Ad fraud and anticompetitive behaviour will likely dominate headlines in 2017, as the business practices and gravity-defying financial performance of some ad techs comes under the spot light.
In the latest news, the second- and third-largest advertising holding companies in the US — Omnicom and Publicis — have both revealed they have received subpoenas from the US Department of Justice.
- Read the new and free Which-50 Magazine. Edition 1 : leadership and digital transformation
They have each been drawn into an investigation into potential antitrust behaviour. On its web site, the DOJ Antitrust division notes “When competitors collude, prices are inflated and the customer is cheated. Price fixing, bid rigging, and other forms of collusion are illegal and are subject to criminal prosecution by the Antitrust Division of the United States Department of Justice.”
In its statement about the subpoena, Omnicom wrote “On Dec. 14, 2016, two subsidiaries within Omnicom Group Inc. (NYSE: OMC) received subpoenas from the U.S. Department of Justice Antitrust Division concerning its ongoing investigation of video production and post-production practices in the advertising industry. Omnicom’s outside legal counsel has contacted representatives of the Antitrust Division, and the company is fully cooperating with the investigation.”
For its part, Publicis revealed, “As part of the investigation led by the U.S. Department of Justice Antitrust Division concerning video production and post-production practices in the advertising industry, one of the subsidiaries of Publicis Groupe (Paris:PUB) received a subpoena dated December 14, 2016. Publicis Groupe, supported by external counsel, will fully and productively collaborate with the investigation.”
Earlier in the month Interpublic also announced that one it its standalone domestic agencies has been contacted by the Department of Justice Antitrust Division. The DOJ came seeking documents regarding video production practices according to a statement from the company, which said it is cooperating with the government.
“The policies in our company’s Code of Conduct require that we do business in a manner that is fully consistent with the best interests of our clients — in the case of production, that means requiring triple bids on all projects above a minimal dollar threshold. IPG has established a long-standing record of holding ourselves to the highest standards of ethics and transparency and we expect all of our employees to act in accordance with our policies.”
Meanwhile, on the tech side of the industry, a close look at the business and financial practices of a number of companies in the advertising technology sector reveals practices (and staffing) that look more appropriate for financial re-engineering business models than digital marketing service providers.
According to a report in Adweek in the US, “Last week, news of an investigation into the allegedly longstanding practice of ad agencies rigging production contracts shook the industry. Adweek later spoke to several longtime veterans of creative shops and production companies, who described scenarios in which agencies either misled production partners about the rates clients will pay for their work or asked them to offer artificially inflated rates as ‘favours’. The agencies do so in order to send the often lucrative contracts to their own holding companies. According to all sources, these incidents are extremely common and even begrudgingly accepted as standard operating procedure.”
As Which-50 recently reported, ad fraud could represent the second-largest criminal enterprise globally within a decade unless the sector reforms.