What a difference 365 days make

As we look back at 2016 and the world of agency relationships…

That’s one small step for client:agency relations…

In April, ISBA issued a new framework agreement for media buying and planning services, the first significant update in 10 years. As marketing contract compliance specialists, we often see out-of-date contracts that haven’t kept pace with changes in the media landscape. In 2006 online media was in its infancy and programmatic buying was but a glint of an eye, meaning that clients still using contracts heavily based on the old ISBA template were/are exposed.

There’s no need to be so any longer. The new framework agreement and explanatory notes provides clients with a benchmark against which to review, refresh and update the terms of their media agency contracts, facilitating greater commercial transparency backed up by more extensive audit rights. From our point of view, this enables the client to achieve greater insight to the media supply chain and understand by whom and with whom its money is actually being spent. A small step for ongoing client:agency relations, yet a huge leap forward for clients’ understanding of their agencies’ commercial operations.

Some agencies, however, continue to push back against their clients’ desire to modernise their contracts, suggesting it undermines inherent trust in the relationship and goes too far in certain areas, so as to be unworkable in practice. And so the debate continues…

The stinky stuff hit the fan

Shortly afterwards, in June, a report was released in the US by the ANA (Association of National Advertisers), in conjunction with K2 Intelligence, studying media transparency, including the existence and prevalence of rebates. The report stated it had found substantial evidence of non-transparent business practices in the U.S. media-buying marketplace including rebates in the form of cash, free space or equity, which may be structured as a payment for services, across digital, OOH, print and television media. In a market that had consistently been set out as free from such practices, the revelations were an eye opener to many.

In July the ANA subsequently released a ‘Marketer Action Plan’ with specific recommendations for advertisers to protect themselves from a lack of transparency. Re-examining all existing agency contracts and terms & conditions was first on the list – something we, as marketing contract compliance specialists, would highly recommend any advertiser carries out on an annual basis. Yes, you read that correctly, “review your media agency contracts annually” – the media industry is changing that quickly.

The ripples from these reports are still being felt around the world today.

‘Big 4 only’ audit clauses

In August, there was some good news, and it related to Financial Progression. Some of our blog posts over the past couple of years have discussed the issue that some agencies not only sought to insert anti-competitive ‘Big 4 only’ audit clauses into their agency contracts, but also actively worked to prevent anyone other than the Big 4 (PwC, E&Y, KPMG and Deloitte) from auditing them. And this despite the fact that we are a firm of Chartered Accountants, regulated in the UK by the same accountancy body (ICAEW), and required to comply with the same professional standards as the Big 4 firms.

After much lobbying, a number of different agencies finally recognised that we are not an unregulated consultancy looking to make mischief and destabilise their client relationships, but a professional accountancy firm that should, in the area of marketing agency contract compliance, be recognised and treated in the same way as the Big 4 firms, both in the UK and internationally.

In that respect, we are delighted that the playing field has become more level and, as a result, we’re working with more clients than ever before. Furthermore, the feedback from their agencies on the experience of being audited by Financial Progression is very encouraging for all concerned.

There’s no smoke without fire

In September, evidence of billing issues came to light in Japan when its largest media agency, Dentsu, was found to have overcharged at least 111 companies, resulting in the company having to pay back circa ¥115 million (£1 million) to clients. Offences such as ‘false reporting of performance results…failure to place ads…unjust overcharged billing…” were cited. It’s amazing what a thorough audit can unveil…

Marking your own homework

Also that month, the transparency situation was exacerbated when the Wall Street Journal announced that Facebook had been inflating video views for over two years. Whilst Facebook hadn’t ‘over-charged’ its clients as such, it was ‘over-reporting’. So what was all the fuss about? These over-inflated viewing figures may, in turn, have resulted in advertisers diverting funds from other channels to Facebook due to the high view rates. Yet another example to muddy the waters around the topic of media transparency.

In order to stem a rising tide of criticism, in November, Facebook announced that it was opening itself up to more third party measurement in the wake of a further round of embarrassing miscalculations in metrics by introducing a Measurement Council, as reported in The Drum. Given Facebook’s significant share (along with Google) of global digital media spend, this represents a much needed first step in an altogether brighter direction.

Creative in name, and creative in nature

And finally, in December, yet another piece of bad news landed, although this time in the lap of creative agencies. The Wall Street Journal reported that the US Justice Department was investigating advertising agencies allegedly engaging in price-fixing and bid-rigging for production and post-production work in order to favour their own in-house teams. In the US, these industries are worth over $5bn and provide the potential for additional income streams for creative agencies. Unsurprisingly, the allegations have given rise to questions over ethical behaviour and managing conflicts of interest.

In order to make sure that they’re not unwittingly caught up in such dubious practices, clients will need to understand how the director/production company selection process has been managed historically on their account and put appropriate safeguards in place to ensure it can’t happen in future. It’s yet another plate for brand teams to spin and another reason to focus compliance audit efforts on creative, as well as media, agencies.

Will the defendant please rise…

As a result, there have been growing calls for brands/advertisers to take some responsibility for what has been revealed over the past 12 months. Are the effects of the relentless focus on driving down agency fees by continued corporate cost cutting programmes finally becoming apparent?

Whether or not you subscribe to that point of view, all clients can gain greater understanding and transparency of their agency relationships by undertaking regular agency contract reviews (annual for media, at least biennial for all other agency disciplines) and setting up a programme of regular contract compliance audits.

For media particularly, many brands would feel more confident if they increased their in-house knowledge of digital media and programmatic buying. In addition, specialist media consultancies, most vocally IDComms, have been banging the drum for clients with significant media budgets to appoint a Chief Media Officer i.e. someone to take responsibility for media strategy and investment. It’s one area that clients and agencies finally seem to see eye to eye on!

What does 2017 hold in store?

So as we continue our journey into 2017, the Year of the Rooster (be guided by your instincts), we can safely say that 2016, the Year of the Monkey (if it looks exciting, go for it and see what happens), certainly wasn’t a time when the reputation of the marketing services agency grew stronger. Let’s hope something happens to change that, and quickly.

As for Financial Progression, we will continue to support more clients in more countries than ever before (2016 was another year of double digit growth) by bringing fresh insight to the way advertisers manage their agency contracts and, just as importantly, relationships.

We’re proud of our status as a firm of Chartered Accountants, which means that we’ll continue to be owned by the Chartered Accountants that run the business and strive to maintain the highest professional and ethical standards while, at the same time, being an internationally recognised, independent specialist in marketing contract compliance. We believe that, in the long run, Financial Progression, our clients and their agencies will benefit from this approach.

If you’d like to find out more about Financial Progression and how we can support you in managing your agency contracts and relationships, please get in touch.

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