Non-transparent commercial production affects all stakeholders

By Bobby Amm, Executive Officer, the Commercial Producers Association 

The issue of transparency has been a prickly subject in commercial production for a while now, with the US Department of Justice launching an investigation into agency bid-rigging in 2016. But transparency in commercial production remains a local issue as well.

The suspects in the US case stand accused of bidding on their own projects via their in-house production divisions, using classified information sourced from the bids of independent production houses. Previously, these production houses were considered the only entities impacted by the conflict of interest; that is, until the Association of National Advertisers (ANA) released Production Transparency in the U.S. Advertising Industry.

This report confirms what the CPA has been saying for some time: that anti-competitive actions are common, and that they impact external service providers and advertisers.

Insights

The report’s findings were gathered from 30 key executive professionals and 12 ANA-associated organisations, including an independent investigation company, a legal firm, three industry trade associations, two auditors, and five production consultants.

As many as 11 of the 12 contributing organisations agree that transparency issues are present in many agencies; the 12th could only attest to second-hand knowledge of this. Another revelation is that some agencies request that suppliers present ‘check bids’ for the work – bid fees that are significantly larger than what they’d usually charge. This fabricates evidence that an in-house company’s winning bid is justified by its ‘lower bid’.

Key points

Some of the report’s most interesting findings are that:

1.     Clients are oblivious.

Advertisers and marketers are often unaware that in-house companies are bidding for the same work, especially since these departments usually have independent names. Most advertisers don’t request that agencies divulge potential conflicts of interest.

2.     Advertisers are cheated.

According to the report, “Non-transparent agency-controlled bidding can lead to costly, inefficient, and sub-optimal advertiser business decisions.” This corrupts the freedom and openness of the market, leading to the advertiser paying more because of it.

3.     Production is impacted.

The ANA’s report explains that production processes controlled by a convoluted bidding system are “sometimes dysfunctional and conflicted”.

4.     The industry is endangered.

Competition across other industry areas, like video editing, is “potentially compromised and unreliable”, endangering the advancement and stability of the broader industry.

Suggestions

The report provides recommendations for advertisers that closely resemble the guidelines in the global production industry’s Principles of Engagement. These include:

1.     Knowing the names of agency-affiliated in-house production houses

2.     Requiring agencies to disclose when their in-house associates are joining bids

3.     Implementing processes that inhibit conflicts of interest

4.     Altering the contracts between advertisers and agencies to safeguard transparency

5.     Appointing outside bodies to oversee and facilitate the bidding process

With advertisers and related service providers impacted by the controversy, it’s essential that they stay abreast of what’s happening and take a stand for transparency. The CPA hopes that tools including the Principles of Engagement and the ANA’s report will effect honest, long-lasting processes that are fair to and beneficial for all industry stakeholders.