Should more media owners disclose agency rebates?

Advertisers are demanding more transparency and there are new accounting rules.

Should more media owners disclose agency rebates?

Rebates have been an open secret for years. The payments and discounts that media owners give to agencies in return for certain volumes of spend are a fact of trading life in the UK. But few media owners like to talk about rebates for fear of upsetting agencies. Suddenly, however, the issue is being thrust into the spotlight for two reasons.

Advertisers, led by ISBA, have been asking agencies searching questions because of growing transparency concerns. At the same time, media owners have come under pressure to disclose rebates because of new, tougher accounting rules called FRS 102.

Since December 2015, three publishers have disclosed in their accounts how they pay rebates.

DMGT, owner of the Daily Mail, was first to make a disclosure. It set aside £21m in rebates in its most recent financial year. Guardian Media Group was next to admit the practice, without giving a figure. DMGT and GMG use the same accountants, PwC. Now, News UK has said The Sun and The Times pay rebates. Accounts for the tabloid show it set aside £8.1m to cover rebates in its 2016 financial year. The Times did not disclose a figure. News UK’s accountants are EY.

The disclosures are important because they suggest the payments are material, although accountancy experts caution the published figures do not present a full picture.

For marketers, the fear is that agencies may not be passing back all rebates. An agency group is likely to be under a legal obligation to return cash to a client but a weak contract might say nothing about having to pass back "value" such as free ad space. ISBA has urged advertisers to toughen up their agency contracts and published a new framework last year.

Rebates are more controversial in America because media owners supposedly don’t pay them. The US Association of National Advertisers found in a report last year that rebates were endemic, although agencies hotly denied that. It adds to the significance of the admissions by DMGT, GMG and News UK, and further disclosures seem certain.

Graham Brown, co-founder of media consultancy MediaSense, says: "The only way we’re going to get trust back in the market, which has been eroded further by the Department of Justice investigation [into US ad production], is for companies to make disclosures like this where they have hitherto not done so."

Given that rebates and discounts are common in sectors including digital and outdoor, shouldn’t every media owner disclose such payments? As the old saying goes, sunlight is the best disinfectant.


YES

 Scott Moorhead
Founder, Aperto One

"Cash rebates are flawed and lead to compromised media planning and poorer pricing. Financial regulations aside, I hope more media owners declare their rebates as the sooner clients see the scale of the issue, the sooner the practice will end."

MAYBE

 Nigel Gwilliam
Consultant head of media and emerging tech, IPA

"Media owner rebates are nothing new. Media owners are entitled to offer them. Accounting rules on ‘estimation uncertainty’ have recently changed so it’s up to the media owners and their auditors to decide whether to disclose their estimated rebates."

YES

 Mark Finney
Director of media and advertising, ISBA

"Lack of transparency erodes trust. Having full disclosure of media owner rebates would help to allay the suspicion that investment decisions are being made by agencies for their own financial gain, rather than for the benefit of their clients."

YES

 Sophie Gibson
Founder and client partner, Team Eleven

"The recent discussions around transparency in media means that this is inevitable. If the desire is to do things in the best interests of clients, then full disclosure will aid this and take away any mistrust formed by recent events."
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