Why is transparency so important in media trading?

Life used to be very straightforward for advertisers. They worked with a creative agency to develop ads. Their media agency would then buy ad space – also known as media inventory – from different publishers to build a campaign. Occasionally there might be another intermediary – sales houses or ad networks – but the supply chain was relatively simple and clear. It was obvious to the CFO where the money went and why, and the points at which commission was paid to varying service providers and suppliers. There’s a simplified model of the market as it used to be in Figure 1.

How digital has made media trading more complex

The advent and growth of digital media has changed all this. There are now very many more links in the media supply chain, all of which take a slice of the budget. These include trading desks – both those owned and operated by media agencies as well as independent trading desks – demand- and supply-side platforms, sales houses, ad exchanges, and ad networks, all standing between advertisers and their agencies and publishers and consumers. See Figure 2.

The application of technology and data to media – increasingly traded programmatically – has many apparent benefits. This includes better targeting of the right audiences in the right places at the right time. But it’s also led to a system that’s much harder to manage, is much less transparent, and there are now many more players taking their share of CMOs’ budgets, with little justification for the value they deliver. But this is nothing new. It’s no different from the transparency issues advertisers faced with out-of-home media a decade ago, where agency-owned entities operated as vendors.

Procurement driving transparency

Although agency holding companies have made media trading more complex and more opaque, this has been accompanied by the growing role and influence of procurement in marketing investment decision-making in recent years. This has enabled CFOs to help marketers keep a handle on where their budgets are being spent and why. It’s true that there was some initial resistance from marketers when procurement started casting a keen eye over agency budgets. Often, this was driven by understandable anxiety that their single most important supplier relationship might be put in jeopardy by constant questioning and scrutiny.

As agency and tech partners have developed more innovative ways of taking their piece of the media pie, many more CMOs have come to see procurement as their friend. There’s a balance to be struck between having a good relationship with agency partners and at the same time not having the wool pulled over your eyes. Marketing procurement increasingly plays this role, while at the same time providing the CFO the financial accountability that has historically been lacking.

A proven lack of transparency heightens concern – and action

In 2016, the U.S. Association of National Advertisers (ANA) commissioned FirmDecisions, the business I founded, and its sister company Ebiquity, to help investigate the state of the U.S. media market, alongside K2 Intelligence. The result was the first systematic study into transparency in its home advertising market, which just happens to be the world’s largest. The study found the first documented evidence of a lack of transparency in U.S. media trading, including the existence of rebates and agency benefits that the media industry had long denied. It looked at all trading of all forms of advertising, both traditional and digital.

As a follow-up to the research study, FirmDecisions and Ebiquity produced a series of recommendations for advertisers on how they can drive transparency into their marketing supply chain. One consequence of this is that many of the world’s biggest advertisers – including consumer goods giants Procter & Gamble and Unilever – have called time on the “murky at best – fraudulent at worst”[1] digital media supply chain.

Kick-started by the ANA’s initiative, many advertisers are now reviewing, ripping up, and rewriting contracts that they find are not in their interests. They’re scrutinising and questioning where every penny of their investment is going and why. And they’re changing agencies if their incumbents can’t give them the financial transparency they are now rightly demanding of their partners.

In summary

As marketers have had to adapt to a more complex media trading ecosystem, so their reliance on agency suppliers has grown. This has led to a lack of in-house knowledge of the ways in which media is traded. The growth of procurement as the friend of both the CFO and the CMO – combined with the ANA’s first evidence of a systematic lack of transparency – have been important stepping stones on the road to regaining trust in the marketing supply chain. They have also helped to provide CFOs with the accountability they need to make informed business decisions.

Stephen Broderick is Global CEO of FirmDecisions, the largest independent global marketing compliance specialist.

[1] P&G’s Marc Pritchard at Internet Advertising Bureau conference in January 2017. Speech here https://www.youtube.com/watch?v=NEUCOsphoI0