New revenue sources and agency incentives are growing steadily

With the global advertising market booming and ad spend growing, media owners and platforms, agencies and affiliates are developing new revenue sources and offering novel incentive programs for advertisers. This is why it’s more important than ever for advertisers to review how their agencies are remunerated, assess what is and isn’t allowed in agency contracts, and reassert the rights to transparency and proper oversight of their media investments. Three crucial areas of focus are online video, paid social, and programmatic trading mechanisms.

Market context 

Global marketing investment has rebounded robustly post-pandemic, with total media spend reaching $720bn in 2023. This figure is projected to grow by over 4% annually for the next three years, hitting $818bn investment levels by 2026. Notably, digital channels are expected to attract more than 61% of this expenditure1. The big five agency holding groups all had strong years in 2023, most recording significant growth, their highest-ever net revenues, and record share prices.  

Data from Insider Intelligence / eMarketer highlights the digital drivers of growth in the market. Digital ad spend is growing five times faster than in traditional media channels. Programmatic digital display is growing three times faster than non-programmatic. In the world’s biggest advertising market, the U.S., social network ad spend recorded a 13% uplift in the past year, higher than initially projected, and is set to hit $83bn in 2024. And retail media investment – projected to be worth $140bn worldwide – accounts for half of total U.S. search ad spend growth this year. 

As the market changes rapidly, advertisers need to be aware of, investigate, and challenge their partners on how trading mechanisms and incentive programs – particularly for digital and social media advertising – are also shifting. Brands and their agencies need to evolve and nail down the shared definitions of agency incentives in their contracts. This demands interrogating agencies’ ways of working, notably with third- and fourth-party players, to gain a comprehensive view of what they’re spending, where and how agencies are being incentivized and rewarded. It’s true that older, more established incentives – most notably Annual Volume Benefits (AVBs) – have been in retreat since the 2015 ANA report identified “numerous non-transparent practices found to be pervasive in the US media ad buying ecosystem.” Nevertheless, the growth of the market and agency profitability means that there are three areas where advertisers should focus: online video, social media, and the grey area of programmatic trading mechanisms. Each brings its own watchouts and potential pitfalls advertisers should consider. 

1. Online video

As media dollars shift into digital, leading ad platforms have introduced incentives for agencies and their advertisers to increase their online video investment. Cash returns can be offered when spend thresholds are hit every quarter. Spend tiers are reconciled at the end of the year, but they are based on investment levels being sustained against quarterly milestones. And while it is not uncommon to observe cash returns, you typically need to have active spend with these vendors to receive this incentive once it becomes available. If you don’t – and even if the quarterly milestones have been hit – the rebate is not forthcoming. 

2. Social media platform incentives

Investment in paid social campaigns is booming. The incentives offered by many platforms are typically made in the form of in-platform credits, not cash returns, as may be the case for online video spend. These incentives are available to agencies or advertisers, though, from our observations, agencies usually manage them. 

Social media platform incentives are usually offered on a ‘use-it-or-lose-it’ basis, requiring ongoing spend, made available with a two-quarter delay. This means, for instance, if you reach an agreed level of spend in Q1, this will be reconciled in Q2, but only credited to your account in Q3. And you have to be running an active campaign with the same type of ads from which the credits were earned in order to use them. If not, again the benefit evaporates. This is a major consideration, as in-platform credits can be worth a sizable portion of that ad spend. 

3. Grey area trading mechanisms

With ever-higher proportions of media being traded programmatically, agencies and related-party specialty teams are routinely engaging with non-affiliated programmatic media trading specialists to activate parts of advertisers’ campaigns. This reduces the transparency of trading that many have come to expect in the ecosystem, making it unclear who is procuring the media, whether they’re selling what is essentially free media, or the extent to which they’re marking it up. The financial impact of this lack of transparency in programmatic means that a material portion of that media spend may be caught up in non-working media – including fees, technology, and data costs – meaning layer upon layer of providers taking a slice of your budget. 

Recommendations for action 

Although there has been real progress since the ANA report was published, with the proliferation of new trading mechanisms, we recommend advertisers follow this four-step action plan to drive transparency into trading, enhance agency relationships, and secure better returns on investment. 

1. Revisit media agency contracts to ensure definitions for AVBs, SLAs, and other incentives are adequate and current. 
2. Confirm and reaffirm how your agency is running your media business. 
3. Test transparency rights to confirm they reach your agency’s holding company, covering all links in the supply chain. 
4. Implement media management training for your teams focusing on digital media supply chain oversight.