend. He stated, “If I could do without it, I would. If I could deal with the agency of record directly or with the client directly, I would … But I’ve said ‘yes’ to these deals because I know that if I don’t, a competitor down the street will get the business instead of me.”

• Undisclosed markups of 30-90% when ad agencies act as a principal in a transaction by buying media directly and reselling it to clients.

• Pressure to direct media spending to companies in which agencies hold equity stakes.

Insider’s take:  A lack of disclosure is the issue here.  Insider thinks that agencies ought to be able to make whatever business arrangements they want as long as the disclose everything to their outdoor advertising clients including potential conflicts of interest and how all the money is spent.  Insider suspects rebates, markups and service agreements would shrink dramatically if they had to be disclosed.

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