When Jon Mandel, a former US chief executive of MediaCom and Nielsen Connect, stood up at a conference in Hollywood back in the spring and claimed that media agency kickbacks are so widespread that they actually caused him to leave the business, he fired a gun that is not just still smoking, it’s flaming.
To back up his claims, he projected a copy of a heavily censored document that he said was evidence of a media agency agreeing with a media owner to a US industry-standard 2 per cent commission, but with as much as 9 per cent in volume-based incentives on top. "Have you ever wondered why fees to agencies have gone down and yet the declared profits to these agencies are up?" Mandel asked. "If agencies are growing at a higher-than-GDP basis, the money is coming from somewhere."
Of course, there’s truth and bollocks here. Yes, (many) media agencies are making money out of media trading that doesn’t get declared to their clients. Like making TV shows that they sell to broadcasters in return for, say, a batch of cheap airtime that they then sell on to clients at a higher price. In online trading, arbitrage (buying online advertising inventory and then selling it on to clients at a higher rate) is a similarly murky practice.
"Trading practices have helped insulate media agencies against the relentless fall in traditional media fees"
But let’s try to be reasonable for a moment. Such practices, where they happen, have helped insulate media agencies against the relentless fall in traditional media fees, allowing them to continue investing in talent and tools. And one of the main reasons media agencies are (mostly) growing is because the life-threatening squeeze that clients have put on fees has meant they have had to find new – and perfectly legitimate – ways to make money. Such as moving into content creation, consultancy, data management, SEO etc.
Undaunted, US clients have just launched a major inquiry into whether under-the-counter rebates are influencing how media agencies apportion client budgets (see opposite story). This is serious shit.
One media chief described it as a "witch-hunt. Someone will be burnt at the stake." But the big agencies are smart enough to ensure contractual compliance, and any money-making practices unearthed are more likely to be morally dubious rather than illegal. Still, getting the issue out in the open is a vital first stop to repairing trust. Meanwhile, the reason clients are so suspicious of media agencies is surely that they know the fees they’re paying them aren’t enough to sustain the agency business. There’s a simple way to fix this. It’s just not one many clients would find palatable.
(This article first appeared on Campaignlive.co.uk)