A Breath of Fresh Air? Dramatic Changes in the Brazilian Advertising Industry

Three events have occurred in the past four months that are bringing fresh air to client - advertising agency relations in Brazil. Starting in December, 2020 with the Brazilian Government’s anti-competitive investigative unit, Administrative Council for Economic Defense (CADE), examining Rede Globo’s media benefits practices and ending in May with a Brazilian advertising agency CEO publicly discussing the relationship between client remuneration and agency media volume bonuses. In-between these two events was the notification by the leading Brazilian advertiser association, ABA, that it was leaving the executive counsel of the country’s self-regulatory authority, CENP.

CADE Investigates Rede Globo Incentive Payments

In December, 2020, CADE announced that it had been investigating, since February 2020, the anti-competitive nature of media benefits paid by Rede Globo to advertising agencies. CADE characterized Globo’s incentive plans as an infringement of the economic order of abuse of a dominant position. CADE instructed Rede Globo to stop paying incentives and volume bonuses to advertising agencies on Globo’s current and future incentive plans. Penalty for non-compliance was a daily fine of R$ 20,000. On December 18^th, Globo obtained an injunction against this judgment from Brazil’s Federal Court. Globo can continue with its incentive plans until which time CADE concludes its investigation.

The practice of paying AVB’s in Brazil is over 60 years old and is not isolated to Globo. CADE, in its action against Globo, acknowledged that media incentives represent an agency’s largest source of income. Nonetheless, CADE deemed Globo’s AVB practices unique and anti-competitive. On the other hand, CADE’s investigation could be perceived as opportunistic since Globo has been a target of current Brazilian president, Jair Bolsonaro. During President Bolsonaro’s first month in office in January 2018 the president asked the Brazilian legislature to pass a law that would ban media incentives. This request was largely seen as payback from the president for the negative coverage Globo had of the Bolsonaro’s presidential campaign. Not to anyone’s surprise, the law did not pass.

Previous actions by CADE in the advertising arena, such as its 2016 investigation into whether CENP represented a monopolistic entity have not resulted in change. Whether CADE’s investigation results in change is moot since major players in the market have already leveraged CADE’s action to gain more transparency in the Brazilian advertising arena.

Association of Brazilian Advertisers (ABA) Leaves CENP

In January 2021, the Association of Brazilian Advertisers (ABA) informed the advertising industry’s self-regulatory authority, CENP, that ABA was leaving CENP’s Executive Board. ABA was a founder of CENP and has been on CENP’s executive board for more than 20 years. CENP establishes the commercial relationship between media providers, advertising agencies, and advertisers. Among other things, CENP standards:

• ban the credit of agency volume bonuses /incentive to clients
• establish minimum agency remuneration requirements
• effectively prohibit media buying agencies from operating in Brazil.

The CENP board was evenly represented between advertiser, advertising agency and media outlets. ABA members include many of the leading national advertisers such asMondelez, L’Oréal, Unilever, Stellantis, J&J, and P&G to name a few.

ABA justified its departure from CENP stating that CENP has not adapted with the times, particularly the areas of digital media, transparency, and open competition. ABA member comments to FirmDecisions attributed the withdrawal to the CADE investigation and the lack of the competitive media buying alternatives to advertisers. ABA would like either a reformed CENP or a new self-regulatory entity. To that extent ABA, in late March 2021, welcomed discussions with the Internet Advertising Bureau (IAB) of Brazil, a trade association that has often expressed dismay with CENP’s approach. Whatever the outcome of a reformed CENP or a new CENP, it is likely that advertising agencies, it light of client frustrations, will be more accommodating on previously sensitive subjects such as media incentives and agency remuneration.

Agency CEO Discusses Agency Remuneration and AVB’s

In an interview in the April 5, 2021 edition of Meio & Mensagem, the largest and most influential trade journal in Brazil, Fernando Tarrelli, the CEO of VMLY&R Brazil, stated that:

“First: transparency already exist with BV” (media incentives). BV is part of the remuneration and there is no client who doesn't know and talk about it. It helps the market, in the sense of maintaining talent. The market sinned in the past, by transforming the BV into a black box…..The industry needs and deserves go to a transparency model, with dedicated teams, with man-hours and BV as part of the equation, however, generating value and not with the old vision”

It is refreshing to see a Brazilian advertising agency executive discuss media incentives in public. Nonetheless, the VMLY&R executive continues re-enforce the industry talking point that the incentives paid by media companies are indispensable  to maintaining superior talent within an agency. Implied in this position is the agency assumption that AVB’s are critical to agency welfare since clients are not willing to pay for the full cost of staff on their accounts. Unsaid in this position is that the media companies incentives are discretely shaping client media investments and indirectly influencing the profile of agency staff hires.

The activity during the first four months of 2021 should encourage clients to have more robust dialogues with their Brazilian agencies regarding media transparency and agency remuneration. Waiting for the market to officialize current sentiment may allow the current fresh breeze to turn stale.