Media Transparency: Prescriptions, Principles, and Processes for Marketers - Overview

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Reed Smith LLP, has developed Version 2.0 of a media agency Master Media Planning & Buying Services Agreement which can be used by advertisers in developing their own agency agreement.

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ANA Releases Updated Template for Media Buying Agency Contracts

New Version Addresses Latest Marketplace Developments

NEW YORK, July 11, 2018 — The ANA (Association of National Advertisers) has updated its media agency contract template for advertisers that includes new provisions and revised definitions intended to increase transparency between clients and agencies.

The new template updates the original, which was issued in July 2016 as a supplement to the ANA’s landmark report on media transparency, conducted with K2 Intelligence, and a follow-up report by Ebiquity and FirmDecisions that provided recommendations on achieving media transparency. Both templates were developed by the ANA in conjunction with law firm Reed Smith, the ANA’s general counsel.

“While significant progress has been made in bringing more transparency to the relationships between advertisers and media buying agencies, much more is needed,” said ANA CEO Bob Liodice. “The new contract template is more comprehensive than the original and contains updates that address the current marketplace. We urge all advertisers to review the changes and incorporate them into their current media agency contracts, where applicable.”

Among other aspects, the new template includes language designed to reflect best practices on a global level so advertisers outside the U.S. can, with some local modifications, include it in their contracts, as well as revising and clarifying the definitions of several terms that had caused marketplace confusion. These include updates to the definition of “Programmatic Media” that more closely reflects the definition used by the Interactive Advertising Bureau. Also, the definition of “Conflicts of Interest” was updated to include language clarifying that disclosures should be made about investments if the media agency or its affiliates have a financial connection to a company that provides services to the advertiser.

Other highlights include:

Revisions to definition of “Affiliates”: Agency conglomerates have complex structures often with hundreds of affiliates and multiple holding companies. Advertisers should ensure the defined term “holding company” is the highest holding company entity possible.
Added notation to definition of “Principal or Inventory Mark-Up” and “Principal or Inventory Sale”: The K2 Intelligence Report found that mark-ups on principal or inventory sales (e.g., non-disclosed services, proprietary media, etc.) can be between 30-90 percent. The ideal scenario calls for only disclosed transactions, but agencies continue to offer non-disclosed services. The notation clarifies that the definition is designed to put guard rails around “non-disclosed” agency services by providing for a capped amount of mark-up the media inventory seller (typically an agency affiliate) can make. Advertisers need to ensure the agency is not improperly increasing fees by having multiple affiliates in the supply chain marking up costs as the media makes its way between advertisers and the publishers.
Deletion of “Barter Inventory” from definition of “Rebates and Incentives”: Barter inventory has been removed from the definition of rebates and incentives following a debate about whether barter inventory should be considered a rebate or incentive. To the extent that advertisers agree to a barter transaction, the parties should enter into separate written agreements covering such services. Similar to other non-transparent purchases, advertisers should confirm that true value is received in barter and that there are no unreasonable mark ups by the agency or its affiliates.
Added definition of “Transaction Data”: Language was added to the template to ensure that advertisers have access to transaction data over which any vendor or media owner claims rights that limit an advertiser’s access and/or ability to leverage transaction data. If access is denied by any supply chain participant, the agency should assist to remediate the issue and/or the advertiser may consider removing the vendor or media owner from future media purchases to ensure advertiser's unfettered access and control of transaction data critical to measurement and ROI.
Added definition of Value Pots: “Value Pots” are considered Rebates and Incentives to which an advertiser is entitled its proportionate share. A value pot is free or discounted media offered to agencies by media in advance on the basis of anticipated volume of media purchased by an agency on behalf of an advertiser, collectively or individually. Value Pots are a rebate and incentive that were covered by the original definition of “Rebates and Incentives” in the original template but “Value Pots” have been added as a defined term in the updated version. Value Pots should be completely transparent and an advertiser should receive its fair share as it should with all other Rebates and Incentives.
Auditor Nondisclosure Agreement: The NDA between an auditor retained by an advertiser and the agency being audited has become a major battleground for agencies. It is recommended that Advertisers attach an auditor NDA form as an exhibit to their media buying agreements with agencies. The ANA intends to release a recommended NDA form in the future.

