Somehow I missed that moment at the Association of National Advertisers forum when former MediaCom CEO Jon Mandel startled the ad industry by calling out his industry colleagues as self-serving rogues:
“Media agencies aren’t living up to their fiduciary duties to clients and ‘cross the line of acceptable conduct in a partnership,’ Mr. Mandel said. ’They are not transparent about their actions. They recommend or implement media that is off strategy or off target if it works for their financial gain.’
Rebates,’kickbacks,’ and other incentives for agencies that are at least potentially adverse to client interests are happening virtually everywhere in the U.S. media landscape, including TV, he said. Mr. Mandel said the practice has migrated from cash incentives to free Inventory, which agencies may then deal back to clients in scatter buys or sell via ‘dark pools’ that are either traded programmatically or liquidated in barter transactions.”
No wonder the first panel at this year’s AdAge Digital Conference which I attended this week, was titled “Elephants in the Room.” It took a frank, sometimes scathing look at big problems in the advertising industry, the biggest of which turns out not to be ad blocking, but conflict of interest on the part of agency trading desks.
“Have you ever wondered why fees to agencies have gone down and yet the declared profits to these agencies are up?” Mr. Mandel said. He said that advertising spending broadly has long stayed within a narrow band of 1% to 1.25% of gross domestic product globally. “So if agencies are growing at a higher-than-GDP basis, the money is coming from somewhere.”
The opacity of the media buying process has destroyed the trust relationship between agencies and their clients. Although global brands have learned to ask the right questions of their agencies, smaller advertisers may have to be protected from predatory treatment by their own agencies.
Moreover, agency trading desks drive media prices down, destroying the income of publishers without passing the saving on to their own clients. Once they have banked the inventory on their books, they can no longer be objective in what they tell their clients to buy; they’re guilty of conflict of interest. In this new market, in which agencies are both buyers and sellers, they seem to have lost sight of the fact that advertisers need healthy publishers, and driving ad rates to the floor helps neither side.
Not to mention the consumer, who, pummeled by cheap ads that are neither useful nor relevant, responds by downloading an ad blocker.
Compared to the enormity of the kickbacks and arbitrage scandals in the advertising industry, other issues on the table, like visibility and ad fraud, seem inconsequential. But together they are ruining an industry that for centuries has supported our access to free content.