Last Updated Sep 4, 2009 5:46 PM EDT
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.
- See previous BNET stories on questionable agency antics:
- AICP Admits Volume Discounts Exist; Offers Them to Clients Instead of Agencies
- ValueClick Settles Sham Sweepstakes Suit for $10M; Winners Offered a Nonexistent Hummer
- P&G, Reckitt Production Changes Threaten Volume Discounts for Agencies
- Sorrell's Comments on Procurement Reveal Opacity of Agency Billing Practices
- Grey Wins Bid to Keep London Documents Secret
- Ogilvy Settles Suit Which Alleged a Plan to Fraudulently Bill Avon
- News America Marketing Whistleblower: Clients Were Charged for Ads That Never Appeared
- GlobalHue Accused of Overbilling Bermuda Account; Agency Plays Race Card
- Is the TV Networks' Upfront an Antitrust Violation?
- Publicis Q4: $15.5M Army Fraud Settlement Not Noted in Its Numbers
- Trial: Did News America Marketing Group Break Into Floorgraphics' Computers?
- Lamar Advertising Manager Guilty of Embezzling $200,000
- Tom Seifert Made Chairman at Ogilvy; His Ex-Con Wife Is Still in Business
- Lamar Advertising Still Embroiled in Pittsburgh Ethics Scandal
- WPP's In-House Commercial Production Shop Courts Controversy With Clients
- Levi's Asks for Transparency and Media Buyers Balk