Publicis Has Some Explaining to Do on "Payments" From Google for $1B in Ads

Last Updated Nov 25, 2010 2:46 PM EST

Publicis (PUB) denies it is receiving volume discount "kickbacks" to funnel $1 billion of the company's ad business through Google (GOOG), according to TechCrunch. But Google admits that it gives Publicis "incentives" and "payments" under their partnership. These two companies ought to get their stories straight before the feds start poking around or their clients reach for their lawyers.

What's interesting about Publicis' vehement denials is that when the pact was struck in 2008, some people assumed that sweeteners from Google were the only reason the pair got into bed together in the first place. Plus, the Publicis-Google deal has a similarity to the Publicis-Microsoft (MSFT) deal -- they both have the appearance of a conflict of interest -- if TechCrunch's telling is correct. Here's the meat of it, contradictions and all:

One advertising agency in particular, Publicis, is pushing a ton of advertising dollars through Google in return for what two industry insiders independently refer to as "kickbacks" or "rebates."
Kurt Unkel, an SVP at Vivaki (the digital arm of Publicis) flatly denies there are any payments of this kind. "There isn't a rebate in play. We have a strategic partnership," says Unkel. Any suggestion that Publicis is accepting payments from Google in return for driving online ad spending through Google is "an utter crock of shit," he says.
He adds, "That is illegal in the U.S."
Google is a bit more circumspect. "There are incentives," admits a Google spokesperson. "I don't know that there is a wad of cash," he adds, "payments are predicated on a bunch of things."
Google frames those payments as investments in training and in a trading platform at VivaKi, Publicis' digital advertising network which includes Razorfish, Digitas and Publicis' media-buying agencies. Clients have no idea that they're paying Publicis to run ads on Google -- it could be cheaper or at least quicker to buy them from Google directly -- because the Publicis-VivaKi-Google relationship is in "a black box," the article says.

The key to understanding why this might be illegal is to realize that it is the advertising clients' money that is generating all these discounts, payments, rebates and such. Yet somehow the benefit of them is allegedly accruing to Publicis and its VivaKi unit, and not the clients who paid for them.

Net not gross
Just because you've got a contract doesn't mean it's legal. If Publicis' contracts with its clients require media to be billed at net -- including any rebates or discounts -- and not at gross, then Publicis could be asking for trouble. In 2008, some people suggested that the whole point of the Publicis-Google relationship was to create such rebates for Publicis:

Every form of "traditional" media, including print, radio, TV and outdoor, has an agency discount associated with it. Agencies make a significant share of their earnings from the spread between wholesale and retail media prices -- except with Google and the other search engines.
...Google will do two substantive things for Publicis: first, provide it an agency discount (which it will eventually have to open up to other competing ad agencies), and second, figure out some way to vastly simplify all the complicated decisions required to run digital campaigns.
Saying it's legal doesn't make it so
In the comments section underneath the TechCrunch article, you can see that some people in the business feel that if such incentives are written into an agreement between an agency and its media supplier, that therefore it must be legal:
Michael: Sounds like value add based on volume - common practice IMHO

pshibles: Right, but what if those discounts are for agency-level spends not client-level spends. Those discounts that would probably not be passed along back to marketing customers... thus increasing agency profit. If it walks like a duck and quacks like a duck, it's probably a kickback.

Concerned and Confused: This is how the entire industry works in terms of discounts for large commits to a particular service. Look at *any* rich media serving contract.

Similarly, Publicis also has a sweetheart deal with Microsoft in which it promises to spend a certain amount of its clients' money on the software maker's media every year. The problem with that deal is that Publicis must reach that spending commitment regardless of what might be best for its clients. Both deals have apparent conflicts.

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Image by Flickr user thetruthabout, CC.