According to recent articles by The Wall Street Journal and Advertising Age, the Department of Justice has launched a probe into advertising agency practices around the production bidding process. The inquiry focuses on whether or not agencies are engaging in unfair business practices in order to award more work to their own in-house production departments – potentially violating antitrust laws which prohibit price-fixing and bid-rigging.
In this alleged rigged bidding process, according to the Journal, agencies are purported to seek inflated bids
from third party production houses so that the in-house agency bid is lower and thus the contract is awarded to the agency’s in-house group.
Rebecca Meiklejohn, a DOJ antitrust attorney based in New York, has been interviewing industry executives since at least October of this year. In a separate Journal article, an agency within the Interpublic Group of Companies was reportedly “contacted by the Justice Department’s antitrust division as the government probes whether agencies have manipulated contract pricing to steer production of commercials to their in-house shops.”
Many leading agencies have expanded their in-house production and post-production capabilities to include in-house broadcast production and post-production studios with equipment, services and talent that rivals those of outside production and post-production houses, and with service rates that match or sometimes exceed their external competitors.
According to Advertising Age, in 2014 “…the Association of Independent Creative Editors made similar allegations, claiming there were transparency, competition and ethical concerns with post-production capabilities moving in-house at agencies.”
This is would add more fuel to the fire around questionable agency business practices and transparency, coming on the heels of the recent Association of National Advertisers’ investigation that found questionable media buying practices to be far more pervasive than first thought. K2 Intelligence, which conducted the investigation for the ANA, found that rebates and other non-transparent practices were widespread among U.S. media agencies. The implication being that some agencies may be violating their client contracts on disclosures, return of rebates to the client, and taking a media agnostic approach to media buying.
The Journal also reports that Ms. Meiklejohn had contacted those close to the ANA probe to learn if they’d uncovered anything related to her bid-rigging investigation. Apparently K2 had a page in its draft report that referenced bid-rigging in post-production sourcing, but that page was pulled before the final report was released to the public.
This isn’t the first time Ms. Meiklejohn has investigated the ad industry for antitrust violations tied to production and post-production bid practices. In 2002, several agency executives went to jail for allegedly rigging and falsifying bids for advertising and print production work as well as accepting kick-backs from printing firms.
With marketers already auditing their agency contracts and media buying procedures, there will likely be additional probes into agency production bidding practices and procedures as well.
Photo Credit: U.S. Department of Justice, Washington D.C.
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