Department of Justice Investigating Alleged Collusion Between Holding Companies and In-House Production Units

By Patrick Coffee Comment

This afternoon The Wall Street Journal published a vague but damning account of an ongoing investigation into ad agency ethics by the U.S. Department of Justice.

A brief summary for the layman: Some of the largest agencies in the industry allegedly “rigged” new business bids in order to favor their own parent companies’ in-house production studios.

The “people familiar with the matter” who spoke to the WSJ claim that they did so by encouraging independent production companies to inflate their own bids, then undercutting them without their knowledge in the interest of keeping as much of the work as possible with the holding companies and associated organizations.

It’s not clear how they made this happen, specifically, beyond exploiting the indie production shops’ reliance on the big agency system. The WSJ report implies that these companies fear losing future opportunities if they alienate unnamed networks by declining to provide the “check bids” that serve as paper records of their own uncompetitive prices.

So the creative shops (again, allegedly) trick their production partners into pricing themselves out of pitches — and they can only do so thanks to the power that comes from being owned by holding companies.

One thing is clear: The big names have been consolidating their production talent in the interest of retaining more of every client’s overall spend. Omnicom did it last year with eg+; there’s also Prodigious on the Publicis side, and Townhouse is a recent example for WPP. This may all remind one of the as-yet-unproven claim that some agencies go to great lengths to avoid hiring unionized talent.

The parties who spoke to the WSJ named Rebecca Meiklejohn as the attorney leading the investigation, and she’s familiar with the territory. Meiklejohn was the prosecutor behind an early-aughts “bid-rigging” investigation that sent a dozen executives to jail for a scheme that involved Grey “illegally steering” contracts to the print shop Color Wheel.

So far, the new story is light on details; 4A’s CEO Nancy Hill was the only party willing to speak on record, and she simply said that the group strongly encourages all paid members to obey relevant laws, rules and regulations.

There will probably be more to come.

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