Digital has injected unprecedented complexity into the advertising industry. Exponential growth in inventory, channels, and technology intermediaries, coupled with audience fragmentation, has created a complex and oft-misunderstood landscape for advertisers. While digital complexity has created a world of new opportunities for brands and consumers alike, it’s also seriously undermined a fundamental value shared by advertisers and agencies: operational transparency.
Lack of transparency has created tension between agencies and their clients over media costs and fees, resulting in annual audits and a sharp increase in agency reviews. That’s not even taking into account the fact that the plethora of inventory and channels has led to the commoditization of inventory at a time when engaging consumers requires compelling experiences across multiple devices and platforms.
Pulling Away the Curtain on the Cost of Working Media
We’re currently seeing a shift in the role of the agency as a media buyer, moving from traditional agent to principal. It’s an important distinction; unfortunately for advertisers, it’s often buried in contract language that even the most scrupulous client may overlook.
If the buyer is acting in the traditional role of an agent, it merely negotiates the best price and passes the savings on to the client. In this model, the agency may be called upon to report true working media costs — apart from creative production and agency fees — but there should be no question of markups.
If, however, the buyer is acting as a principal, it’s using its own money at its own risk, taking positions with various media and reselling at a markup. The agency gets an additional revenue stream, balanced by a greater degree of risk. In this case, the advertiser will want details on the markups.
Due to the complexity of digital media, providing that detail is often a challenge for the agency.
Media transparency is the subject of a recent study conducted by K2 Intelligence on behalf of the Association of National Advertisers. The study noted that “numerous nontransparent business practices, including cash rebates to media agencies, were found to be pervasive in the U.S. media ad-buying ecosystem.” According to the ANA report, the survey found “pervasive receipt of nondisclosed rebates, not returned to advertisers, in the forms of cash, free media inventory, and service agreements.”
Whether the agency acts as an agent or as a principal, advertisers are being urged to demand an accounting of the true cost of working media.
We’ve found that about a third of the top U.S. advertisers audit their agencies once or twice a year. The audit virtually always includes a review of media invoices to see whether they match agency bills.
So how do agencies respond to audit requirements? Usually, not very well.
The typical scenario is an annual or biannual descent into “audit hell.” Account teams use spreadsheets and emails to piece together the requisite documentation. With no clear line of sight from advertiser to agency to vendor, compliance becomes a massive reconstruction project requiring a great deal of time and effort. That’s time that could be spent creating compelling advertising experiences that engage consumers and drive sales.
The Intersection of Technology and Transparency
To create more transparency in their digital media operations, many advertisers and agencies are seeking technology solutions. This means automating digital media planning, buying, and execution from end to end — allowing advertisers and agencies to share a clear view of actual costs and easily track communications between brands, buyers, and sellers.
A universal system of record helps to keep everyone honest. And because all data is logged in and accessed from a central location, it expedites audits. Just as tax preparation software makes it easier on individuals if the IRS comes knocking, a software platform can help brands and agencies become more transparent.
At Centro, we use software to gain this view into our planning and buying operations, to calculate individual productivity, and to predict staffing needs to best serve our clients. It helps us gather deployment metrics, such as how much work everyone is doing or how many live campaigns the team can execute per month. It enables us to do everything faster and better. We’ve seen productivity improvements of 32 percent, mostly due to better visibility and automation of manual tasks.
The cost of complexity goes beyond disputes over fees and the hassle of an audit. It’s eroded trust at a time when consumer expectations couldn’t be higher. Leveraging technology that sorts through the complexity of digital media operations can help agencies and advertisers achieve greater transparency and accountability — the foundation of any trusted partnership.