Media Transparency Initiative: Overview
The ANA's focus on media transparency began four years ago with the knowledge of undisclosed media rebates. An ANA member survey taken at that time indicated that 28 percent of respondents claimed to have awareness of the practice of U.S. media companies providing rebates/incentives to agencies for referring or influencing client spending toward that media company.
The ANA then developed a white paper in conjunction with its outside legal counsel, Reed Smith, to explain rebates in more detail. In early 2014, the ANA and Forrester teamed up to explore transparency more broadly via another ANA member survey. Results indicated rapidly growing concerns about transparency across a variety of business practices, including rebates.
To validate members' concerns, in June 2015, the ANA issued an RFP for an industry-wide media transparency study. The ANA believed that an independent, objective organization was needed to provide indisputable marketplace clarity and help set the record straight. (View the full RFP now.)
The ANA last fall selected K2 Intelligence, an industry-leading assessment, compliance, and cyber-defense services firm, along with Ebiquity and FirmDecisions, a top marketing-performance optimization company, to lead discovery and fact-finding efforts into media transparency issues and develop longer-term transparent business practices.
The important industry initiative, stewarded by the Executive Committee of ANA Board of Directors, sought to:
- "Demystify the landscape" and provide a clarifying perspective on non-transparent behavior
- Understand the role of agency holding companies and their levels of engagement
- Understand if media plans are being compromised
- Evaluate marketers' practices and processes affecting agency behavior
Results of the seven-month study were released June 7 by the ANA in conjunction with K2 Intelligence. The study revealed that numerous non-transparent business practices, including cash rebates to media agencies, were found to be pervasive in a sample of the U.S. media ad buying ecosystem. Read the full report.
K2 Report Executive Summary
From October 20, 2015 through May 31, 2016, K2 Intelligence, LLC ("K2") conducted an independent study of media transparency issues in the U.S. advertising industry on behalf of the Association of National Advertisers ("ANA"). K2 was selected to lead the fact-finding portion of the study after a Request for Proposal process initiated by the ANA on June 17, 2015. Ebiquity/FirmDecisions ("Ebiquity") was selected to partner with K2 for the purpose of developing practical recommendations to address the study's results.
Over the course of the study, K2 requested interviews with 281 sources and ultimately conducted 143 interviews with 150 individual sources, representing a cross-section of the U.S. media-buying ecosystem. K2 kept the identities of all participating sources – and all of the individuals and corporate entities named in their accounts – confidential from both Ebiquity and the ANA throughout the study. At all times, K2 maintained complete authority over the methodologies utilized by the study team, as well as full editorial control of this report.
Within the sample studied by K2, non-transparent business practices were found to be pervasive. Of the 150 sources interviewed by K2, 117 were directly involved in media buying in the U.S. market. Of those 117 sources, 59 reported direct experience with non-transparent business practices, including rebates (34 sources) and principal transactions that enabled potentially problematic practices (33 sources). Some of these sources reported multiple experiences with separate and unrelated non-transparent business practices (e.g., the same source reporting both rebates and problematic principal transactions).
- Non-transparent business practices were not limited to a specific type of agency. K2 found substantial evidence of non-transparent business practices in Agency Holding Companies, as well as in certain independent agencies. Evidence included both detailed source accounts and significant documentary evidence.
- Non-transparent business practices were not limited to one specific type of media. K2 found evidence of non-transparent business practices across digital, OOH, print, and television media.
- There were systemic elements to some of the specific instances of non-transparent business practices examined by K2, in that these practices appeared to be part of the regular course of business. Specifically, K2 found evidence that senior executives at agencies and Agency Holding Companies were aware of and even mandated some non-transparent business practices, suggesting high-level buy-in. K2 also found evidence that contracts for rebates and other non-transparent business practices were negotiated and sometimes signed by agency executives.
- The pervasiveness of these practices in the sample strongly suggests that non-transparent business practices are also common in the media-buying ecosystem from which the sample was drawn.
K2 found substantial evidence of non-transparent business practices in the U.S. market in the form of rebates. K2 interviewed 41 sources who reported that media rebate deals occur in the U.S. market. Of those 41 sources, 34 reported indicia that the rebates were not disclosed to advertisers, were not passed through to advertisers, and/or were demanded by agencies. K2 also obtained corroborating documentary evidence of rebates, including email threads and contracts between media suppliers and media agencies. This collective body of evidence showed a range of instances in which media suppliers paid rebates to agencies, or entities affiliated with those agencies, in amounts ranging from 1.67% to approximately 20% of aggregate media spending, depending upon the deal. K2 identified several cases in which the percentage of the rebate owed increased along with agency spend.
K2 identified evidence of several methods by which rebate deals are structured, including financial incentives in the form of cash or free media. Other sources noted that rebates are often structured as service agreements whereby the fees for the services – usually described as consulting or research – are tied to the volume of agency spend. Moreover, these services were either of minimal utility, significantly overpriced, or not provided at all.
During the course of this study, K2 found substantial evidence that the lack of transparency inherent in principal transactions enables agencies to engage in potentially problematic conduct – i.e., conduct that may not be in the advertiser's best interest. Many advertiser-agency contracts contain "opt-in" provisions that permit the agency to engage in certain principal transactions with advertisers. In a principal transaction, an Agency Holding Company essentially acts as a media supplier by purchasing media on its own behalf and then reselling it at a markup. When an agency within the Agency Holding Company sells the media to an advertiser, the original purchase price – as well as other potentially relevant information – is not disclosed. According to information provided to K2, markups on media sold through principal transactions can range from approximately 30% to 90%. Sources also indicated that media buyers are sometimes pressured and/or incentivized by their Agency Holding Companies to direct client spend to this media, regardless of whether such purchases are in the clients' best interest.
K2 found evidence of non-transparent business practices in the U.S. market arising from agencies holding equity stakes in media suppliers. Several former senior level agency employees reported that they felt pressure from the senior executive level of Agency Groups or Agency Holding Companies to direct spend to companies in which the agency or holding company held an equity investment.
K2 found evidence of a fundamental disconnect in the advertising industry regarding the basic nature of the advertiser-agency relationship. In general, advertisers expressed a belief that their agencies were duty-bound to act in their best interest. They also believed that this obligation – essentially, in their view, a fiduciary duty – extends beyond the stated terms in their agency contracts. While some agency executives expressed similar beliefs, others told K2 that their relationship to advertisers was solely defined by the contract between the two parties. Some sources further noted that their obligations to their respective Agency Holding Companies were sometimes in conflict with the interests of their clients.
1 This overlap accounts for why the total of 59 sources who reported non-transparent business practices is less than the sum of those reporting rebates (34) and principal transactions that enable potentially problematic agency practices (33).
2 Please note that the degree of participation in the study varied significantly between media types. For instance, K2 was able to interview numerous sources from digital and OOH, but very few from television and print and none from radio. As a result, the absence of examples of non-transparent business practices in media types for which K2 had few sources should not be taken as conclusive evidence that such practices do not exist within the larger media-buying ecosystem.