Articles

Transparency in Short Supply in Latin America

Tony Newcomb, Partner - Managing Director, Latin America

Like every other region in the world, Latin America still has a long road to travel if advertisers are to benefit from full transparency around their media investments. Tony Newcomb, Managing Director, FirmDecisions Latin America, explains what’s different about this geography.

Financial transparency around media investment is in limited supply in Latin America. This is not unique to the region – indeed, as readers of Response will know, transparency is an issue the world over. But the reasons for opacity in Latam are peculiar to the region, and two prominent causes are the concentration of media investment with a limited number of suppliers and statutory restraints.

Almost all providers in every Latin American market offer agency volume bonuses (AVBs). But in many key markets, more than half of all marketing expenditure is concentrated in the hands of just one or two media providers: in Mexico it is Televisa; Globo in Brazil; Clarin in Argentina; RCN and Caracol in Colombia; and Venevision and TVC in Venezuela.

This concentration leaves media buying agencies little leverage with the providers. The secondary media providers in these markets – and, indeed, sometimes the primary providers too – often offer generous incentives to the agencies to maintain or gain market share, in the form of:

  •   Generous early payment discounts not disclosed on the face of the supplier invoice
  •   The opportunity to purchase inventory on liberal terms
  •   Consulting agreements with the media provider
  •   Ostensibly free services, which are then billed to clients

How agencies disclose these incentives to clients (or not) contributes to the lack of transparency, and we are frequently required to assess and quantify whether practices and incentives such as these comply with agency contracts.

Brazilian law limits the amount of transparency between the media provider, agency, and client. First off, statutes do not permit media buying agencies to operate in the market. As a concession to the agency industry, statutes provide for minimum remuneration: 15 percent on the gross cost of media. Additionally, AVBs must stay with the agency and cannot be credited to the client.

Likewise, agencies must sign non-disclosure agreements with the media providers regarding these AVBs. Violation of the law results in the advertiser paying the full rate card for all media, until the advertiser has remedied its non-compliance practices. The most obvious impact is that clients do not know what their agency is earning on their account. Indeed, it is quite possible that the media provider on the account will be compensating the agency more than the client is.

The limitations imposed in Brazil mean that we are frequently required to help clients navigate the regulations, making sure that they are not deemed in violation of local statutes. Additionally, we estimate total agency remuneration, including AVBs, on each account. These estimates attempt to make the financial terrain clearer. Moreover, we ensure that advertisers do not pay for expenses that should be absorbed by the agency. We often find that clients are paying for marketing and creative expenses which, technically, should be absorbed by the agency.

Finally, transparency would be enhanced if the master service agreements were translated from their original language into the local language. Local personnel, on both the client and agency side, are overwhelmed by complex agreements in non-native languages. This complexity not only increases the risk of non-compliance, but also causes material non-compliance and overcharges to advertisers.