Actions to Take in Light of the ANA/K2 Report on U. S. Media Transparency.

The ANA and K2’s recently released report on “Media Transparency in the U.S. Advertising Industry” is certainly raising a lot of eyebrows, and generating a lot of angst in both the marketing and ad agency communities.

How should marketers and agencies respond to this report? We are firm believers that the most productive client-agency relationships are open, honest, and yes, transparent in their dealings. Our advice is in line with that.

For the Marketer:
1)  Have an open and candid discussion with your agency about the K2 report, if you haven’t already. Do not assume your agency is “guilty until proven innocent” in terms of their practices. The K2 report is aimed at shedding light on current practices in a rapidly changing and confusing digital media supply chain, not to uniformly paint the agency with a black brush.

2) Second, be sure to review your media agency contract terms in light of the K2 report. Make sure it is up to date in terms of agency reporting requirements and practices around rebates and other revenues the agency might earn based in part on your media investment. If your media agency contract already stipulates terms for agency cost reporting and accounting of rebates and other related revenues, then do a quick check-in with your agency to see if the required practices are complete and covering the various revenue sources the K2 study reported.

3) In dealing with rebates or other revenue, determine the implications for agency compensation, if any. These revenue sources should be considered in the context of the broader client-agency relationship and compensation of that relationship. There are reasonable options for handling this revenue, ranging from a fair share return of the rebates to the marketer to allowing the agency to keep the rebates in exchange for reduced retainer fees and or additional agency services.

4)  As part of your conversation with your agency, establish whether they are acting purely as an “agent”, or also as a “principal”, where they own and re-sell media inventory. We believe there are risks to the marketer when the agency acts as a principal, because it introduces agency interests that might not always be fully aligned with the marketer’s best interests. However, this is not a right or wrong, black and white issue. There may well be cost advantages and benefits to the marketer – talk it out with your agency and determine what is best for you.

5)  Feel free to contact us if you have questions or need assistance with your contract terms or agency discussions and negotiations. We have the extensive experience in the media agency space and the current media agency contract terms to quickly and effectively help you.

For the agency:
1)  Avoid trying to discredit the K2 report. It will make you look defensive and unreasonable. Several agency executives have publicly disputed the report as being unobjective and unfair. Based on feedback from our clients, these complaints are being dismissed, and worse yet, making it look like agencies have something to hide. We have heard from many reputable agency voices (who have worked in senior positions at leading global media agencies) that the report is reasonably accurate and representative of current practices in the U.S.

2)  Be open and transparent with your client about your costs and revenues servicing their account. If you already have been fully open, then you should have nothing to fear from the K2 report – it will further validate your client’s trust in you. If you have received revenues from the sources reported in the K2 study, and these have not been reported to your client, then be be proactive in addressing them with your client’s interests in mind. A good client will understand the rapid evolution going on in the media world and forgive any lack of transparency in the recent past if you are honest and solution-minded on how you are going to deal with reporting and sharing the revenues moving forward. If you wait for your client to discover it, then it is too late and the trust in the relationship will likely have been damaged beyond repair.

3)  Stop using “agency fee pressures” (or outdated contract terms) as an excuse for not being open about other revenue sources. The solution to unreasonable compensation is to tackle it head on with the client, and be willing to part ways with a client who won’t compensate you properly for your services. Have a candid dialogue with your client about what you need to earn to keep the best talent and resources on their business. We have found that marketers can be very accepting of rebates if they are factored in to the total compensation discussion. Transparency breeds trust, and when a client’s trust is breached, you will have a lot more to worry about than rebate accounting and your bottom line issues.