The all new
CBS News App for Android® for iPad® for iPhone®
Fully redesigned. Featuring CBSN, 24/7 live news. Get the App

Clients Rooked by Middlemen and Volume Discounts in U.K.'s Murky Outdoor Business

Last Updated Sep 4, 2009 5:46 PM EDT

If you're interested in dubious agency billing practices -- and who isn't? -- there's a great article in UK Media Week on the billboard business, and so-called "poster specialists." They are yet another set of middlemen creaming off a needless commission for the simple act of placing an ad in an empty space, the article explains.

Basically, when a client employs a media-buying agency to place a bilboard campaign, the media agency then contracts with a poster specialist who actually buys the media. Both agencies take a commission, thus putting up the price of advertising. WPP, Aegis and Interpublic control about 83 percent of the market, MW claims:
Posterscope, owned by Aegis Media, and Kinetic, 50% backed by WPP and 50% owned by Kinetic's management team ... are thought to command about 70% of the outdoor market. The third largest specialist is IPM, owned by Interpublic Group, which accounts for about 13% of the market.
The media agency takes 10 percent and the specialist takes 5 percent.

In addition, the specialists also receive volume discounts -- rebates that the billboard owners pay the specialists as a reward for their business. MW:
One senior outdoor industry source claims these additional rebates, or volume deals, are currently running at 10-12% on top of the official 15% and 5% agency commissions. He says: "This means that, in effect, Posterscope and Kinetic are not only paid for their planning and buying services by the client, but also by the outdoor media owners."
As BNET has noted before, volume discounts are controversial because clients often don't know about them and can't audit for them. Grey Group, for instance, has gone to lengths to ensure allegations about its alleged "global" volume discount practices remain sealed inside a New York state court (Grey denies wrongdoing) and Interpublic was the subject of an SEC probe over $250 million in unreturned discounts. More recently, the AICP suggested that perhaps it could offer a volume discount arrangement to clients.

One of the reasons volume discounts are so tempting for agencies and so persistent in the business is that it is almost impossible for a client account audit to find them. If they are booked as a revenue stream separate from the client's account, then only an agency-wide audit would find them. And even then, as rebates are paid on aggregate, the agency could argue that the discount was not earned on that client's business. (Clients could argue back that they'll take a pro-rated amount based on the percentage of agency revenue that flows from them, but that would require clients to do some math.)

As Chris Marjoram, managing director of IPM, told MW:
We are continually astonished how little clients seem to know about how outdoor is a major source of income for agencies.