2016 presented ongoing challenges for advertisers seeking transparency and accountability from their media agencies. The ANA/K2 Intelligence report published in June confirmed the existence of undisclosed rebates in the U.S. market for the first time. Meanwhile, agency groups continued their attempts to control the client’s choice of auditor by inserting their own preferences into the Right to Audit clause of the client contracts.
At FirmDecisions, we strive to keep ourselves and our clients up to date with industry developments and agency practices. Our global footprint allows us to keep track of non-disclosed agency behaviour and contractual manoeuvres from around the world.
In APAC, we have recently strengthened our senior management team by appointing David Reid as our Regional General Manager. David is working across our Asia Pacific offices – in Singapore, Shanghai, and Sydney. He was the Commercial Director for Mediacom Australia for six years, and brings great, contemporary agency experience to our global team.
Last week, we held a global conference in Sydney to discuss our collective learnings from 2016 and to ensure we are prepared for what lies ahead in 2017. The conference identified four major agency practices to focus on when conducting compliance audits and advising clients on contracts.
1. Rebates by another name?
Advertisers have come to expect cash Annual Volume Rebates (AVRs) from their agencies. However, some agencies are trying to blur the lines by moving away from cash rebates to other media benefits. Free space is often received at a holding company level and distributed across the network at the holding company’s own discretion.
This free space can also be allocated to the Programmatic entity, where the client is sometimes prevented from auditing and where they sometimes buy the free space they should have been allocated as their fair share! This is why some clients are seeing cash AVR’s reducing because some agencies are negotiating free space from the vendors in lieu of the rebates.
2. Hidden costs
Service Level Agreements are being drafted by certain agencies under which “commercial transactions” are negotiated between themselves and their vendors. These can lead to the vendors paying significant costs for minimum value services – such as research, software licenses, and data analysis – from the agency.
3. Audit rights
Some agencies continue to refuse full access for auditors to their vendor contracts. Advertisers need to insist that their chosen audit firm should be allowed to scrutinize all vendor contracts. Some agencies also continue to limit the scope of audits and hide behind stringent NDAs. We strongly encourage clients to always ask “Why?” and demand total transparency.
4. Free choice of auditor
Certain agencies and agency groups are attempting to sideline experienced media finance auditors – ourselves included – by inserting clauses in contracts that specify only a Big Four audit firm can conduct the audit. The decision on who should conduct the audit should be the advertiser’s alone. It is a true conflict of interest for the agency to attempt to dictate advertisers’ choice of auditor.
2017 will continue to see pressure on agencies to deliver against client demands and expectations for transparency. This is a critical dynamic if advertisers are to gain confidence that their marketing budgets are being managed cost effectively; that their contracts are as robust and contemporary as possible.