Non-transparent production practices exist at multiple ad agencies and agency holding companies, according to a new study by the ANA (Association of National Advertisers).
The study leveraged the work of the ANA Production Transparency Task Force, which was launched in August 2016. The Task Force includes 30 ANA member executives, and perspective from 12 organizations deemed to be subject matter experts. Eleven of the 12 subject matter experts supported the conclusion that transparency concerns exist at multiple ad agencies and holding companies.
Additional conclusions of the study include:
- The use of agency in-house production resources is not always transparent to the advertiser.
- Production business processes marked by agency control of the bidding system–where the agency also competes for the business–is sometimes dysfunctional and conflicted because the buyer can also be the seller of the services.
- Non-transparent agency-controlled bidding can lead to costly, inefficient, and suboptimal advertiser business decisions, and a disrupted competitive landscape for production and editing services.
- The state commercial production incentive system is often not transparent to advertisers, and therefore advertisers may not be receiving the financial benefits they are due.
“The report demonstrates that transparency continues to be a fundamental issue throughout our ecosystem,” said Bob Liodice, ANA CEO. “Marketers are strongly encouraged to revisit their business protocol and their agency contracts. Additionally, marketers must step up their supervision and understanding of the production ecosystem to ensure that their investments are managed superbly.”
The report, “Production Transparency in the U.S. Advertising Industry,” suggested that client stewardship and oversight of production is weak at many companies. According to an ANA survey supporting the study, fewer than half the respondents require their agency to disclose if they are bidding a production job to an in-house or affiliated production company. In addition, over 60 percent of respondents either do not require or don’t know if their agency contract requires production rebates and other incentives to be passed back to their company.
The study is not a conclusion that the behavioral concerns identified are engaged in by every company in the ecosystem, but clearly indicates that some agencies are less transparent than they should be.
The Task Force leveraged perspective from an elite corps of production specialists and organizations familiar with the ecosystem, namely: industry trade associations AICP, AICE and AMP; ANA outside legal counsel Reed Smith LLP; ANA transparency consultant K2 Intelligence; production consultants Advertising Production Resources, Bird Bonette Stauderman, Creative Services/Video Opticals, Landgraf Consulting Group, and MRA Advertising Production Support Services; and auditors DG Worldwide Group (a.k.a. AAI) as well as a global auditing firm.
Recommendations
The Task Force provided the following recommendations for advertisers:
Advertisers should be aware that many agencies have in-house production/editorial and music resources. Every advertiser should know, by name, the specific in-house resources for their holding companies, agencies, and affiliates. Agencies should make these relationships transparent.
Advertisers should require agency disclosure, prior to bidding, when an in-house production or music resource is being considered for a project. When in-house facilities are part of the competitive bidding, the following protocols should be established to avoid conflicts of interest:
Require all bidders to read and sign a statement as part of their bid indicating that they have participated in an open and fair bidding process and that they are not aware of any illicit bidding behavior.
Have all bids sent directly to a third party (e.g., a production consultant) or advertiser staff person first, who should then share them with the agency producer.
Be aware that state commercial production incentives can offer significant savings when production occurs in specific states.
Review and update your creative agency contract. Reed Smith LLP, ANA’s outside legal counsel, has developed recommended approaches for creative agency contracts to address production transparency issues.
Trust but verify. Use compliance reviews from an independent, qualified, objective auditor to ensure that contractual terms are being met by agencies and third-party producers and editors.
Advertisers must understand that there is a direct correlation between the level of transparency and level of control taken by the advertiser–the more control, the more transparency.
