Analyst turns up the heat on holding companies over media agency rebates

The simmering row between advertisers and the big media agency holding companies – which has seen WPP’s MediaCom in Australia hand back money to clients and widespread unease about media rebates to agencies in the US – has prompted a leading industry analyst to advise clients to high tail it out of holding company stocks.

According to a report in Business Insider, Pivotal Research Group analyst Brian Weiser has downgraded Interpublic (which is less of a media player than its rivals) from ‘buy’ to ‘hold’ and recommended clients sell WPP, Omnicom and Publicis Groupe.

brian-wieserWeiser (left) wrote in a research note: “The volume and specificity of allegations by aggrieved media owners, former agency executives and marketers are difficult to ignore. Rightly or wrongly, there is a growing perception among marketers that agencies have been mis-leading, transferring value associated with media volumes without clients’ full understanding or support.

“Between cash rebates, consulting arrangements, vendor-funded staffing or services, inventory banks, equity provided for spending volumes, shifting of inventory from one entity to another and all of the above practices involving volumes in one country shifted in exchange for benefits in another, few marketer-clients in the US fully understand the specific arrangements their agencies undertake with media owners.”

Any major client who hasn’t been imitating an ostrich for the past 30 years or so should have known about such practices. They have been busily grinding down fees while media agency profits have been going up (as pointed out recently by former senior MediaCom executive Jon Mandel) so the money has to be coming from somewhere.

It will be interesting to see the response of the various media holding companies, especially Sir Martin Sorrell’s WPP. Sorrell has already said, in effect, clients can take it or leave it and that they stand to make bigger media savings with WPP (whatever happens to rebates) than they do without.

But if some aggrieved client decides to pursue the matter through the courts, and it’s almost inevitable that one of them will as the sums involved are substantial, then this particular dispute will show some more twists and turns.

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