What you need to know:

• ACCC flags serious concerns around agency transparency but decides not to regulate as market is competitive.
• Says marketers should educate themselves and do due basic diligence.
• Some agency bosses think the interim report is a fair reflection on state of market, that clients ultimately hold power.
• Others say problems will not go away and clients cannot hope to understand supply chain complexity.
• But growth in "homework marking" firms such as "Analytic Partners, Accenture, Ebiquity and us" will ultimately solve major challenge, says Mutiny's Henry Innis.
• Meanwhile ACCC may yet return with sharper teeth. It seeks industry input ahead of final August report.
• “Look at the regulator’s track record in this area. They seem to start off quite broad and relatively soft, but tend to end up being very pointy when final recommendations are made.” - Kristiaan Kroon, Chief Investment Officer, OMG

To the relief of many and dismay for some, the ACCC is minded to leave the media agency market unregulated. It finds no competition issue, with advertisers free to do businesses how and with whom they chose. Competition in the sector, it says, even with numerous possibilities and probabilities for client conflict of interest challenges, remains robust. Marketers should just do some fundamental due diligence, the regulator suggests. It's also a memo to corporate procurement departments to assess value and effectiveness against one-dimensional cost in a complex media supply chain.

But some senior media execs say agencies and their trading arms shouldn’t rest on their laurels just yet – and that the regulator has form in first speaking softly before returning with a big stick.

Omnicom Media Group Chief Investment Officer, Kristiaan Kroon, cites the mandatory code now causing Facebook and Google to threaten to scrap services. The code started life as a voluntary recommendation.

“I think we should look at the regulator’s track record in this area, which is growing,” says Kroon. “They seem to start off quite broad and relatively soft, but tend to end up being very pointy when final recommendations are made.”

Moreover, the ACCC has flagged serious concerns around transparency, the ability for advertisers to easily access audit data, how contracts are structured between holding groups and their component parts, and some glaring conflicts of interest around where spend is directed and how performance is reported.

The Commission is probing for further information in those specific areas – and others think that the initial round of questions, viewed by some as too blunt, or indeed, the wrong questions, may yet serve as a whetstone.

Buyer beware won’t cut it

Taking no further action would represent a missed opportunity by the watchdog, suggests Ian Perrin, Managing Partner at Speed and former CEO at Publicis-owned agency Zenith. Telling buyers to beware, he says, won’t cut it.

“There is no way marketers can possibly understand the complexity of the whole advertising chain and therefore they are hamstrung in terms of what they can actually build contracts around,” says Perrin.

Even if they could, he says contracts tend to be signed with agencies, which means holding companies can find workarounds to find revenue sources that are non-transparent. “And I don’t think that has changed at all in the last three to five years.”

Contractual relationships only extending to the agency and not to all of a group’s component parts is recognised in the interim report, but Perrin says it cuts to the heart of the issue.

“It becomes incredibly hard to trace [spend from end-to-end] because you don't know what the holding group is doing, because the many ways in which media is traded is very complex, whether it's programmatic, arbitrage, barter, whether it's just straight deals with large media companies,” says Perrin. “To expect marketers to try and cover off all of that within a contract when they don't understand what's happening in the back end seems incredibly shortsighted.”

Perrin thinks the biggest specific problem areas for marketers are arbitrage models and low-grade programmatic inventory that, he says, “delivers little or no value” in terms of outcomes.

“Clients are sold a solution that looks like a lot of additional value under the guise of a group taking risk on their behalf … yet what they end up receiving is poor quality inventory in a way that is not transparent.”

But he says the problem doesn’t just lie with agencies. Clients are complicit in demanding unrealistic rates, agencies have to turn a profit, and publishers or media owners are willing to pay to secure additional share.

“So in fairness [to the ACCC], it’s easy to understand where the problem lies. But to solve it requires a rebalancing of a complex three-way relationship.”

Industrialising due diligence

“The ACCC is not saying there isn’t a problem. They are saying there are problems, but they don’t want to solve the through regulation,” says Mutiny Managing Partner, Henry Innis.

He thinks that view is incongruous with the Commission’s desire to regulate Google and Facebook’s business model via the news bargaining code, “and yet they seem to be oblivious to something where undisclosed payments are being made, and don’t want to regulate that”.

However, he thinks the industry is moving toward self-regulation as firms such as Analytic Partners, Accenture, Mutiny and Ebiquity make inroads into the market.

“There is growth in clients paying companies to check their homework,” says Innis. “If there is no regulation, that market grows, because it is the only self-policing sector. That in turn empowers clients to continuously put more pressure on these practices.”

A burgeoning due diligence sector should ultimately enable marketers to follow the ACCC’s advice, says Innis, who agrees it is far more complex in media than stitching together your average financial report.

“It is not just linear data, you are not just checking transactions as they come in. Also, connecting media to a sale is really, really difficult,” says Innis. “Media is fast-moving, marketing is fast-moving. To stitch together that due diligence is a complex problem.”

He likens today’s environment to the growth of website analytics in the late stages of the dotcom boom.

“Back then it was a shit show, now it is stock standard and the same thing will happen,” suggests Innis. “It’s just a more complex problem that you couldn’t solve with the technology that we had five years ago. But now you can.”

