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By Maddy Smith
The WFA and FirmDecisions’ 2022 joint report reveals ten key areas connected with media agency contracts, where advertisers should pay particular attention wherever they operate.
The 2022 Media Contract Guidance for Advertisers report, conducted in partnership with the WFA and FirmDecisions, lists ten areas of best practice.
There are ten principal areas connected with media agency contracts where advertisers should pay particular attention, wherever they operate. Focusing on these priority issues will ensure the structure and terms of the contract protect their best interests.
Media Agency Contracts: Ten Areas of Best Practice
The report explains that as ‘transparency’ is a constantly evolving topic in media, the focus has been shifted from rebates or AVBs, to arbitrated or ‘inventory’ media, to the complex realm of programmatic media supply chain, with its various intermediaries.
The report has three main purposes; to ensure full transparency in return for fair remuneration, to protect advertiser’s best interests for the long-term future, to encourage the widespread adoption of best practices in the industry.
The report explains that in all of these areas, clients require transparency in order to ensure that fair value is received for their money. While the contract between client and agency partners can’t resolve all issues, it’s a critical foundational document which can be used to promote transparency and value.
The past year has seen the WFA and Ebiquity make available the Transparency Scorecard, which demonstrates results from 50 advertisers suggesting that contracts are generally now well drafted. Almost three quarters of members who have completed the “instant transparency audit” now have a structured governance process in place to ensure all Scopes of Work, Master Service Agreements and other addenda are properly reviewed. The number is even higher for those members in global roles.
The report also highlights that 46% are revisiting and auditing their contracts quarterly, half-yearly or annually.
However, there are areas for improvement as in the current climate, a contract older than a year is already beginning to age and reveal vulnerabilities. 54% of the sample are conducting contract reviews on a less frequent basis than this.
Worryingly, a small portion of respondents (8%) concede that they do not have comprehensively signed contracts with all their agency partners globally. And, 12% either do not have (or do not know if they have) financial audit rights enshrined in their contracts.
Gerry D’Angelo, Co-chair of WFA Media Forum and Global Media Director P&G says, “For some time now, P&G has been calling on the media industry to create a responsible media supply chain, one that is safe, efficient, transparent and accountable. Now it’s time to create that responsible media supply chain, built for the future and that serves the needs of everyone, especially the consumers we serve. The WFA Media Contract Guidance for Advertisers is a significant step in this direction and will help advertisers to establish and maintain an equitable relationship with its media agency partners by establishing 10 Areas of Best Practice that can be tailored to meet the needs of individual advertisers”.
Isabel Massey Co-chair WFA Media Forum and Global Media Director Diageo comments, “The transparency agenda has broadened beyond its financial roots. It’s no longer just about money”.
She adds, “We also need transparency to ensure our brands show up in safe environments, that consumers’ privacy is protected, and our media investment is being directed towards diverse media and trusted journalism. The contract is the place to enshrine all these criteria. If it matters to you or your agency, it should be grounded in the contract. I hope that this document serves as a reminder of this”.
FirmDecisions preface the report by explaining that a fair and comprehensive contract is the foundation stone of any equitable commercial relationship between an advertiser and its agency partner.
The right contract for all parties ensures that the partnership runs smoothly, brand-side and agency-side. It keeps the day-to-day relationship on an even keel and helps all parties understand and fulfil their key roles and responsibilities.
They reiterate that given the complexities and the fast-evolving nature of the media and marketing ecosystem, having a contract in place that promotes transparency and drives optimum performance is a must.
In many markets around the world, local advertiser trade bodies have created framework media contracts for their members to use as the starting point for negotiations with their media agency partners. These contracts contain all the clauses required to ensure the advertisers’ rights are fully protected, especially around transparency of trading, and particularly digital media.
FirmDecisions state that contracts should contain no ambiguities and clarity is key to foster partnership between brand teams and their agencies. It is best practice for advertisers to commission contract compliance audits regularly to ensure that the contractual terms are being adhered to by the agency.
This should happen every one or two years, to accommodate and reflect the dynamic and fast-evolving nature of the media marketplace. Learnings from these audits should be incorporated in updated contracts.
The report says many contracts are created by an advertiser’s in-house legal team. Although professional and well-meaning, they often lack the knowledge of the bigger picture view of how the media market is developing.
As such, the World Federation of Advertisers (WFA) asked one of the world’s leading independent contract compliance auditing business, FirmDecisions, to provide some guidance for advertisers as to what should be included in a media contract to ensure the best levels of protection, transparency and accountability in the relationship.
According to the report’s authors, this guidance also provides some explanation of the reasons why these issues need to be addressed in the contract. This will enable the advertiser to tailor their contracts to suit their own circumstances, based on the advice and explanations provided in this guidance.
Looking in more detail at the 10 areas of best practice
The Master Services Agreement (MSA)
The Master Services Agreement is the embodiment of the ways of working between advertiser and agency. It is critical that the Contract is clear, succinct, current and comprehensive. It needs to make sense and not allow ambiguity or omission to lead to confusion or disagreement. Hence, by following the below recommended inclusions, the advertiser and agency will be clear in what is required in managing the relationship. In return for being fairly remunerated the agency should be prepared to agree to the measures discussed in this guidance in a bid to prove their willingness to be totally transparent and accountable in their relationship with the advertiser.
James Taylor, Global Procurement Director, Media, Digital and Consumer Planning at Diageo says, “We feel the media contract should reflect the relationship, and be specific whilst allowing for flexibility when required. It should become a strong foundation for both parties to work off, and therefore ambiguous clauses should be avoided”.
