A study from the Association of National Advertisers (ANA) has found that “non-transparent production practices” exist at multiple ad agencies and holding companies in the US.
The findings come on the heels of a US Department of Justice investigation currently underway that is looking into whether ad agencies and holding companies rig production and postproduction bids in order to direct business in-house, a practice that is illegal in the US. By asking independent production companies to inflate their bids during the bidding process, agencies are able to provide clients with a lower rate for their own services, therefore directing work in-house. Production companies often oblige with these requests out of fear that they won’t be considered for future projects or because they’re promised future work in return.
The study leveraged the work of 30 ANA member executives as well as perspective from “12 organizations deemed to be subject matter experts,” all of which make up what the ANA is calling its ‘Production Transparency Task Force.’ These subject matter experts included Reed Smith LLP, K2 Intelligence, AICE, AICP, AMP, Advertising Production Resources, Bird Bonette Stauderman, Creative Services/Video Opticals, Landgraf Consulting Group, MRA Advertising Production Support Services, DG2 Worldwide Group and an unnamed global auditing firm.
According to the ANA, 11 of the 12 subject matter experts agreed that transparency on this issue is a concern at a number of agencies and holding companies.
An ANA survey supporting the study found that fewer than half the respondents require their agency to disclose if they are bidding a production job to an in-house or affiliated production company. In addition, more than 60% said that they either do not require or don’t know if their agency contract requires production rebates and other incentives to be passed back to their company.
“The report demonstrates that transparency continues to be a fundamental issue throughout our ecosystem,” said Bob Liodice, chief executive of the ANA, in a statement. “Marketers are strongly encouraged to revisit their business protocol and their agency contracts. Additionally, marketers must step up their supervision and understanding of the production ecosystem to ensure that their investments are managed superbly.”
The study also found that the state commercial production incentive system, which provides financial incentives to those who choose to film in a particular location on a state-by-state basis, is often not transparent to advertisers, meaning some of them may not be receiving the financial benefits they are due.
Aside from the findings, the ANA study also provided recommendations for advertisers who may feel as though they’ve been duped by their agencies on the production front. The recommendations include requiring agencies to disclose when an in-house production resource is being considered for a project, becoming aware of state commercial production incentives, reviewing and updating creative agency contracts, and using compliance reviews from independent auditors to ensure that contractual terms are being met by both agencies and third-parties.
If and when an in-house production capability becomes a part of the bidding process, the ANA advises advertisers to require all bidders to read and sign a statement that indicates they have participated in an open and fair bidding process and that they are not aware of any illicit behavior. The ANA also recommends that all bids be sent directly to a third party or an advertiser staff person, who then should share them with the agency producer.
The ANA’s findings do not bode well for ad agencies and their parent companies, who’ve already found themselves in hot water over the past few years due to the media kickback scandal that began in 2015 when former Mediacom chief executive Jon Mandel stated that rebates are widespread in the US ad market. Last year, an ANA report on the matter found that “non-transparent business practices” – including rebates – are pervasive in the US media buying landscape.
According to the ANA, production transparency concerns ended up being a “by-product” of the media transparency report. In August of last year, the ANA put together its ‘Production Transparency Task Force’ to further investigate the issue. In December, it became public that the US Department of Justice is investigating bid rigging and other practices within the sector. Interpublic Group, MDC, Publicis, WPP and Omnicom have all been subpoenaed by the Department of Justice.