Three years ago, an alleged production house scandal at a top advertising agency network shook the ad world, putting some heads on the chopping block. However, the names that were believed to be involved were given a clean exit. Even before that, the ad production business has had a reputation of not being a black and white territory. There have been hush-hush stories of how creative agencies have used this space to make some extra money on the side in an era of fast decreasing margins.

When brand marketers told IMPACT how kickbacks are given to creative agencies from the pool of money assigned to production houses for creating a brand film, we decided to dig deeper. While most creative agencies we approached rubbished the allegations and refused to come on record, sources from within the creative industry as well as production houses confirmed this theory and told us that it is an everyday practice in the ad world, which partially has both the production house and the creative agencies’ nod, which makes it a matter of great concern for brands.

He adds, “However, when I started off in the business, there was a South-based production house, that operates only out of one city, a representative from which directly asked me to pay him in cash 10% of what the client would pay me for the edit. That made me jittery, with national agencies it has always been incorporated into the contract as an ‘agency fee’. But when you are new, you fall for such stunts too as you need the work and such recommendations to get you started.”

When IMPACT spoke to another producer who only makes big budget ad films, the response was almost similar, “The margins are so low right now, that agencies are literally telling me ‘Add my buffer to your invoice and give me the cheque’. I don't know how it is justified. My question is, fundamentally if you agreed to a price with a client to provide a service – even if you feel you are being underpaid – how are you going behind their back and adding a rate?”

Talking about how they operate, he says, “Because these are big budget films costing anywhere between Rs 1.7 crore to Rs 2 crore, agencies don’t charge on the overall cost of production but take a 10-30% cut on the additional billing which may include, super changes, music changes etc. When you agree to a certain scope of work and it goes beyond that, you have to pay for what’s extra. To get that payment approved agencies ask for a kickback. So, if it costs Rs 10 lakh, agencies will take home Rs 3 lakh.”

“Small production houses run their firms depending solely on the next advance they receive, they have to get these changes approved, else they risk losing their jobs. And on the agency side they will tell you, ‘Tell me what you want, I shall add my number to it and get it approved for you’. Agencies would raise a consultancy invoice, so it becomes an official payment. There are location permission costs, police permission costs, the excuses are endless. The problem is that the younger and smaller production houses are agreeing to anything that the agencies ask for.”

Another head of a production house says, “It is so rampant that I have stopped looking at the 10-20% service fee as a kickback and think of it as an official fee given to the agency, even if the brand doesn’t know about it. I've never had issues with giving that cut to an agency as a company but when people ask for that as a personal enrichment scheme, it becomes a little messy. I have always been anti-kickbacks to individuals.” 

He goes on to explain how such kickbacks are given without drawing suspicion. “We have had requests where an agency representative who holds sway over the client says we should pay his credit card bill, buy an international flight ticket or send his family on an all-expenses paid for holiday, then there are requests to buy jewellery, Rs 1.5 lakh to Rs 2 lakh worth designer bags; all sorts of things which can’t really have a money trail leading up to them. There is no bill for it. It's a gift which is difficult to catch.”

But the question is - who are really involved in such dealings? A creative agency head, on the condition of anonymity, says, “The who’s who of advertising have sullied their hands in this. Having said that it is not necessarily the heads who partake in such messy dealings, it works at all levels. Even at an NCD or ECD level, you can push the client saying you want to work with a certain production house only.”

Multiple sources in the industry claim there are two independent agencies, both famous and creative, which have made most of their revenue doing these underhand dealings with production houses.

Sources have also told IMPACT that 5-6 years ago, a top network agency created a unit called Box Office, which basically tried to formalise the idea of a creative agency charging ‘service fee’ from the production house for picking them over others. But within a few months of its inception, it was disbanded following a discussion with the network heads at a global level labelling the practice as ‘unethical’.

Another creative leader says, “Unlike smaller creative houses, top networks are slightly more wary about the production houses they do these dealings with and they take it forward only after they safely fall into a circle of trust.” A highly placed source told IMPACT that two and a half years ago an auto client found out how it was being massively overcharged by an in-house production house of a big network agency, which was also in collusion with the brand’s marketing department, causing a massive furore both at the production house and at the brand’s end. A few months later as a face-saver the retainer was renegotiated and the brand’s marketing budgets were also slashed by half.”