ANA calls for contracts and auditing shakeup over principal media ‘conflicts of interest’
US trade body The Association of National Advertisers has called on brand marketers to tighten up media agency contracts and introduce auditing of so-called principal media sales to prevent conflicts of interest.
The ANA Principal Media Report, launched today during the annual Global Marketer Week from the World Federation of Advertisers, shows a wide gap between marketers’ knowledge of principal media (PM), despite the practice being “ubiquitous”.
Principal Media (PM) is the process whereby media agencies resell media to their clients at a price that is higher than they pay for it themselves.
While the practice can help advertisers reduce costs in media buying and gain exclusive access to inventory that can’t be bought elsewhere, the report warns PM trading can create conflicts of interest.
“I don’t know if my agency is recommending PM because it’s the best media for me, or the best media for them” according to an ANA survey respondent. Multiple report interviewees had concerns about conflict of interest, the report added.
Other challenges include loss of audit rights, lack of visibility on agency profit, and loss of quality in media placement.
Only about half (48%) of survey respondents are “very familiar” with principal media. Meanwhile, 39% are “somewhat familiar”, and 13% are “not familiar”. “This overall lack of knowledge is concerning”, the report warned.
Television and the open web are the most common media types using PM, but other media and non-media are also used, including digital walled gardens, audio, search marketing, print, influencer marketing, and research.
What marketers are being advised
The report lays out several guidelines that marketers should follow to ensure they are getting fair value from agencies that are reselling media to them.
This includes ensuring contracts with agencies include specific language about PM, while giving more accountability within the advertisers’s organisation over how value is determined.
The report also suggests introducing arbitrary caps on PM “no more than X% of the total budget”, while insisting that auditing of PM transactions should be allowed in the same way as for other agency media-buying activities.
But specific auditing of PM is not typically allowed, due to specific clauses in media agency contracts, according to Philippe Dominois, co-founder of media auditor Abintus Consulting.
Dominois said the report findings confirmed his belief that advertisers should avoid PM altogether.
He said: “The lack of transparency, audit restrictions, lower value media inventory, loss of agency volume bonuses, and compromised media neutrality far outweigh any perceived short-term benefits…. To protect advertisers’ interests, I strongly advocate for Holistic Media Auditing that exposes the true extent and impact of these practices.”
The report also asks advertisers to consider whether commissions or fees that would normally be paid to the agency for managing agent-based transactions should or should not apply to principal media buys.
“Keep in mind that the agency will be making a profit through markups on these purchases,” it added.
‘Broking by any other name’
The report describes how the Big Six advertising agency groups all have branded PM trading divisions, but is careful to qualify that some use this practice more than others.
It quotes industry analyst Brian Wieser, who claimed Publicis and Omnicom have been “most aggressive in this field” through their respective PM arms Apex Exchange and OMnet.
Media accounts for nearly 40% of revenue at WPP (which resells media through Nexus, formerly Finecast), compared to a third at Publicis Groupe, and roughly 20% each at Omnicom and IPG (which trades PM as Orion). Havas sells through Havas Inventory and Dentsu as Agyle Advantage, Amnet (part of Amplifi).
One survey interviewee described the practice as “ubiquitous”. Despite this, principal media was part of an agency pitch about one in four times (27%) for marketers that issued a ‘request for proposals’ at the beginning of an agency selection process.
Writing for The Media Leader today, columnist and media agency founder Nick Manning describes PM as “broking by any other name”.
“It’s akin to the printer cartridge and razor markets, where the initial costs are low but the add-ons are high,” Manning writes. “It’s not a good look when a professional services industry acts in this way, but that is the reality.”