Last update - 00:00 16/01/2007
What advertisers don't know, and their agencies don't tell
By Ayala Tsoref
Former antitrust commissioner, attorney Dror Strum, who has been hired by the Second Broadcasting Authority to peel back the layers of secrecy surrounding the issue of extra commissions in the advertising industry, uses harsh words when revealing his findings.
In an interview with TheMarker shortly before submitting his interim conclusions, Strum says he has "never encountered such a lack of transparency - not in the retail market, not in the supermarket chains, nor in any other market."
These "extra commissions" are fees television stations, the press and Internet sites pay to advertising agencies, to "encourage" them to divert their clients' advertising budgets to the newspaper, TV channel or Internet site paying the fee.
You probed deep into the swamp called the advertising industry. What was your impression?
"I found a triangle," says Strum, "consisting of the media, the advertisers and the advertising agencies - and too often deals are made between the advertising agencies and the media without the clients' knowledge."
Strum revealed that he examined not only the commissions paid by TV channels to the advertising agencies, but also the extra commissions paid by newspaper owners and Internet sites.
"We decided to expand our investigation to the Internet and the press," he explains. "We will not stop with the TV [channels]."
Why did you decide to go beyond the task for which you were hired?
"In order to gain a complete understanding of what is happening in television, one has to understand what is going on with the other media. I believe the commissions paid by the TV channels are directly related to the commissions paid by the press and the Internet sites to the advertising agencies."
Are the newspaper and Internet site owners cooperating with you?
"Yes. Every question we have asked so far has been answered. The newspapers and the Internet sites also have an interest in exposing the issue of the commissions, so they are willing to cooperate with our investigation. Everyone is cooperating with us."
What did you discover?
"I have seen contracts. Internet sites, for example, pay extra commissions averaging 35-40 percent. This means that sometimes the media, in this case an Internet site, returns half the advertiser's budget to the advertising agency. These are unbelievable figures. The newspapers and TV channels are also paying the advertising agencies very high commissions."
With which advertisers have you met?
"[I have met] with a great many small and medium advertisers. I thought they would not cooperate, but the moment this issue was made public in the press, the advertisers began showing us their contracts.
They wanted to know the scope of the commissions. Their responses ranged from incredulity to resentment that they knew nothing of the deals."
Ilan Shiloah of McCann Erickson has declared that he is willing to open his account books so you can see that commissions on the scale you mention do not exist. Have you seen the books?
"We divided our probe into two parts. First, we met with all types and sizes of media owners and advertisers. After I submit my interim report,
I will start meeting with the advertising agencies, including McCann. I hope, and believe, I will receive their cooperation."
The purpose of Strum's probe was to enable the Second Authority to make the commissions visible.
In other words, the purpose was for clients and advertisers to be able to know exactly how much TV channels are paying the advertising agencies.
Second Authority Chair Nurit Dabush hoped that if the commissions became transparent, the channel franchisees would be able to make them shrink and thus improve the financial situation of Keshet, Reshet and Channel 10.
When news of Strum's investigation was released about six months ago, the advertising agencies ranted that the authorities were meddling in matters that were none of their business and the agencies feared a decline in their revenues. Now they are saying, or rather hoping, that the probe will end quietly.
"Nothing will come of it," said Rami Shalmor, one of the owners of Shalmor Avnon Amichay to TheMarker about two weeks ago. "The commissions are a business matter in which the regulators should not interfere. The regulator will find that he cannot meddle with commercial agreements and that will be the end of Strum's investigation."
"There is tremendous competition in the advertising industry," added Shiloah, "such that no regulatory intervention is necessary."
Strum says that those who claim there is no problem with the commissions are dismissing the matter too lightly.
"True, there is competition in the advertising market," says Strum, "but it does not always reach every sector of the industry.
Perhaps the market is competitive in only some areas, and the fact that the agencies are not willing to reveal the levels of the extra commissions proves there is not competition in that area."