A view from Gideon Spanier

No ceasefire in sight in advertiser/agency cold war

US advertisers rolled the grenade but did not pull the pin.

That’s the conclusion from reading the Association of National Advertisers’ report, which identified "numerous non-transparent business practices" by media agencies but named no names to maintain confidentiality (and avert legal action).

A military analogy is appropriate because even ANA chief executive Bob Liodice has likened the relationship between advertisers and agencies to a Cold War. Still, the US and the Russians "figured out how to discuss nuclear disarmament", he says, and the media industry must do the same.

The initial reaction of the big agency groups to last week’s report was certainly reminiscent of a cold war stalemate: slam the "anonymised" and "one-sided" report and concede nothing.

In truth, most of the ANA’s findings were no surprise.

Agencies receiving cash rebates and free ad space from media owners, agencies signing spurious "service-level" agreements that bring in revenue for little or no work, agencies trading as principal and selling inventory to clients at big mark-ups – it’s ugly, but it’s the way the business operates.

Yes, rebates are generally not allowed in the US, unlike in other markets, but if clients don’t police their agency contracts rigorously while simultaneously demanding lower prices, what do they expect?

Clients who are so naïve that they did not know are fools. And if they did know, they should have already demanded changes from their agencies. There is no excuse for an ignorant marketer with a sloppy agency contract.

The most fascinating aspect of the ANA report is the growing complexity and lack of transparency in digital – in particular, the role of the agency trading desk that "arbitrages" the price of media. Indeed, some trading desks are proudly non-transparent.

It is a global – not just a US – issue, and it matters hugely when online trust is already low.

Too many players in the ecosystem, including media owners, have been guilty of failing to act or speak up.

Facebook belatedly cut back on serving ads on third-party websites through the Facebook Audience Network and LiveRail late last year because of the low quality of inventory. "The challenging part is other competitors picked up that inventory," Facebook’s Carolyn Everson admitted recently. "We could have made a lot more money if we had kept that inventory."

Others need to ask themselves in light of the ANA report how they make money. Many of those involved in the advertiser/agency cold war say privately they would like a "reset". But no-one is betting it will happen.