Agency Contracts in the Legal Spotlight

Stephen Broderick, CEO of FirmDecisions, argues that advertisers should take action to ensure their media agency contracts promote their best interests.

In June 2016, the U.S. Association of National Advertisers (ANA) published the findings of a research study it had commissioned into the transparency of media buying behavior of media agencies in the U.S. marketplace. It was carried out by K2 Intelligence, a leading global, independent investigations consultancy.

The K2 Study found evidence of non-transparent, incentive-led media trading practices among media agencies operating in the U.S. market. These practices may be pervasive across the industry and around the world, including in the big media agency networks. The findings were detailed in Ebiquity Group CEO Michael Karg’s article in the previous issue of Response.

Further into the summer, the ANA published a companion report to the K2 Study, prepared with input from both Ebiquity and FirmDecisions. This report contains a series of recommendations and guidelines, and is titled Media Transparency: Prescriptions, Principles, and Processes for Advertisers.

These recommendations are designed to help advertisers make better decisions on how to structure their relationships with their media agency partners. They focus on how advertisers should implement these decisions to ensure that their contracts deliver genuine transparency, data, and audit/review rights at every step of the increasingly complex advertising ecosystem.

The fluid nature of the emerging advertising market – especially within digital – means that media agencies may be trading in new ways or in ways not yet covered by existing contracts.

To ensure that contracts are current and future-proof, they need to accommodate both established and potential new media agency trading practices. For now, and the foreseeable future, this will include a focus on ‘proprietary/inventory media’ and programmatic media buying. It will also include ensuring complete data and audit/review rights across the ever-more complex chain of adtech affiliates required to deliver digital media campaigns.

Indeed, perhaps the best way to test how good or otherwise a contract may be is to conduct a media compliance review and use the findings as the basis for contractual review and renegotiation. Over the years we have seen numerous examples, in the U.S. and the rest of the world, where an advertiser’s interpretation of its contractual audit/review rights has differed from the agency’s interpretation of those same provisions. This is why it’s so important to test the terms with a review.

Indeed, we advise advertisers to test the terms of their existing media agency contract before even considering whether the appropriate next step is to open negotiations with their agency on updating their existing contract or drafting a new one. Correct contract terms and compliance reviews are two sides of the same coin, for even the best contract in the world may not deliver compliance if it is not enforced.

It’s no longer enough to provide advertisers with ad hoc advice and so, to help advertisers navigate the complexities of media agency contracts in the ever-changing media industry landscape, Ebiquity and FirmDecisions have partnered with leading global law firm and industry specialist Reed Smith to provide advertisers with contractual legal advice.

As Douglas Wood, partner at Reed Smith, says: “Relationships between advertisers and their media agencies have become increasingly complex and opaque in recent years. For too long, these have been delegated to executives who may not be familiar with the industry. It’s time this changed. Advertisers need to elevate responsibility and accountability for their media contracts to the C-suite.”

By demystifying the lack of transparency prevalent in the U.S. media buying industry, the K2 Study for the ANA has highlighted the remedial action advertisers need to take if they are to make better decisions on how they choose to structure their relationships with their media agency partners.

In the increasingly complex marketing ecosystem – driven by the rapid rise of digital, and often featuring chains of numerous affiliate and specialist companies working with media buying agencies – this is not a one-time play. It requires a permanent change of attitude, behavior, and skillset among advertisers. Relatively modest investment in best practice contracts and enforcement can lead to significant cost savings in the near and medium-term future.