Today Omnicom and Publicis joined IPG in confirming that the U.S. Department of Justice has issued subpoenas to some of their agencies regarding its ongoing investigation into the widespread practice of “bid rigging.”
Omnicom started the day with a public statement for investors and media outlets like Adweek and the The Wall Street Journal, which broke the story:
“On Dec. 14, 2016, two subsidiaries within Omnicom Group Inc. (NYSE: OMC) received subpoenas from the U.S. Department of Justice Antitrust Division concerning its ongoing investigation of video production and post-production practices in the advertising industry. Omnicom’s outside legal counsel has contacted representatives of the Antitrust Division, and the company is fully cooperating with the investigation.”
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Publicis followed this afternoon with a pretty much identical statement:
“As part of the investigation led by the U.S. Department of Justice Antitrust Division concerning video production and post-production practices in the advertising industry, one of the subsidiaries of Publicis Groupe received a subpoena dated December 14, 2016. Publicis Groupe, supported by external counsel, will fully and productively collaborate with the investigation.”
For the layman, the DoJ is insisting that two Omnicom agencies, one Publicis shop and one IPG unit explain exactly how they win production and post-production contracts from clients.
This is probably just the beginning.
ICYMI, Adweek ran a bit of a summary of the issue one week ago. You all know this, but the holding companies have been expanding their production capacities in the interest of scoring more revenue from clients. They don’t generally publicize this fact, but it happens in plain sight. Neither the clients nor the prod cos are particularly happy about the arrangement, but they don’t hold the cards in the game.
Our readers will be particularly interested in what a source who has worked for years in the production departments of major creative agencies told us.
- The independent prod cos can do the work in half the time because they have far fewer accounts and more staffers than the agency departments.
- The agency in question still said that the prod co should provide clients with an estimate of 2X hours knowing full well that it would not be accurate. In other words, they tricked their “partner.”
- The client called the agency production company, furious because, again according to our source, “The client knew out-of-house was better, cheaper and faster.”
- Why does the agency keep doing this? Because production is its only profitable department, and the account team forbid them from allowing third party operations to enter fair bids. Also, the clients aren’t the ones managing the process, so they can’t really prove that this is going on.
The worst part: This industry veteran claims that the agency fired multiple senior members of its production team, then immediately re-hired them as freelancers to save money. Prior to production pitches, the heads of the department also allegedly warned everyone on the team that their jobs would be in jeopardy if the work went to an outside production house.
The prod co people who spoke to us said that they knew this practice was widespread but accepted it because they weren’t sure it was illegal. They also rely on the creative agencies for all their work anyway, so they have zero leverage.
Now that knowledge of “bid rigging” is widespread, some production executives argue that they won’t have to play by agency rules anymore. That might depend on whether the DoJ manages to get any indictments, though…
One thing that is not yet clear is who would be interested enough to leak news of the investigation to the Wall Street Journal last week.