K2 Intelligence Study

The K2 Intelligence study, conducted on behalf of the ANA from October 2015 to May 2016, reported that numerous non-transparent business practices were found to be pervasive in a sample of the U.S. media ad-buying ecosystem. The study identified several key findings:

K2 Intelligence found a fundamental disconnect in the advertising industry about the basic nature of the advertiser-agency relationship. In general, advertisers expressed a belief that their agencies were duty-bound to act in their best interests. They also believed that this obligation, essentially a fiduciary duty, extends beyond the stated terms in their agency contracts. While some agency executives expressed similar beliefs, others told K2 that their relationship to advertisers was solely defined by the contract between the two parties.
Pervasive receipt of non-disclosed rebates, not returned to advertisers, in the forms of cash, free media inventory, and service agreements were found.
Potentially problematic agency conduct was concealed by principal transactions, resulting in media agencies sometimes acting on their own account and not always in the best interests of advertisers.
Inconsistent and questionable media management practices by advertisers were found. This included poor contract stewardship, lagging business practices, and fundamental organizational management issues.

To address these concerns, the ANA and Ebiquity/FirmDecisions came together to craft the report Media Transparency: Prescriptions, Principles, and Processes for Advertisers. The report includes a framework to help advertisers and agencies address transparency issues identified in the K2 Intelligence study, create a code of conduct to guide the client/agency relationship, and restore trust — the core of an effective and beneficial relationship.

"We outlined specific actions marketers should consider to diminish or eliminate non-transparent and non-disclosed agency activities and to ensure that their media management processes are optimized," said Bob Liodice, president and CEO of the ANA.

In addition to the recommendations, the ANA, in conjunction with its General Counsel, Reed Smith LLP, has developed a media agency Master Media Buying Services Agreement which can be used by advertisers in developing their own agency agreement. The ANA would like to thank ISBA (the Incorporated Society of British Advertisers) and its legal counsel Fieldfisher, for their consent to use the ISBA Framework Agreement For Media Buying and Planning Services as a guide for some of the provisions in the ANA template.

Key Recommendations

Specifically, the report recommends that to achieve full transparency advertisers should:

Establish overarching media agency management principles that can be easily understood and executed. These include requiring media agencies to ensure complete transparency in all transactions with parent companies, subsidiaries, affiliates, and third parties. Agencies should err on the side of communicating everything to marketers, the report said.
Establish primacy over the client/agency relationship, and regularly re-evaluate and upgrade internal processes and practices. The report said it is essential that advertisers have a thorough understanding of the existing client/agency relationship and know when the agency is acting as an agent on behalf of the client, or as a principal representing itself.
Create a uniform code of conduct between the advertisers and agencies. The code of conduct, between advertiser and its AOR, would be mutually agreed to, signed by both parties, and serve as an addendum to the master service agreement.

In addition to these three key pillars, seven strategic recommendations for advertisers are advocated to reduce or eliminate the potential conflicts identified in the K2 Intelligence study. They are:

Where the agency is acting as a principal versus an agent, the advertiser should have a disciplined and reliable process for managing conflicts of interest.
Advertisers should ensure contracts with the media agencies include robust language to deliver full transparency.
Advertisers should insist on robust and far-reaching audit rights that include tracking contract compliance and measuring the media value delivered.
Advertisers must implement disciplined internal processes to deliver contracts designed to ensure strict accountability, rigorous process governance, and senior management oversight.
When it comes to data and technology, advertisers should take ownership and exert control over the decision-making.
Advertisers are responsible for more active stewardship of their media investments and compensating their agency partners fairly.
A culture of trust is needed between advertisers and media agencies, through the uniform code of conduct.

To learn more, download the full report.