Home / Ad Tech / Media rebate investigation could be ‘mortal threat’ to one or more of the marcoms holding companies

Media rebate investigation could be ‘mortal threat’ to one or more of the marcoms holding companies

The big holding companies would like the story to be about their range of skills, scale, mastery of the new digital media environment and ability to smooth out the troughs (if not the peaks) of a notoriously cyclical business.

Unfortunately for them – for the rest of this year and well into next – it’s going to be about something else: media rebates and potential corruption.

The decision by the American Association of National Advertisers (ANA) to launch an official investigation into allegations of massive media owner backhanders – first aired, at the ANA’s behest, by former MediaCom boss Jon Mandel at a conference in March – has put media agencies and their owners on the back foot. Some advertisers are also worried, it seems, for two reasons.

One is that it will shine a harsh light on their own procurement-driven practices – in effect grinding down agency fees to such a point that the agencies have to make their money somewhere else – and the other, noted by Ad Age’s Rance Crain, that the ANA investigation by Ebiquity and corporate ‘fact finder’ K2 – will “mortally damage” one of the big holding companies. The reason for the latter being that they’re the only operators big enough to get away with such practices (should they exist) on a worrying scale.

This may sound overly dramatic but readers might care to cast their mind back to 2002 when Arthur Andersen, one of the big five accountants cum consultants along with KPMG and co., imploded after being found guilty of wrongdoing in the Enron scandal. Enron was an energy company that had been cooking the books (audited by Andersen) for years. The original verdict against Andersen was overturned by the US Supreme Court but by then it was all over.

Any huge client-based business is vulnerable to such a fate. Clients leave in a rush at the hint of scandal, prospects avoid the firm like the plague and those staff who can jump ship.

The big marcoms holding companies – the biggest are WPP, Omnicom, Publicis Groupe and Interpublic with Dentsu (now the owner of media buyer Aegis) coming up fast on the rails – are in rather the same position as investment banks before the financial crisis. They dispose of huge amounts of client money (the ANA’s members in the US spend about $250bn on media through agencies), trade, sometimes, on their own account and have automated much of their trading activity – in the case of the marcoms companies through programmatic media buying.

Most of the investment banks (with the notable exception of poor old Lehman Brothers whose demise triggered the final phase of the crash) survived the crisis in one form or another, chiefly because governments stood behind them. There is no such need with advertising.

This is, indeed, a doomsday scenario but not impossible. The current spate of US and global media reviews is, in part, a response to Mandel’s ‘revelations.’ Clients want to know how their preferred media agency actually makes its money. Are they being shunted into various media outlets because they’re the ones giving the agencies the biggest rebates? That might be seen by the lawyers as more than a questionable practice, especially if individuals are profiting too.

Whatever Ebiquity and K2 find out in the US will, probably, be replicated elsewhere in the world. Media is a global business these days. So these are nervous times for the holding companies and there’ll be a drip feed of information and innuendo before this particular cat can be put back into its bag – if, indeed, it can be.

You May Also Like

About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.
© Copyright 2013 More About Advertising, All Rights Reserved. With help of WPWarfare.com. | Cookies explained.