The challenges of digital media
The report highlights that the complexities, difficulties, and challenges of the digital media ecosystem are well-documented. It explains that the sheer scale, rate of change, and number of links in the digital media supply chain are dizzying and hard to keep up with, even for the most curious and studious of marketers.
Forty percent of respondents to the WFA and Ebiquity Transparency Scorecard say that they are not sure that all programmatic buying made on their behalf includes the application of technologies/techniques to prevent ad misplacement. A clear area for improvement.
For these reasons, it’s important to ensure that your operating framework covers ad verification, which should include brand safety, ad-fraud, viewability and measurement. As you look to capture the complexities of digital media in your media agency contract, ask yourself the following questions.
Vidyarth Eluppai Srivatsan, Global Ad Tech & Media Platforms Director at The Coca-Cola Company comments, “To push the boundaries of digital media ROI, it is not only important to align on brand safety, and quality goals along with your agency partners, but also to have a shared measurement strategy and platform to ensure execution and governance can scale consistently”.
Transparent models in 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.
Just over a third of respondents to the WFA and Ebiquity Transparency Scorecard identify that they do not have full access to data used on their behalf. Having the right to this data enshrined in contracts is critically important.
Understanding Inventory Media Agencies and their holding companies may offer advertisers the opportunity to buy what is known as Inventory or Proprietary Media. These terms were first used to describe non-disclosed trades in purchases of free-to-air media, but, over time, digital has become the dominant media type being sold to clients in this non-disclosed manner,while still including all media types – but just to a lesser extent.
Sameer Amin, Global Director of Data Driven Marketing & Media at RB says, “The opportunity exists to capture considerable value via use of agency inventory media, but clients have to recognise that they can lose transparency and control”.
Amin adds, “Inventory media quality may not meet your usual expectations and your audit rights will likely be waived. At the very least it makes sense to include clear and explicit ‘opt-in’ controls for inventory media in your contracts. Advertisers on the more conservative end of the spectrum may decide it may not be for them. In the end it comes down to your contract and whether or not it will deliver against your strategic goals”.
Unbilled media, media credits and holds
Unbilled media arises when the client is billed for media costs before the media vendor invoice has been received or when the media invoice cost is less than what has been billed to the client. With digital media, this has become more prevalent. This is because digital campaigns are often 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.
Media benefits, including agency volume benefits (AVBs)
Rebates and media benefits can be earned in a variety of ways. 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.
Marco Dogliani, Senior Director, Global Media Procurement at GSK explains, “One of the key priorities for the advertisers over the last few years has been fighting for improved transparency. AVBs, the infamous media rebates, is one of the areas where we still have not achieved it. Having the right contractual clauses that enable you to claim and audit rebates is a solid first step, the next one, and probably more challenging, is having a team knowledgeable enough on the category to know what and where are you entitled to in order to drive the conversation”.
The right to audit
Eighty-three percent of respondents to the WFA and Ebiquity Transparency Scorecard have financial audit rights included in their contracts. This is a key step which means that, through your auditors, you can nominate what paperwork needs to be examined, and by whom, to ensure that the agency is compliant with all terms of the contract.
James Taylor of Diageo considers, “Audits allow both parties the comfort of independence and as long as the audit is set up to look forward as well as review performance commitments, they should be seen by both parties as positive”.
Contract compliance auditing is an increasingly important financial management discipline that enables advertisers to ensure that their agencies are investing hard-won media and marketing budgets as intended and as specified in their agency contracts. Just as it’s vital to capture the spirit and essence of these ten principles in the Right to Audit clause in your contract, so it’s critical to apply the learnings raised by the audit and amend the contract accordingly.
As the long-anticipated demise of the cookie approaches, many brands are now taking active steps to replace third-party customer data with first-party data. Important as it is, Personally Identifiable Information (PII) is not the focus of this section. We are interested here in the management of data related to campaign performance.
Make sure you have the right protocols in place to ensure that data is only used as detailed in your scope of work and to minimise the risks of it being used in any other way.
When developing a best-in-class media agency contract, consider how any campaign-related data might be stored, managed, and used by
your agency partners.
It is best practice for both parties in the advertiser-agency relationship to adopt a position of cash neutrality. This recognises the cost of cash for both parties and ensures that neither party ends up funding the other. The principle of cash neutrality should be enshrined in your contracts.
It’s important to make sure that the remuneration is agreed by the beginning of each year and that it is fair – on both sides. Remuneration needs to reflect the entire suite of services provided by the agency group under the scope of work. Use of related parties or entities should not create any opportunity for agencies to either duplicate fees or charge mark-ups.
For the sake of total clarity, unless other fees, rebates, or commissions have been allowed elsewhere:
– The contract should state that the only revenue earned by the agency group from the client’s business is as outlined in the remuneration clause.
– If there are any extra charges applicable to other services provided by the agency – such as tech fees – these should be identified.
– A clear statement is needed that all third-party costs must be passed on at cost, with no mark-up.
Contracts between advertisers and their agency partners really matter. They are the most effective risk management tool in any advertiser’s toolkit, assigning responsibilities and risk exposures between them and their agency partners, financial and otherwise.
The areas covered in this guide – from the MSA to digital and programmatic, from inventory media to unbilled media, from the Right to Audit to data ownership and management and much more besides – can seem like a never-ending to-do list. But 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.
Andreas Sjöberg, Procurement Category Manager IKEA Retail (Ingka Group) concludes, “For us, transparent relations with our agency partners are a key component of successful partnerships. In essence, that means contract terms which provide full clarity and accuracy in scope, commitments, procedures and remuneration. This guide provides a solid platform for everyone to enable fair, transparent and trustful media agency relations”.