The Murky World Of Media Agency Kickbacks

Mark RitsonMay 25, 20164 min

Just over a year ago Jon Mandel, the former CEO of media agency Mediacom, stood up to speak at the Association of National Advertisers media conference in Miami. Mandel was the fourth of four to discuss the topic of transparency. As he rose there was little anticipation of what was to come.

Three slides in, everything changed. “I have never seen a room react like that,” Mandel later told Mumbrella magazine. “I mean, when I do a presentation I’m pretty good at reading the room, and usually you do this at a conference and you see people on their computer or answering their email or doing Facebook, or whatever…There was absolute silence. It was like somebody had died in the room.”

The death in question was media neutrality.

Mandel went on to detail the extensive kickbacks that exist within media agencies and which result in them earning money twice for the same piece of work. First, they are paid legitimately by an advertising client who uses their expertise and buying systems to purchase media on their behalf. Second, from incentives paid to the agency by the media seller or ad tech vendor who supplies the media.

It’s a tale as old as advertising itself and comes with a host of different titles. Discounts, consulting fees, surcommissions, over-riders, black pools, volume deals, school fees – they all mean the same thing. The media supplier pays the media agency.

It’s a little murky but it’s not illegal. When I built a new addition to my home last year I was pretty sure that the builder I employed was able to get a discount on the wooden flooring he used that I, as a regular Joe, simply could not have achieved. Such are the advantages of trade relations and scale buying. But what if the flooring he selected was sub-optimal for my needs and picked purely because it offered my builder a significantly better kickback? And what if, when I asked him why he bought that particular flooring, he did not reveal the superior trade discount that he was offered on that product and claimed instead that it was the quality that won him over?

That’s where the issue of media kickbacks becomes more complex and potentially divisive. Jon Mandel did not just reveal the prevalence of kickbacks, he also examined the endemic attempts of agencies to hide them from clients and the drastic ramifications this inherent conflict of interest has for media buying.

“This issue is cultural. The issue is they are hiding things in barter, they are hiding things in programmatic, they have all kinds of ways to hide things from their clients,” he explained to his increasingly alarmed audience. “They are not transparent about their actions,” Mandel continued, “They recommend or implement media that is off-strategy or off-target if it works for their financial gain.”

That’s the killer sentence. That last line of the last paragraph. Go back and read it again.

Things are little better back in the UK. Deborah Morrison from advertisers’ association ISBA recently made headlines when she told the Financial Times that UK advertising was at a “tipping point”. “I don’t believe that [media agencies] have got the best interest of their clients at heart any more.” Morrison says there is a clear trend of global agencies suspiciously choosing a brand’s auditor for their deal. “It is unacceptable position. You have to be free to choose your own suppliers, not have a media partner tell you who to use. Further, certain agency groups only use certain auditors and it all looks very fishy.” Morrison notes that the issue of kickbacks is hardly new but the situation has been exacerbated by the growth in digital spend. “As that has grown the whole thing has become more and more opaque and right now marketers are really asking what can they do about this.”

Life has never been more complex for marketers. There are too many options, changing too quickly and using too many different measurement systems to keep up. The need for media expertise has never been greater. But that expertise is now clearly compromised by yet more complexity in the form of kickbacks and incentives. And what does this say about the future of programmatic? The bright shiny automation of advertising is rapidly turning into a shadowy black box filled with turds and spiders.

Of course our tactically oriented advertising press is not too concerned with any of this. Oh no. They fill their pages with bright, flowery stories of new social media platforms and the latest virtual reality nonsense. If they were war correspondents covering D-Day, instead of the battle strategy they would be writing about the diameter of the machine guns and who has the best dressed infantry.

This is serious. The most influential advertising body in the UK does not think that media agencies operate in the best interests of their clients. The ex-CEO of one of the world’s biggest media agencies says his industry recommends media that is off-strategy because they make more money that way. If I were a client I would not just take my media buying in-house, I’d lock the door and close the curtains too.

This thought piece is featured courtesy of Marketing Week, the United Kingdom’s leading marketing publication.

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