Oh yeah -- I left out the most important part. In many cases, the agencies allegedly collect these rebates without the knowledge of their advertising clients, thus the controversy.
One UK publication, The Guardian, is advancing the debate a bit by publicly admitting that it pays rebates to ad agencies, although it isn’t sharing an actual dollar (or pound) figure, according to Campaign, which first reported the news.
In its earning results for its most recent fiscal year, ending April 3, 2016, Guardian Media Group’s financial statements include a paragraph detailing “advertising rebates,” including “free advertising space, cash payments, or both.”
GMG also discloses: “The rebate provision is calculated using the forecast spend over over the contract period and the rebate entitlement set out in the trading agreement. Calculating the required provision therefore requires an estimate of future period spend in determining what tier of spend the agencies may reach over the agreement.”
The disclosure is important because it could involve advertising and media agencies in the U.S., where the practice of media rebates is more controversial than in the U.K. There, it’s a generally accepted part of the business.
Earlier this year, two big U.S. industry organizations, the Association of National Advertisers representing clients, and the 4As representing agencies, had a public spat over an ANA report alleging the practice was widespread (but not acknowledged) in the U.S. – an accusation agencies adamantly deny.
The Guardian isn’t the first UK newspaper to publicly admit that it pays rebates to ad and media agencies.
Last year, the Daily Mail & General Trust shared actual figures for rebates as part of its last annual report, covering the year through September 2015. According to the DMGT report, its newspaper publishing division, DMG Media, paid out £25.6 million in cash rebates, discounts and free advertising space for agencies and advertising clients, as part of deals meant to sell more inventory by rewarding buyers for bigger purchases.
That worked out to around $38 million in U.S. currency at pre-Brexit exchange rates. To put that in perspective, DMGT took in ad revenues of £351 million for the year, or about $523 million. Thus, the rebates represented about 7% of its total advertising business. The company noted that it spent a similar amount in 2014, with £26.2 million in free advertising or cash payments.