It’s been exactly one year since the release of the K2 Intelligence report commissioned by the Association of National Advertisers, "An Independent Study of Media Transparency in the U.S. Advertising Industry," and the issue of media transparency continues to be a topic of industry discussion and debate.
In the past year, marketers have instituted major changes since the report was issued in an effort to address what they now perceive as a serious problem. Here’s a recap of key steps taken so far:
Advertisers are taking a hard look at their media agency contracts.
Our recently released agency compensation study revealed that 75 percent of survey respondents have discussed transparency with senior management, and almost half have changed their practices in media agency contracts regarding agency rebates and bonuses. This was the result of the K2 report’s discovery 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. Meanwhile, many agency executives interviewed said their relationship to advertisers was solely defined by the contract between the two parties.
K2 Intelligence found situations where media agencies sought to avoid explicit contract language in order to preserve their ability to retain various types of incentives. K2 Intelligence also found that many advertisers had poor contract governance – contracts that were unsigned, contracts with ambiguous or "gray" areas, contracts with audit provisions that had never been exercised, and contracts which had not been adapted to reflect the rapidly changing media landscape.
To address the concerns in the K2 Intelligence report, the ANA, in conjunction with our general counsel, Reed Smith LLP, developed a media agency Master Media Planning & Buying Services Agreement, which can be used by advertisers in developing their own agency agreements.
Increasingly, we hear examples from our members on how they are reviewing media agency contracts and putting the guidance of the new contract template into practice. The single biggest takeaway from the K2 Intelligence report, in my opinion, is the need for advertisers to review and update their media agency contracts and their internal contract governance – and that is indeed happening.
Advertisers are more closely evaluating the tradeoffs of non-disclosed media buying arrangements.
Press reports and anecdotal evidence from ANA members indicate that many clients are no longer accepting non-disclosed media buying arrangement (also known as an undisclosed model). These are agreements in which an agency and/or intermediary purchasing media on an advertiser’s behalf does not disclose the actual closing/winning bid prices of media purchased, instead providing only a final price which includes margin and fees. By not disclosing the actual prices paid, margin (and potential arbitrage) are undisclosed to the client.
In many of these arrangements the agency is allegedly buying media as a principal, rather than agent. As an agent, the agency has the fiduciary responsibility to look after the best interests of the client. As principal, the agency is working on its own behalf and may or may not be looking after the advertiser’s best interest.
Non-disclosed agreements have been especially common in programmatic. But we are now seeing a shift as advertisers are evaluating the tradeoffs of such agreements and many are now demanding the transparency of disclosed deals. And there have been a number of recent articles in the industry trade press of agencies adjusting their offerings as a result.
Transparency has been elevated to the CMO level at many organizations
The ANA is seeing increased involvement from the CMO community on the issue of transparency, specifically through the ANA Masters Circle, a group of CMOs who recognize that they have enormous clout and are energized to take the lead and revitalize growth of our industry.
Rather than deferring to "other experts," ANA Masters Circle members are personally committed to having full transparency across their media spend to ensure they are getting what they pay for. Marc Pritchard, Chief Brand Officer at Procter & Gamble and Chair of the ANA board of directors, said it best at the ANA Media Conference earlier in the year, "Media transparency can’t be delegated" as the CMO needs to dig into the details and get into the weeds.
In the past year there has been progress, but there is still more work to do. I continue to be amazed when an ANA member tells me that they are unaware of the media transparency issue. The agency compensation study referenced above found that only half of the respondents were aware of the report – a figure which is troubling.
But that also means there are many who are aware of the issue and have yet to address it, allowing the problems to continue by default and ceding revenue that should be recovered. In another year when we recognize the second anniversary of the K2 Intelligence report, we look forward to seeing how the media transparency issue further evolves as the profile rises to the CFO, CEO and board levels.
—Bill Duggan is group EVP for the Association of National Advertisers.