• by Joe Mandese  @mp_joemandese, August 10, 2003

Just as the ad industry was finally beginning to get better information on the media billings and buying power rankings of the major ad agencies, a new law appears to be threatening the public dissemination of such data. The development, a byproduct of the Sarbanes-Oxley Act that requires CFOs to certify company financial data released to the public, has wide-ranging implications for the ad business: from published industry rankers like media trade reports, directories and databases, as well as advertising reviews and new business pitches.

The problem has grown so severe that a group of high-level media agency chiefs has begun formulating a plan for developing a new system for compiling and auditing agency billings, Media Post has learned. Presumably, the system would be squeaky clean and accurate enough to pass the muster of their corporate CFOs.

But that effort, led by Starcom MediaVest Group CEO Jack Klues raises delicate questions about how agencies spin their buying clout to advertisers in new business pitches and to the media in buying negotiations. Among other things, a truly accurate accounting of agency media billings is expected to lower estimates for the overall size of the business by a significant amount and could reveal wild fluctuations among agencies.

The situation has been festering since January when agency CFOs issued an edict forbidding executives from releasing billings data to the public. Among the problems they foresaw was the fact that billings data was highly interpretable and subject to scrutiny by shareholders or regulators.

Among other things, some agencies have been known to credit themselves for total billings estimates of accounts they share with other agencies in agency-of-record (AOR) relationships. In other situations, agencies occasionally credit themselves for the proposed billings of their client's accounts, which often fail to live up to their original budgets. And some of just flat-out exaggerated their base altogether.

The exaggeration of media billings data is nothing new and the ad industry long ago developed systems for factoring, or at least approximating the truth, but the new law could have a chilling effect, making it difficult to obtain even the kind of crude data sources people had used in the past. The development also occurs just as the industry was beginning to improve the way such data has been gathered and, some say, the veracity of the information itself.

The history of public reporting of media billings data stems from the early days of the business when the Advertising Red Books, a director of advertisers and agencies, began publishing billings data supplied by the agencies themselves.

Though broadly cited, most analysts took this data with a grain of salt. Over the years, various trade publications brought more rigor to the process of compiling such data, especially Advertising Age's annual Agency Report, which ultimately became the de facto source for agency billings estimates.

More recently, a European-based organization, RECMA (Research Reports On Agency Media Networks), which focused on compiling media billings data for the large media agency networks. That data also was essentially self-reported by the agencies themselves.

But as of January, agency executives say they have supplied billings data to neither Advertising Age, nor RECMA, though Advertising Age's 2003 Agency Report for the first time sources data to RECMA. "Unless anything changes soon, within a year this data will all be meaningless," a top media agency executive asserted.

Craig Endicott, data center editor at Advertising Age, says RECMA has always done its own calculations independent of agencies' own internal estimates, but normally would double-check its findings with agency management. "This year, they weren't able to get a response," noted Endicott, adding that Advertising Age is continuing to have conversations with agency management executives to see if they can resolve the issue and get the data flowing freely again. Advertising Age has published its Agency Report for 59 years.

But the implications go beyond trade reports and rankings and ultimately could impact agency reviews and new business pitches.

"It'll do nothing except inhibit media agencies from touting their growth and supposed clout in new business pitches," predicted Jim Sumanek, president-CEO of Media Analysis Plus. "A large part of what they are saying is how big and influential they are in the media marketplace. Now they won't be able to use billings data to make those statements. All they'll be able to do is say things like, 'We're doing very well and we've won lots of accounts, but don't ask us any more, because we can't tell you'," chided Surmanek.

He said the development also represents an awkward dilemma for those agency managers who would like to set the record straight with an accurate media billings auditing system, because it may ultimately force them to own up to what he called "inflated, or fantasy numbers" they've cited in past industry references and new business pitches.

"It's a come-to-Jesus situation for many big agencies right now," noted Surmanek. "They have to figure out a way to divulge pertinent data for new business pitches without making themselves liable to the new law."

Ultimately, he said a new resource will evolve for people to gauge media billings: Agencies will continue to give out a list of their clients and people will go to TNS or Nielsen Monitor-Plus to find out how much they've been spending on media. They'll do the arithmetic and figure out a way to estimate billings."

But at least one media agency chief said he believes that could lead to further distortion of the marketplace.

"There is no accurate way in the industry today for an outsider to develop good estimates of what our billings are," Rich Hamilton, president-CEO the Americas for Zenith Optimedia Group told Media Post, adding, "So what is going to happen is that unless something changes substantially, over time the data that have been reported are going to become dated and there is going to be no accurate basis for estimating billings, or market share or for producing an accurate ranker."

While such public releases of media billings data may or may not remain verboten, some agency execs say they have and will continue to provide such data to prospective clients and management consultants as part of new business pitches, which they consider to be a non-public forum. That data, however, will no longer be able to be compared to public sources.

An interesting byproduct of this development is that management consultants such as Arthur A. Anderson and the AAR (Advertising Agency Register) may become even more powerful and influential within the business, which might be incentive enough for media agencies to develop their own solution for publicly reporting the data.

At least one executive not involved in that initiative said, "They should be lauded, but it will be incredibly difficult to pull off."

Should Starcom's Klues and his peers manage to do so, it also would likely cause some initial disruption in the marketplace as the industry got used to the new billings accuracy.

"Everyone will go down about 20% to 30%," predicted Surmanek. "For a while, there will be a huge hue and cry over the scandal. It'll be all over the trade press. Then it will die down and the market will become recalibrated. We'll be back to business as usual, because in theory, everyone will come down about the same 20% to 30%. That's a theory, of course."