“Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Nico Neumann, senior research analyst for programmatic strategy and analytics at the University of South Australia.
Last month, Dentsu admitted that 111 clients had been overcharged in more than 600 “suspicious transactions.” This news shocked many industry members in the region since Japanese business culture is heavily based on trust and long-standing relations.
It is the latest black mark for agencies still trying to overcome transparency concerns after the ANA rebate report. Intense discussions following the ANA investigation explored whether procurement teams or agency contracts are responsible for the present dysfunctional system of media buying.
Whatever the reasons may be, many experts agree that something needs to change. The current business model is complicated and opaque, which does not help establish trust. Most importantly, when the media industry moved away from the commission system, agencies looked for other income sources. Over the years, they added software reselling, production services, content creation, search engine marketing, trading desks and many more specialty services to their repertoires.
Interestingly, this change meant agencies have become more than just trusted advisers and media brokers. Being a neutral agent or consultant while selling solutions and media products creates conflicts of interest. The core dilemma: Is a technology or channel chosen because it fits best with a client’s strategy or because the agency makes more money through its recommendations?
Conflicts of interest in agency-principal relationships are not new and don’t imply automatic malpractice. However, their existence makes transparency even more critical. When lacking full insights into decisions of firms that wear multiple hats, bad actors can generate income in unethical ways without ever being caught.
Here the media ecosystem can take fundamental learnings from other industries. For example, finance, real estate or insurance suffer from similar challenges and potential fraud issues. These industries have therefore introduced strict regulations to help assess and reduce potential risks in trading and buying decisions.
Make Conflicts Of Interest Disclosures Mandatory
Only when all conflicts of interest are disclosed can they be managed by clients.
Consequently, agencies should reveal all sources of revenue when they were hired to advise clients on media buying and planning This disclosure is required by law in many other areas, such as finance and real-estate brokerage.
In the US, the ANA suggested a similar approach for its members. In other countries, the rules, propositions and guidelines of industry bodies differ. To increase transparency, it should become a global standard to enforce disclosures of conflicts of interest in media.
Request Copies Of Invoices
Disclosures of income sources (“we add a handling fee” or “we receive a commission or discount for doing this service”) are a great first step to narrow information gaps between advertisers and agencies, but they are less helpful in determining the extent of hidden arbitrage or financial double dipping.
The Dentsu overcharging cases were uncovered because Toyota started to question billings. Hence, it appears prudent to make this a norm wherever possible: When an agent buys media on behalf of clients, using their money, these should receive a report of the original costs and charges from the third party.
Standardize Media-Buying Records
In 2013, one agency director anonymously declared, “The system of media buying is so complicated and has made it easy to mask, hide, create confusion and obfuscate some of our agency’s most profitable practices.”
Anyone ever dealing with media audits can confirm that booking systems tend to be messy, perhaps even incorrect, if agency and publisher data are not matched. In line with financial trading, more official tracking standards and compulsory audits are needed, in particular for digital and programmatic advertising. Operating in the dark rarely leads to good behavior.
Audit Reciprocal Deals And Possible Market Manipulations
Even with better accounting rules for media bookings, black sheep can find ways to game the system. It is an open secret that some undisclosed rebates would not be identified solely by checking transactional data.
For example, an agency may buy inventory from a publisher, which then engages the agency’s analytics team for a research project. This team could produce a quick one-page report or mock-up dashboard, but charge a massive premium. Clearly, such a deal would represent an indirect payment for the media purchase, but would be invisible in accounting books.
To prevent such dishonest practices, the finance industry has introduced commission boards and watchdogs that look into any suspicious transactions, such as insider trading. Media needs a similar conduct authority to examine reciprocal deals between two parties and other possible demand manipulations to ensure fair and efficient markets.
Separate Key Roles Among Several Stakeholders
The French Revolution, which severed the church from political influence, has taught us that too much power among one group can be dangerous and should be avoided. The same rationale applies to the media-buying ecosystem.
The safest way to reduce concerns of malpractice and cover-ups because of conflicts of interest is to have each key role – media planner, broker, auditor, producer, researcher, programmatic trader and tech service provider – executed by a different organization. Consolidating all these roles under one company – often the idea behind a full-service approach – would be unacceptable or even illegal in real estate, health care or finance.
It is high time to accept that other industries had good reasons to introduce regulations, guidelines and audit requirements. Let’s be honest: Self-regulation represents a conflict of interest and often does not work, proven by the recent scandals and irregularities in media.
For the sake of everyone who wishes to create a fair and sustainable business environment, let’s learn from other industries and improve media-buying practices by implementing similar processes and protocols.