For years, there has been speculation that major advertising firms have been engaging in what being are called "non-transparent" ad-buying practices. And now, this speculation has turned into a full FBI investigation scrutinizing such activities as receiving unreported rebates from the media outlets advertising agencies select for their clients.
What makes this whole thing interesting is that the FBI is acting on the information provided by a 2016 investigation of the industry conducted by the industry's non-profit Association of National Advertisers, which found that agencies routinely and systematically engage in non-transparent practices. The marketers who buy the ads, representing the brands that pay all the bills, aren't very pleased with all of this; and many marketers have decided to take ad buying in-house to achieve a greater modicum of control over the process. The ad business is dominated by six companies (with a combined 30% market share), which should be plenty of competition to keep things honest, and yet ad buying has become the major profit center for ad companies over the past 20 years. And so the pressure to maximize profits in this area has resulted in some nasty habits which could very well include price-fixing and bid-rigging, among others.
When the association study was released, ad agencies denied any systemic wrongdoing, but now that the FBI is involved in investigating this $580 billion industry, there will be severe penalties for being less than truthful. Agencies like Omnicom, WPP, PLC, Publicis Groupe, Havas, and Dentsu might be inclined to change their tune under these new circumstances, and the result is likely to be a new set of guidelines which the industry will be expected to follow. If that doesn't suffice, then a degree of regulation would be in order so that trust between these two supply chain members can be re-established. The stakes are simply too high to support the status quo.
Discussion: What are some of the drawbacks of imposing new regulations on the ad industry? Why should issuing "guidelines" be considered instead or regulations? Would you support leaving things as is? Why or why not?
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