The UK’s Mail on Sunday thinks so, highlighting the case of Aegis Germany boss Aleksander Ruzicka who was jailed last year for trousering substantial backhanders (or ‘discounts’) from media owners.
This sudden interest has been prompted by the likely sale by media buyer Aegis of market researcher Synovate to either French company Ipsos or, maybe, an unnamed bidder being represented by financial boutique Wyvern Partners.
Aegis, unburdened by Synovate, would then become irresistible to one of the other big marcoms companies (or so the theory goes) and the global media market would be further concentrated into just five grasping hands, one of WPP, Omnicom, Publicis Groupe, Interpublic or Havas (Japanese Dentsu has mostly stayed clear of media buying).
And there would be yet more scope for murky trading, including the backhanders that landed Ruzicka (known as the Sun King in his pomp apparently) in Weiderstadt jail.
The UK’s media regulator Ofcom is currently looking into TV trading, a bewilderingly complex busines in the UK at least. But the Office of Fair Trading recently looked into the outdoor advertising market in the UK and, even more bewilderingly, found nothing untoward.
Yet outdoor is where the big discounts, rebates or backhanders (take your choice of nomenclature) really occur. It’s not unusual for the two big poster ‘specialists,’ WPP-owned Kinetic and Aegis-owned Postercope to receive 30 per cent plus commissions from media owners. All of which is supposed to find its way back to the client (but probably doesn’t).
The former media director of one of the UK’s biggest agencies told me recently that his agency’s media operation made more money out of outdoor than all its other media activities combined. Yet outdoor accounts for barely ten per cent of the UK media market.
And this pattern is almost certainly being replicated elsewhere in the world as the big media buyers export a European model to new markets (and even the good old US of A).
As for television suffice to say that it’s unusual in so far as clients (through their media agencies in nearly all cases) can’t buy what they want without buying a load of stuff they don’t want at all. In many non-advertising jurisdictions this is known as blackmail or extortion.
So why do clients put up with it?
This is actually the nub of the issue.
Is it ignorance (they don’t know what’s going on)? Laziness (they do but they’re not bothered)? Corruption (the agency is bunging some money their way)? Or, as the media agencies and their owners would maintain, a willingness to reward the media planners and buyers for their brilliant targeting of consumers and ability to strike amazingly good deals?
The latter is the reason why WPP refers to the activities of its media agencies (Group M, Mindshare, MediaCom, MEC, Maxus and Kinetic) as ‘media investment.’ It’s not a cost to clients, it’s a way of building their businesses. And, sometimes, it probably is.
One of the biggest critics of the current set-up is Professor Patrick Barwise of the London Business School who told the MoS: “there is a little cosy club of buyers and sellers and if you replace it with a truly transparent system who will pay for their skiing holidays and house extensions?”
The prof recommends replacing the current system by online auctions, used recently by London Olympics organiser LOCOG to auction poster sites around the stadium.
Which still begs the question, why aren’t the likes of Procter & Gamble, Unilever and Nestle demanding changes themselves?
There must be plenty of executives wandering around these giant advertisers who have done their time (maybe not the happiest analogy) in media agencies? All of them employ media auditors, which certainly include former media agency executives.
One such is the voluble veteran John Billett. He told the MoS: “The advertising sales market is massively open to abuse. We have seen a growth in backhanders, additional discounts, surcharges and rebates which are paid by media owners to media agencies. They are untraceable – not auditable – and some advertisers get poor value for money as a result of this distortion.”
But are they untraceable? They must figure in the media agency’s accounts somewhere otherwise (presumably) there would be other media buyers following in the footsteps of Ruzicka and his chums (two other Aegis execs were jailed too).
Well there we have it, for now. But the likely concentration in global media buying should Aegis be sold as one or broken up and shared between the other marcoms companies should worry clients.
Their approach, up to now, has been to grind down media agency margins, demand the return of extra commissions and leave the unfortunate media owners to bear most of the pain. It doesn’t look a credible policy.