MediaCom faces heavy penalties and client losses in Australian media rebates scandal

Giant WPP media agency MediaCom is facing audit and other costs of at least $A10m as it owns ups to ‘falsifying’ campaign data on a number of key accounts.

It has already lost the $A65m Foxtel account in Australia and $A40m Insurance Australia Group is reviewing its business. Other clients involved include KFC owner Yum Brands.

12 staff have been sacked or have left in the wake of the crisis although GroupM CEO John Steedman and MediaCom Australia CEO Mark Pejic (below) are keeping their jobs – for now. The is eerily reminiscent of practice in the banking industry where traders cop it and the bosses don’t.

Once again it’s our old friend the media rebate that’s at the heart of the issue. Media owners give time and space (and sometimes cash) to an agency in return for volume deals. Often this doesn’t get passed back to the client who has paid the agency in advance for the inventory. Or, and this may remind readers of the current spat between Omnicom and Channel 5 in the UK, inventory is purchased because it suits the agency rather than the client, who’s ultimately paying for it.

Media agencies in the US have also come under fire recently for such (alleged) practices following a presentation to the Association of National Advertisers there by former MediaCom US CEO Jon Mandel. WPP chief digital officer Rob Norman has denied WPP/GroupM pockets rebates in the US.

Giant media agencies make money in all sorts of ways these days – they have to as clients grind down fees so enthusiastically. One suggestion is that the rebates are paid to holding company offshore accounts so are therefore outside the terms of the contracts between media agency and advertiser in any given market.

MediaCom in Australia (although not, so far, other GroupM agencies) will have to return considerable sums to its clients. If this were to happen on a wider scale, including much bigger markets than Australia, the financial consequences for media agencies and their holding company owners would be horrendous.

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