The Wall Street Journal rocked the ad industry last December by revealing that the U.S. Department of Justice had begun investigating the practice of bid rigging, which agencies and their parent companies allegedly use to divert work on big-budget client campaigns to their own in-house postproduction units.
Within days, all four of the largest holding groups confirmed that they’d been subpoenaed as part of the probe. The news was especially noteworthy because attorney Rebecca Meiklejohn sent multiple former Grey executives to jail on charges of fraud and antitrust practices in the early 2000s.
For many, however, this was all just business as usual in an industry that spends an estimated $6 billion per year on video commercial production.
An industry’s fears confirmed
The Association of National Advertisers released today its highly anticipated “Production Transparency in the U.S. Advertising Industry” paper. The 30-page report, which took months to produce, effectively affirms many of the anticompetitive behaviors that have been open secrets in the ad business for some time.
“We’ve been hearing rumblings about it for the past couple of years in the committee system,” said ANA group executive vice president Bill Duggan. “Then the AICE [Association of Independent Creative Editors] came out with their perspective three years ago, where they felt their independent production members were at a real competitive disadvantage versus agencies.”
That 2014 statement from the trade group accused big-name agencies of using shadowy in-house studios with unfamiliar names to illegally block third-party service providers from winning postproduction or editorial work on clients’ campaigns. The process of opening the bid to these independent companies is known as “triple bidding,” and clients often require it in the interest of encouraging competition and lower rates.
The subsequent fraud purportedly works one of two ways: Either the agency arranges to win the bid in exchange for future favors to the production house, or its own producers—who often manage the bidding process for absent clients—mislead third parties on rates, thereby ensuring that they cannot compete. Postproduction fees then flow back to the holding companies.
Today’s paper strongly implies that these practices are common and have been for some time.
The ANA report involved 12 subject-matter experts ranging from legal counselors to auditors, production consultants and trade association representatives. All but one agreed that “transparency concerns exist” between clients and their creative agency partners, with the final party saying they had “only secondhand knowledge” of such practices.
The news follows another arguably more damaging 2016 paper that documented an established pattern of “kickbacks” between media agencies and their publishing partners. Its conclusions were so alarming that the major holding companies pushed back by questioning its sources’ objectivity.
As part of that study, consulting firm K2 Intelligence also spoke to several producers, editors and creative agency veterans who attested to widespread bid rigging. Unlike the earlier work, the new report primarily draws on the testimony of the aforementioned dozen experts along with the experiences of ANA members and the companies paying for the ads.
As before, agencies will almost certainly criticize the report’s experts as self-interested since they represent the production world.
Media bribes bleed into bid rigging
Clients spend far more on media placements than they do on production work, but one investigation encouraged the other. Duggan explained, “As we started to get our hands into the media transparency issue, that gave us a reason to look a little harder at production.”
Some groups have already taken independent action.
A few weeks after The Wall Street Journal story broke, the Association of Independent Commercial Producers (which is not directly connected to the AICE) released a statement intended to discourage bid rigging. It described the infamous “complimentary bid” as “an illegal, anticompetitive bidding practice according to the U.S. Department of Justice” and recommended that members include clear language discouraging it in all related documents.