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.
For its part, the AICE responded to the ANA’s release with a statement reading: “This report does a good job of documenting where [transparency issues] are found, what form they take and what impact they have on the advertising production process. More importantly, it provides advertisers with a common-sense road map to help them address these concerns.”
That map of recommendations essentially tells advertisers to pay more attention to their agencies’ production and editorial practices. As Duggan put it, clients must literally “sit down” with their partners and, in many cases, assign third parties to manage the bidding processes.
The list complements the Department of Justice’s own “antitrust primer.”
Returning power to the clients
“I still like to think that this is a relationship business, and in the best cases, agencies and clients are partners—when the client does well, the agency does well,” said Duggan, adding that he hoped clients would think twice about choosing agency partners in the light of the report. “I believe many of our members were not aware of this practice just as many were not aware of media transparency issues.”
One such marketer is P&G’s Marc Pritchard, who has been very vocal about transparency and recently moved to cut approximately $140 million in “ineffective” digital ads. Duggan said that around 60 percent of ANA members have made some kind of change in light of last year’s media revelations, adding, “I think this production report will spark reflection and action among advertisers.”
But will the paper, combined with the DOJ investigation, truly make a difference in the world of postproduction?
“The findings won’t shock anyone in the independent production community. … We’re in a creative industry, so a certain amount of unpredictability and lack of oversight is to be expected, but the ANA report lays bare just how pervasive those practices have been and still are,” said Bernadette Rivero, president of the independent broadcast production company The Cortez Brothers.
Two powerful forces have upended this equation in recent years. Major holding groups like WPP and Omnicom—as well as their individual agencies—have created large-scale units or “studios” to handle clients’ increasing demands for content. At the same time, advertisers like Sprint, Verizon and PepsiCo have launched smaller internal teams that allow for less reliance on creative agency partners. The latter aim to save money, but they also lead to the occasional debacle like Pepsi’s recent encounter with Kendall Jenner.
In fact, 40 percent of ANA member companies have brought more of their own postproduction work in house over the past year. This trend leaves agencies and editorial companies competing for a shrinking piece of what has become the most profitable part of the ad business due to lower overhead costs.
“This business finds a spot for you or it spits you out,” said one veteran of the postproduction world who spoke to Adweek on condition of anonymity, calling the report “gratifying to us because we’ve been talking about this for so long.”
Independents face an uncertain future
While awareness of transparency concerns may be buoyed by this release, it’s not at all clear whether it will serve as an effective call to action. Duggan acknowledged that, as recently as June, seven months after news of the DOJ investigation broke, more than 40 executives at an AICE meeting said that “nontransparent behavior among agencies is a very serious issue.”
Fellow trade groups agree. In a statement, 4A’s president Marla Kaplowitz said the group “condemns any activity or business practice that is unethical or, of course, illegal.”
So far, however, there’s little evidence of greater transparency.
“I haven’t seen much of a change in triple bidding practices since the Department of Justice investigation came to light,” Rivero said, “but this ANA report at least allows production companies, ad agencies and clients to have discussions about how transparent we’d all like the bidding process to be and to choose whether or not we want to go forward with bidding against in-house teams.”
The postproduction veteran said the trend has become all but unstoppable, arguing that work will continue “disappearing from independent production companies” as the competitive landscape grows ever more sparse.