Last week, the ANA issued the sequel to its "Independent Study of Media Transparency in the U.S. Advertising Industry," conducted by investigative firm K2, which rocked Madison Ave six weeks ago with allegations of unfair media agency buying and planning practices in the US. As expected, the follow-up, "Media Transparency: Prescriptions, Principles and Processes for Marketers," is a set of guidelines that demands punishing concessions from media agencies. However, this prescription places responsibility for righting wrongs on its own membership, the advertisers themselves, advising them to get smart, man-up and accept ownership of protecting themselves from non-transparent practices.
Here are five elements of the guidelines, conducted by third-party auditor Ebiquity, that are key to understanding this latest round of the transparency saga:
A holistic view on the issue and industry
The report makes clear that transparency is about so much more than just hidden rebates. It rightfully diagnoses a conflict of interest on the agency side, which, as we have learned from the K2 report, unfortunately is the standard operating business model of almost every media agency today. The new report also takes a wider view in recognizing that neutrality can be compromised not just when agencies deal with media vendors, but— given their evolved role — also with any "third party" that agencies buy services from on behalf of clients, such as data providers and technology companies. And the report rightfully puts a great deal of emphasis on the digital side of the business, which is increasingly an area in which the lack of neutrality hurts advertisers and where agencies are making lots of money unbeknownst to clients.
Pay agencies and pay attention
The Ebiquity report makes progress in moving away from simply blaming agencies for the mess the industry is in. However, it it also stops short of admitting that large advertisers have been benefiting from an nontransparent industry, allowing them to demand media value beyond their fair share of such value. It makes clear, however, that "client pricing pressure may be exacerbating media agency non-transparent business practices." In other words, clients may not be paying agencies adequately or equitably for the services they receive and agencies will make up for the shortfall through nontransparent means. The report also insists that advertisers themselves must accept accountability for fully understanding and directing their media investments, versus hiding behind the complexities of the matter.
The great bulk of the report’s suggestions focus on revising contracts — the core of Ebiquity’s own consulting business — strengthening the advertiser’s position, and contractually forcing the agency to get their act together and behave transparently. It has been puzzling that auditors’ very own lack of transparency when it comes to their service of benchmarking media costs has never been a major public concern during this past year of transparency discussion.
Another pressing concern notably absent in the report: Why now, and what is Ebiquity’s role in this process? Clearly auditors such as Ebiquity, which are often regarded as the foremost experts on advertiser relationships with agencies, have been in a position to address the transparency issue. Have they been looking the other way for years? Have they not been able, or willing, to advise their clients, before the ANA hired them to investigate the issue? If all it takes is to rework advertisers’ contracts with agencies — what have they been waiting for?
Agencies can be two-sided
At the core of the issue of transparency is the conflict of interest resulting from agencies’ double-sided business model: acting as an agent on behalf of an advertiser and committed to their client’s best interest versus acting as a principal on its own behalf committed to its own best interest. One would hope that the ANA would demand the elimination of this conflict and require that agencies choose their role clearly: be a doctor or a pharmacist.
Instead, the Ebiquity report only demands the "disclosure" of such conflicts of interest. The report suggests that with the right contract and process in place, an agency can be allowed to be both a principal and an agent and still act in a client’s best interest all along. The report essentially suggests agencies should educate clients on the risks and awards of their principal deals — which are designed to benefit the agency and are by nature proprietary business secrets of agencies acting as traders further up the value chain. Given this, it is implausible that principal-based practices can co-exist with traditional agency-client relationships. The report simply sidesteps that reality.
Trust can be contracted
Finally, for all its contractual finesse, Ebiquity struggles with the question of whether or not one can actually contract "trust." The report acknowledges that advertisers expect agencies to deliver more than what can be contained in a contract; they want agencies to put their best people and their best ideas to the task of solving challenges through brilliant media solutions. This is the elephant in the room. You cannot contract, control or audit genius, creativity, passion and innovation. This requires a completely new foundation of trust in the advertiser-agency relationship, which cannot be guaranteed by simply revising contracts.
While many advertisers might be fine without trust, it is likely most are not. Advertisers that truly need advice sailing the complex waters of what media is today, that cannot reasonably build the infrastructure to control the beast that is a modern-day agency behemoth, that cannot afford agency margins of 30% — these are the advertisers who need trust the most. And they can only trust an agency if they are certain that the agency simply does not and never will have a conflict of interest; in other words, that an agency will never act as a principal, that it passes 100% of value negotiated over to their clients and, finally, that it makes all its income through advice, never with inventory.
Martin Albrecht is managing partner and co-founder of Crossmedia.