Amid economic headwinds when every dollar is being accounted for, advertisers have asserted that they must get a “fair share" in rebates that media agencies receive from TV channels and other media houses.
Rebates are usually referred to as Agency Volume Benefits or AVBs. They usually range from 2-5 per cent of the media spend, largely in the form of free ad spots. Advertisers assert that they are entitled to get back the “entire volume discounts” and the agency has no right to keep the discounts in their own pockets.
“The advertisers that do choose to address these issues with their agency partners in a water-tight contract, one that’s regularly reviewed and updated, are those that prosper and thrive,” says ISA.
The model agreement emphasizes on the “Right to Audit" clause that doesn’t only cover the “whole of agency turnover” to arrive at the ABVs figures, but it seeks to include agency vendors as well. Advertisers want agencies to refund the “entire discounts” at “every quarter”.
“Make sure the contract is clear about what is defined as a rebate as it relates to income or benefits received by the agency group because of client billings. Ensure that your definition captures all types of rebates including fair share, fixed or minimum, cash, offsets and free space,” reads the ISA Media Charter.
ISA further asserts, “If it is your spend that results in rebates being received within the agency group, ensure they are all passed to you, no matter which agency entity or the country receives them.”
Digital media rebates are borderless, hence rebates earned from your billings should be yours, no matter where or how they are received, it states. "Make sure that your contract requires the agency to make all reasonable efforts to pay media invoices on time so that rebates are not lost,” it reads further.
The rebates have become such a pain point over the years that it often leads to collapse of agency contracts, industry veterans say, adding, “For advertisers, whose ad spend is Rs 100 cr, rebates could range from Rs 2 cr to Rs 5 cr which is a big amount considering the market situation.”
“Agencies often keep the entire rebates with themselves. Ideally, they should refund the entire rebates to advertisers,” Sunil Kataria, chairman of the ISA, tells e4m.
ISA board member Paulomi Dhawan says, “Many advertisers are not even aware of these rebates. Only media houses and agencies would know about it. The lack of communication over these crucial issues often leads to mistrust between advertisers and agencies.”
The ISA also wants some discounts from agencies for early payment, just as they pay interest for delay in payment.
The body wants agencies to report to them regularly on unbilled and unpaid money held by agencies for more than three months. Digital campaigns are sometimes billed monthly according to the media plan. Actual impressions delivered often differ significantly from the plan, requiring a reconciliation adjustment – or rollover – at the end of that campaign.
Salient features of the ISA model agreement
Six key focus areas of the Media Charter:
ISA calls its six-point Media Charter in line with “Global Best Practices” which aims to help clients to get the foundation right. The key focus areas are ISA Model Media Agency Agreement, Zero Tolerance to Ad-Fraud, Brand Safety, Ad Viewability, Common Minimum Standard for First-Party Data and Cross-Screen Measurement.
According to Kataria, ISA has constituted five sub-committees to delve further on these focus areas. After receiving reports from these sub-committees, the model contract may be updated.
The salient features listed in the charter are:
* Ensure that the terms are signed before the contracted period begins
*Evaluate sharing non-negotiable clauses, at the pitch stage
*Detail a comprehensive list in the Appendices/ Annexures when signing
* Include all important matters that will have a bearing on the working relationship and deliverables
*Cover all entities within the agency group, not just the Agency of Record (AOR).
*Evaluate seeking an annual representation from a representative within the agency holding company
*Confirm the agency’s compliance with all terms of the agreement
*Adjust any areas where there has been non compliance, or changed circumstances
*As part of a Financial Compliance, audit the agency to provide a Management Representation Letter – signed by the Group CFO
*Call out in the Media Agency Agreement that a fee, and the occurrence of it, has been agreed between the two parties – keep the format in the annexure
*Ad verification across all programmatic buying - ensure the operating framework covers ad verification which should include ad fraud, viewability and measurement, and brand safety.
*Review your internal policy on inventory and ensure your standards are mirrored in your contract.
*Ad fraud and viewability should be documented in the contract, to be clear on what is and isn’t acceptable and what will and won’t be considered as fraudulent or viewable.
* Brand safety: What type of inventory is included on your approved list – and excluded via your blocked list – to ensure brand safety? Reviewing and updating the list
*Assign responsibility for the review
*Mandate to approve the list
*Ad serving: Clarify Charge per actual or planned impressions based on KPIs
* Charge at cost or a pre-approved rate card
*What are the timelines for agency response?
*Establish liability and clarity on non payment for breach
Programmatic Media Buying
*Agencies typically provide media traded programmatically to advertisers on either a disclosed or non-disclosed (Inventory Media) basis. It can be hard to access log-level data, even for advertisers operating on a disclosed basis. Having the right to this data enshrined in contracts is critically important. For a fully disclosed model, your contract should ensure audit access to: 4th-party invoices, meaning invoices provided by media, tech, or data vendors to the agency or trading desk used to buy media inventory on your spend through a disclosed model, ensure you have full transparency into the:
*Component pricing and the costs of the media, data, and technology applied, Platforms used, Resources deployed
* Agency trading desk systems, including campaign management platforms and proprietary tools used by the trading desk or agency to consolidate campaign and investment data sets, Side Platforms and other reporting interfaces, including ad verification platforms
Conflict of interests
*Ensure that agencies inform advertisers of any investment or other financial interests held by any member of the agency group in any ad tech, media, or data company that provides services to the client.
