Three years after ANA report, holding companies tighten grip on budgets

Revelations about undisclosed rebates in 2016 left advertisers thoroughly shaken, and there was plenty of talk of whether this would mean less business going to agencies. That hasn’t happened, but more deals are happening at the holding company level, rather than the individual agencies.

Three years after the bombshell report from the Association of National Advertisers, most accounts have remained with the holding companies, despite alternatives like consulting companies vying for the business, according to a report by research firm COMvergence. The main difference is that client accounts have been won at holding-group level, rather than their individual agencies.

Advertisers scrambled to rewrite contracts with agencies following the ANA’s findings, in the hope that doing so would help them detect rebates and other non-disclosed incentives from media owners. But those contracts between agencies and media owners are confidential and rarely brokered by the individual agency, but by its holding group or buying arm. Even the strongest auditors have trouble monitoring those side deals. That’s why some advertisers are striking deals at the holding-group level in order to obtain the transparency needed into all the kickbacks they may be due.

Of the biggest global media pitches that took place last year based on data from COMvergence, 19 of 22 went to either GroupM (eight), Omnicom Media Group (five) or Publicis Media (nine). In 2017, 50% of the 12 biggest global media pitches went to either GroupM (4), Omnicom Media Group (1) or Publicis Media (1). In 2016, there were five global pitches, tracked by Comvergence and of those one two went to Publicis Media Group, two to Sony and one went to Dentsu Aegis Network

Some of the world’s largest advertisers have scrapped working with individual agencies entirely, in favor of deals at a holding-group level. Even deals struck between clients and individual agencies now mimic terms typically agreed at an agency holding group level.

For instance, L’Oréal spent eight months searching for a new media agency and didn’t have to leave the GroupM network to get what it wanted. It swapped Wavemaker for Essence in the U.K. and Ireland, but in a deal that guaranteed better transparency. The contract entitled the client to transparency of rebates within Essence, and across the wider GroupM network should it draw on its resources.

“Transparency was key throughout the whole review and had to underpin everything we wanted to do with the agency,” said L’Oréal’s media director Gayle Noah.

That kind of contract has more in common with other holding group-wide arrangements between the likes of GlaxoSmithKline and Publicis Media Group, and Ford and WPP, than it does a traditional one-on-one deal. WPP has 19 of these group-level agreements in place, while Omnicom Group and Publicis Groupe have four and nine respectively.

Despite being suspicious of their agencies, advertisers recognized they had to find a way to make their partnerships work, given in-housing is too costly and the alternative services from the consulting firms are still a work in progress. For the largest holding groups, being more transparent became a competitive advantage. It’s one reason why those same businesses stepped away from the convoluted corporate structures made up of many different agencies making non-disclosed margins.

“We’re seeing an increase in advertisers that set up global-framework agreements with holding groups even though the budgets are spent through local agencies of record,” said Ruben Schreurs, CEO at digital media consulting firm Digital Decisions. Doing so means an advertiser can continue to work with local agencies without having to forego knowing how their money is spent at a group level. “Those global framework deals rarely cover the local commercial agreements between advertiser and agency, but instead focus on the agency’s global technology rate card, audit rights, transparency agreements as well as other hygiene factors that are agreed centrally so that the local teams can focus on commercials, service level agreements and scope of work.” added Schreurs.

As a result, GroupM’s growth rate slid just 0.1% over the period, while Omnicom Media Group and Publicis Media grew at 1.7% and 0.5% respectively, per COMvergence. It may not be exponential growth, particularly in the case of GroupM, but it shows the staying power of those media businesses despite the pressures they faced.

“Transparency is always a topic for us but we’ve looked at the contracts we have with our agencies and are happy with the agreements in our markets,” said Pernod Ricard’s global digital acceleration director, Pierre-Yves Calloc’h, who has led the advertiser’s attempts to overhaul how it works with agencies.

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