Bigger fish to fry

Jimmy Hyett, who experienced life at both holding groups and independent media agencies before founding This is Flow, thinks the ACCC is wise not to take a regulatory route. He believes the Commission has bigger fish to fry – the tech itself.

“If they can unlock the inside workings of the major tech companies, it will force a flow on effect and a transparent shift for those agencies currently walking the thin line in their own tech offerings to lay their cards out properly, “ says Hyett. “Otherwise, they risk a second wave of the ACCC knocking on their door - but this time with even more knowledge of the tech itself”.

IAB CEO, Gai Le Roy, wraps the whole thing inside another Russian doll. She thinks privacy regulation is the mother ship.

“The report raises a number of questions and points on consumer privacy and consumer data usage that overlap with details raised in the Attorney General’s Privacy Act Review issues paper,” she said.  

“All sides of the industry need to work together to find privacy by design solutions that still allow advertisers to be able to accurately assess their investment. This is the most important for the overall marketing industry globally.”

Holding groups: not all equal?

Omnicom Media Group’s Kroon fears there is a risk that marketers will see the report’s headline findings and not bother to read the detail. He thinks that could lead agencies to be tarred with the same brush.

Is buyer beware a fair summation? “Basically yes, provided it is not just applied to holding groups,” says Kroon.

“I’d apply it to emerging holding groups – the S4s and Accentures – and to the indies and to the clients of people who are offering in-housing services. Because the points the ACCC raises about fee models, rebates, discounts, incentives, what tech an agency owns, is applicable to any agency, regardless of size.

“Our view is an agency should have no issue talking about these things and in detailing how they treat each of these points to benefit a client. Everyone should be able to have a very open and quite deep conversation that makes you quite comfortable.”

Kroon advises marketers to take the time to read agency submissions to the ACCC’s inquiry, (most of which are available here). “Otherwise, advertisers could be forgiven for thinking all holding groups are the same on this,” says Kroon. “We are not.”

Advertisers: getting smarter?

Mike Wilson, chairman at Havas Media Group, agrees that not all agencies are equal – and neither are all advertisers. Some are increasingly savvy about contractual transparency and supply chains, which he says makes them better placed to pick suitable partners.

“Rightly or wrongly, there has been a sense of taint over the last few years as the murkiness of the digital supply chain has become ever more discussed. So the industry should welcome that development. Most of the clients I know are only too happy to ask direct questions around all the transparency issues that have bubbled up in the past.”

Either way, Wilson thinks agencies have been given a “conditional pass” by the regulator.

“My personal view is that the ACCC are no shrinking violets when it comes to making recommendations or enforcing measures they think are required. The fact that they haven't suggests they have not found something wholly disturbing in the agency landscape,” says Wilson. “I think is good, because there were fears that they might."

But he agrees there may yet be some stick.

“The real proof of the pudding will be when the full report is published in August – as a result, I would imagine, of responses to some of the issues that have been raised in the interim report.”

Welcome to the jungle

In the meantime, in a competitive free market, said another agency boss, “the law of the jungle will prevail”

“You look at the agency groups that are tumbling down the rankings and shedding clients – and there is a reason for that. It is because their clients are wising up.”

Equally, he says advertisers and procurement departments must look at themselves – especially if they need a regulator to tell them how to procure a fair contract rather than “drive you to the wall on payment terms, on fixed pricing with malice – and then question how you go about delivering it.”

After all, he notes, it is the advertiser, not the agency, that holds the power.

“In the responses that came in, there was a big spotlight on the fact that clients hold the whip hand. They can pitch any time they want; they can tear up their contracts whenever they want; they can penalise us if we don't deliver. And I think that opened the ACCC’s eyes, which is why they ended up taking this position – at least for now – that it is a competitive marketplace, and clients need to open their eyes a little.

“I’m pleased, because I think that is a fair reflection. That said, there is no doubt some agencies have behaved very, very poorly.”

He thinks it most likely that the ACCC will come back harder on conflicts of interest around agencies preferencing their own assets and services – but doesn’t envisage major excursions by a regulator seemingly fully fixated on reining-in big tech.

A marketers view: Fair play

Betfair Marketing Director, Nick Thomas, thinks the ACCC is right to push the onus back onto brands.

“I agree that regulatory intervention is not required in relation to ad agencies. While the ACCC has not gone as far in the interim report as I expected, based upon the key issues they originally set out, I also agree that it is beholden upon clients to work with their agency partners to understand the economics of their media buy.”

While Betfair is working to build out an in-house agency, Thomas doesn’t think the report will lead more brands to take in-house aspects of media.

“More broadly I expect it to drive clients to push their media agencies for more transparency on their deals with publishers and across the ecosystem – which has to be a good thing for all parties,” he says.

“I would also suggest that for many clients, one of the benefits of outsourcing to media agencies, and investing in these partnerships, is the delegation of responsibility or understanding around the underlying fees, rebates etc.”

Nestlé: Follow the money

While the AANA is still working up a response to the interim report, Chairman of the Board and Nestlé director of eBusiness, strategy, and marketing for Oceania Martin Brown, flagged the crux of the issue in an Mi3 podcast last August (listen here).

“I would say the marketing industry in Australia would seriously benefit from investing in building their [digital supply chain] knowledge,” said Brown.

“And if you do not … it puts you in a poor position to complain about poor outcomes afterwards.”