*This is particularly true of programmatic trading desks which – with increasing proportions of media bought programmatically – could represent a significant conflict of interest. The motivations for clients choosing this route are often linked to price - Inventory Media can offer a way to reduce costs and make budgets go further. But advertisers buying agency inventory should expect trade-off transparency for any price reduction.
*The practice also creates a conflict of interest for the agency. With the agency acting as both agent and principal, it’s important to ask whose best interests are being served when they choose to place their Inventory Media on the media plan.
* Clearly define in the contract what is and isn’t considered to be Inventory Media, and thisoften means prohibiting agencies from repackaging free space or realized benefits as Inventory Media.
*Clearly spell out requirements for the agency to disclose the inclusion of their Inventory Media on the media plan.
*Clients should also consider limiting use of Inventory Media to a certain % of total spend.
*Advertisers should have access to data and supporting information for Inventory Media, as well as to establish – and enforce – penalties if their agency partners do not fulfill their contractual obligations in this area.
Data Ownership
Agree on how campaign data will be managed by the agency. For instance, does the agency capture digital campaign related data – such as DSP log files – anonymize it, and aggregate it in an agency pool or database? Should this be the same protocol for disclosed and nondisclosed models?
*Make sure that you approve how and by whom your data can be used.
- Set up contingencies for what happens when you stop working with your agency partners, if and how it will be transferred to new partners, and whether and how it should be destroyed.
- Ensure that your media data is not shared with other clients or partners. To provide the desired levels of transparency, advertisers should make sure that they have direct access to campaign related data, either through their own logins or via agreed reporting.
Cash neutrality
* If the agency receives client money in advance of payment to the vendor, then the agency’s cash flow benefits from this money to the detriment of the client.
*If the agency needs to pay the vendor before they receive payment from the client, then they are being asked to fund the client business and should receive compensation.
*With a Cash Neutrality clause, interest is payable to the agency if they pay vendors before receipt of funds from the client. Meantime, interest accrues to the advertiser for time the funds are held by the agency before paying the vendor. This can be reconciled and paid out at the end of each year and be subject to audit
*Additionally, there are three other aspects of payment terms you should ensure feature in contracts. Sunset clauses of late payment. This means that the agency is obliged to charge on invoices received within a specified number of months of late payments crystallizing – not after three years when you have decided to terminate the contract.
*Credit notes: are sometimes not taken up as they do not always have matching purchase order numbers. To prevent this from happening, there should be monthly reporting of any outstanding credit notes by the agency.
*Early Payment Discounts: can be offered by some vendors. Advertisers should be advised of the availability of these EPDs and allowed to participate in the discounts if the appropriate payment terms can be met. A formal opt-in/opt-out letter should be issued every year.
Remuneration
*Remuneration needs to reflect the entire suite of services provided by the agency group under the scope of work.
*The use of related parties or entities should not create any opportunity for agencies to either duplicate fees or charge mark-ups.
*Percentage Commission Model can lead to incentivizing the agency to maximize client spend. If you do choose to use a commission-based model, consider ensuring that:
- it is calculated on net media costs (not gross) and
- a definition of net media is agreed by both parties and included in the contract.
*The Fee-based Model approach can be used to encourage and reward media neutrality – making the right selection of media to create maximum success in the
achievement of client objectives at the optimum cost.
Principles of using a Fee Model Built upon defined statements of work (SOWs). • Determine how out of scope work will be managed, accounted for, and authorized. If the fee is fixed and is based on a specific SOW, spell out what happens to the fixed fee if the agreed SOW increases or decreases in scope.
*Is the fee fixed or is it reconcilable against actual FTEs?
*If the fee is reconcilable or adjustable due to changing scope
*If standard hours are used to calculate FTEs in a fee model, ensure that anyone working more than the standard annual hours is capped at 1.0 FTE. That is, if standard hours are 1,800 but the employee works 2,000 hours on client business, the FTE is still 1.0 not 1.11
*Adjustments need to be made for staff churn, as multiple people doing one role can easily go over 1.0 FTE if this situation is not clarified
*Ensure consideration or allowance is made for gaps in the staffing plan through staff leaving or going on leave and not being replaced. Have they been replaced or covered by someone already in your fee model or by someone more junior and so at a different cost?
Timesheets management
*Timesheets should be maintained and be auditable, at least insofar as they relate to a client's business. Agencies need to ensure there is a robust system in
place with appropriate authorization controls for time being allocated to your account agency group from client’s business is as outlined in the
How should reconciliation be managed?
*Should be prepared and submitted quarterly to allow monitoring of any material differences and so avoid year-end surprises for either party.
