It’s not often that the mighty WPP finds itself on the back foot but, arguably, at the moment it is.
WPP recently announced its 2014 results and, despite a veritable avalanche of spin about record profits of £1.5bn, it’s clear that its organic growth slowed dramatically last year and the eventual numbers wouldn’t have looked so good without disposals and other nimble financial footwork.
In the US its massive media operation GroupM, which rules and negotiates for media agencies Maxus, MEC, MediaCom and Mindshare, has come under fire after former MediaCom executive Jon Mandel alleged that ‘overriders’ and other inducements from media owners were just as rife in the US as they are in other markets.
This seems to have come as a nasty surprise to the Association of National Advertisers.
GroupM’s chief digital officer Rob Norman (left), a Brit, was moved to make the following pretty emphatic statement to Ad Age: “In the US rebates or other forms of hidden revenue are not part of GroupM’s trading relationships with vendors. GroupM and its agencies have not sought nor received any rebates from US media vendors or other parties with whom we do business on behalf of our clients. In other markets around the world, rebates are sometimes part of the buy-sell relationship between agency and vendor. GroupM returns those rebates to advertisers in compliance with and as required by our client contracts.”
Well that seems pretty clear doesn’t it. In the same piece Norman declined to join an agency ‘alliance’ (which doesn’t actually seem to exist) to combat such wicked practices, saying that WPP relied on the ‘contracts’ with advertisers mentioned above.
But there are all sorts of entities within WPP, many of whom do business with the same clients at the same time. And there will be individual contracts for each of these relationships, which might not all be the same as GroupM’s. Out of Home – which at WPP comes under the Tenth Avenue umbrella of which the leading component is specialist agency Kinetic – is known for enjoying much higher margins than other media activities, partly due to generous rebates from outdoor media owners. And Out of Home covers a lot more than posters these days – the booming area of mobile advertising, for example.
Nobody’s suggesting that WPP is pulling the wool over clients’ eyes. But dealing with these overlapping interests is a challenge for any advertiser.
Advertisers really have themselves to blame for this perceived lack of ‘transparency.’ Procurement departments and others have been busily grinding down fees for decades now, without stopping to wonder how their agencies stay in business. The money has to come from somewhere otherwise there’d be no business.
Former MediaCom man Mandel invited his audience at the ANA’s recent conference to consider how, in an era of supposedly declining fees and other payments, the big agency groups made ever-larger profits. WPP’s Norman ascribes this to bigger volumes and more efficient management.
This probably won’t be the last word on the matter.