Media agency boss claims auditors ‘fuel paranoia’ and hinder industry progress

The man in charge of emerging markets for Asia’s largest media buying agency has criticised third party auditors for stirring “paranoia” in the client community and holding back industry progress by perpetuating a model based on price and not results.

In an interview with Mumbrella today in which he outlined 10 things that have changed about media over the last decade, Ashutosh Srivastava, Mindshare’s chairman and CEO for AMEA, Russia and emerging markets, said that auditors have built their businesses by creating distrust between clients and media agencies, and that the pitch was an outdated way of assessing a media agency’s capabilities.

“One thing I find bizarre is the concept of pitching. You have a two-hour time slot to present, some back checks will be done on credibility and financials, then you’ll be chosen for a basic service. That is fine for a commoditised business,” he said, arguing that media agencies are becoming less commoditised as they find ways to differentiate themselves through data, programmatic, creativity and other means.

Pitching, which he described as like a “fashion show”, has led to the rise of auditors “who build their business by broadening the level of distrust between client and agency.”

“They ask questions such as, ‘Are you sure about what you’re getting? Are you really equipped with the latest knowledge to ensure you get the right agency? You could be making a mistake that cost you millions of dollars.’ They fuel paranoia.”

Srivastava went on to argue that auditors have also applied classic commodity procurement techniques to managing the way media agencies work for their clients.

“In the last five years, media agencies have changed a lot, and there is a lot of value clients can get out of media agencies that they don’t currently. But the focus has still been on price of media and price of service, and clients have missed out on the real opportunity,” he said.

This is perpetrated by the way pitching is done, and by the auditors themselves, added Srivastava, who has worked for Mindshare for 14 years, first as India MD, and moving to Singapore and a series of senior regional and global roles over the last decade.

“We are the practitioners, we are the specialists. Consultants have not seen the sea changes we have gone through apart from reading about them or watching presentations. And slowly things are getting out of sync,” he said.

“Auditors don’t have the working knowledge of what can be done with a media agency. And some media agencies are faster than others at this time of change, so in that sense the business is not commoditised.”

The agency business model is at a point where it is transitioning to a more outcome-based approach that will become prevalent over the next few years, he proposed.

“And you don’t procure outcome-based service providers based on cost of input and cost of media inventory,” he said.

“Too many people slip back into the comfort zone of saying, what rate are you buying at, and is that the cheapest in the market? And that keeps dragging the industry back. Auditors play the same role, and that slows the industry down and there is less experimentation than required.”

Trust between clients and agencies has also been damaged by clients demanding that the price of media is guaranteed as a result of incidences like in Australia in March last year. An audit revealed that GroupM agency Mediacom had sold inventory to clients that it had been given free or at a discounted rate by TV stations.

“If they [clients] find out that some of the media was claimed and not delivered, the next step is that clients demand that the outcome is guaranteed. The moment you ask the agency to guarantee the price, you are no longer treating them like an agency. If they don’t own the inventory, how can they guarantee the price?”

Srivastava noted that as agencies work on a client’s behalf, and act as the principal in dealing with the media owner, how they make money is their own business.

“If I am the principal, then what does it matter to you on what terms I operate with the media owner, and at what price I buy? If I bought it at a higher price and had to give it to you at the same price, my business would take a hit,” he said.

“That is a model that gets perpetrated through procurement and auditors, because they don’t seem to have any other way of benchmarking or making sure that something will be delivered,” he commented.

He likened the commoditised procurement model to online retailer Amazon’s, saying “No one asks them, how much commission did you charge the seller on a baseball cap through your platform?”

Srivastava concluded by saying: “If procurement people and auditors want to drive media in the commodity business direction, they have live with the rules of that business.”

“But if they want to hire an agency as a consultant to work with them and look after their interests, then don’t treat them as a principal where the value they are getting is 20 times what you are paying them and expect them to survive,” he said.

The interview comes in the wake of a report by advertiser body ANA in the US that found that media agency practices deemed to be “non-transparent” such as kick backs and value banks are “pervasive” in that market.

WPP boss Sir Martin Sorrell accused the auditor behind the ANA report of a “conflict of interest” as the company recommended further audits as a result of its findings to develop more transparency between client and agency.

“If ever there was a conflict of interest it must be the position of Ebiquity recommending audits — being an auditor,” Sorrell was quoted as saying in an article in the Australian newspaper.

The ripples from the ANA report have only really been felt in Australia, where questions have been raised about client-agency deals, but less so in the rest of the region.

In Japan, the head of IPG Mediabrands for that market told Mumbrella in an interview recently that “local businesses are not overly concerned about transparency” and that the way the client-agency relationship is structured is based on a “gentlemen’s agreement.”