Storm brewing over kickbacks to media agencies

LONDON - Battle lines were being drawn this week as media agencies braced themselves for an attack from advertisers over the issue of media-owner kickbacks to agencies.

ISBA has become involved following reports that Interpublic has instructed its media agencies, Initiative and Universal McCann, to pay back to clients unaccounted-for payments from media owners. IPG's move is part of its clean-up operation following the restatement of its financial results last week.

ISBA is believed to have contacted client companies following a recent article in The Wall Street Journal. The article highlighted the practice of media agencies taking volume bonuses from media owners and addressed IPG's attempt to move towards greater transparency in light of its accountancy troubles.

ISBA has yet to make a public move, but is expected to take a strong line on the issue.

Media agencies, which frequently receive discounts in the form of cash from media owners in return for large-volume deals, are concerned that their profit margins will be hit if the practice is ended.

Last Friday, IPG earmarked a proportion of a total $250m in cash refunds to be returned to clients. This related to "volume and cash discounts, principally for the purchase of media in international markets" dating back to 2000.

An IPG source said its UK agencies had not yet been briefed fully on how this would be delivered. Another claimed that most of the cases dated back to 2000 and 2001.

The issue of media-owner payments to agencies previously became public late last year when Telewest began an investigation into irregular payments by its sales house, ids, to media agencies. It found no evidence of illegal activity.

Debbie Morrison, director of membership services, ISBA
"The situation is still unfolding, so we haven't done anything solid. We've had chats with members who have called us but we have issued no general guidance. On a general level, we support transparency from agencies."

Bernard Balderston, associate director, media, Procter & Gamble
"You can take it as read that large advertisers would be very unwise not to make it clear to an agency what their expectations were. If a client is happy for an agency to make money on the side then that's fine, but I find it highly unlikely that this would usually be the case."

David Pattison, president, IPA
"The IPA position on this issue is that it is widely agreed that agency groups should be making a 15% to 20% profit margin and how they earn that is down to their individual clients and contracts."

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