A major concern is brewing in the South African media, advertising and communication industry. A trend that was recently exposed in the US by the American Association of Advertisers (ANA) is also happening on our shores on a seemingly widespread scale.
Some major players in the industry have revealed that rebates and other non-transparent business practices are "pervasive" in the South African media advertising-buying ecosystem — despite agency groups persistently saying they don’t take rebates or commission when pitching to clients.
There has been a growing suspicion among marketers that the media costs and rebates they receive via their media agencies are not transparent and there are hidden costs that benefit the agencies and media owners. In addition, these discounts and rebates are not passed on to the advertisers or clients who pay for the advertising in the first place.
In the US, the ANA became suspicious about this trend when media agencies started opening "trading desks" in 2011. These trading desks allowed media agencies to buy up bulk media in advance, at a low rate, and keep it on hand to sell to clients at special rates. In 2012 industry bodies decided that these special rates, incentives and media rebates needed to be fully transparent.
In 2014, marketers realised they needed to obtain full disclosure and so the ANA appointed K2 — a forensic auditing firm not linked to the industry — to conduct research among media owners, media agencies and marketers. The report was presented to ANA members on July 7 last year and disclosed the following:
• There is a fundamental disconnect — and it’s all about the contract
• There is evidence of rebates either via cash, free media or service agreements
• Service agreements are tied to spend volumes
• There is problematic agency conduct due to a lack of transparency and how deals vary
• There are non-transparent business practices
• This behaviour is "pervasive"
• All media types are affected
Recommendations were put together by K2 and Ebiquity — the latter, a provider of independent marketing analytics, being more knowledgeable about the industry and thus able to assist with implementing effective measures.
Looking at developments from a South African context, it is very important for marketers to establish if a media agency is acting as an agent or a principal — most advertisers do not know and do not ask. Marketers must also ensure that they have good contracts with their media agencies and know how these contracts are best structured. With regards to this, the ANA has since developed a contract template in conjunction with the Incorporated Society of British Advertisers to ensure that financial benefits are clearly identified as being returnable to advertisers, any conflict of interest is highlighted and that contracts are updated regularly
In addition, advertisers should have robust and far-reaching audit rights that allow them to fully track contract compliance and deliver media value. Advertisers should also have the right to choose their own auditors — internally or externally. Contract governance is critical. Data and technology ownership must be clearly detailed in the contracts.
The debate continues — in the US, UK and Australia — and marketers are starting to talk about it in SA too. Given that trading desks in SA are a relatively new concept, it is believed that marketers will become more accountable for the money they spend through advertising. Compared to last year, things are very different and marketers are under greater pressure to deliver financially — as well as to watch the money.
The consequences of not adhering to more stringent transparency measures can lead to a loss of trust. It could also result in marketers being uncomfortable with agencies, leading to the appointment of auditors which will cost more to ensure effective regulation. Having a good contract in place between marketers and media agencies is not only important for business, it is fast becoming an ethical obligation to ensure transparency on a greater scale within the industry.
• McDowell is the CEO of the Independent Agency Search & Selection Company (IAS)
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