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ANA rebates probe: Analysis

ANA rebates probe: Analysis

As a bombshell report reveals US advertising agencies run rebate schemes to pad profits, Brian Jacobs and Bob Wootton assess the damage - and investigate what it means for the UK market

Bob Wootton, Deconstruction

So the ANA has finally laid its egg. And contrary to the pessimistic expectations I've had since investigators K2 had to introduce an anonymous helpline to elicit advertiser confessions mid-trajectory, it's not the damp squib it might have been.

Nor is it as incendiary as some rumours suggested, as it does not name names - which would probably only have precipitated a feeding frenzy of lawyers and lawsuits.

Instead, we have a very carefully-worded report which treads the middle road but nevertheless concludes robustly that much is wrong, some of it quite rotten.

Rebates are illegal in the US where advertisers are principal to the media bookings facilitated by media agencies on their behalf.

It's different here, so there will doubtless be much cold water poured on how relevant the findings are to this market.

Publicis leader Maurice Levy has already reacted hotly, protesting that all rebates are passed back to clients in the US, but see what he did? - kept it to the US.

It's an open secret that rebates are endemic to many other markets, where they may or may not be legal but are largely opaque and therefore offensive to most advertisers.

So I find it very hard to imagine that there won't be recriminations.

The ANA is recommending - as I have for some time - that advertisers review and most likely redraft their contracts. Henceforth business will increasingly be pitched on the condition that agencies agree to better contract terms.

If they decline - as they are fully entitled to - it might reduce advertiser choice but on the other and brighter side it will enable advertisers to avoid getting into bed with agencies that refuse to disclose as they require.

To be quite fair to agencies, they take considerable risk and exposure to deliver the extreme media prices they now routinely guarantee - and their clients, especially procurement, demand. However, they really stretch this argument and curry little favour with those clients when they start to treat the money as their own.

Surely there will now be all kinds of questions asked within advertisers based or led out of the US to which glib "it's OK boss, all under control" will not be sufficient answer.

So this week's publication is only the end of a beginning. As I averred earlier this week, it will be interesting to see what the client fraternities both sides of the pond do next.

Bob Wootton is founder and owner of Deconstruction, a media consultancy, and the former director of advertising and media at ISBA.

Brian Jacobs, BJ&A

The first of two ANA reports has landed, containing the results of 150 K2 interviews with "marketers, media suppliers, ad tech vendors, current and former advertising and media agency professionals, trade association executives, industry consultants, attorneys, barter company employees, and post-production professionals."

All were conducted anonymously; 5 out of the top 6 holding companies withheld their executives from interview. One can only speculate as to why.

The conclusions are not good for the agencies. Rebates and non-transparent practices are found to exist.

As damning is that "media buyers [sic] were sometimes pressured or incentivized by their agency holding companies to direct client spend to this media, regardless of whether such purchases were in the clients' best interests."

In other words planners are told to spend money in certain channels that deliver benefits to the agency even if such channels are not right for the client.

This chimes with what Jon Mandel said last year (his speech too was based on interviews with those in the industry).

The Wall Street Journal had already leaked some of the findings, a significant point given that the WSJ's core audience is the CEOs whose businesses employ agencies, and whose budgets sustain all ad-supported media channels. This is a story that will get attention in the Boardroom.

The agencies' mainline of defence looks like it's going to be that everything they have done is in line with their contracts. Those signing those contracts could be in for an uncomfortable few weeks.

Agency contracts often seem designed to confuse and to allow them (the agencies) a pretty free hand. That though is no excuse for waving these things through.

So what is going to happen next?

This has the whiff of a disaster for the large holding companies' media divisions. The light and shade surrounding the contractual rights and wrongs, along with the many lawyers' argument will, I fear, largely be ignored over the coming weeks. Today's media after all is all about headlines and moving on.

What will be remembered is that contract or no contract the agencies stand accused of hiding rebates and that it is the size of these rebates, rather than the planned effect of the advertising they place on their clients' behalves that dictates where large chunks of money are spent.

The agencies have a huge task on their hands to regain trust as an objective partner responsible for spending their clients' money. It's by no means guaranteed they'll be able to do that anytime soon, but the sooner they stop harrumphing and accept what pretty well everyone knows, namely that things are badly out of kilter, the better their chances of rescuing something from this horror show.

Brian Jacobs is the founder of director at Enreach and founder at BJ&A. He also runs the excellent Cog Blog.

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