UPDATE: Interpublic Group of Cos. confirmed in a statement Wednesday that the Department of Justice has contacted one of its ad agencies as part of an investigation into the possible manipulation of production contracts, The Wall Street Journal reported.
- The advertising industry is taking another reputation hit as the Department of Justice is months into an investigation on whether agencies have steered bids for commercial work to in-house production units over third party agencies, according to The Wall Street Journal.
- These commercial production contracts are worth around $5 billion in the U.S. for services including directing, sound editing, special effects and color correcting.
- The DoJ inquiry is looking into whether agencies are manipulating the bidding process to favor in-house production teams and although no specific agencies have been named as being under investigation most of the major agencies such as WPP, Omnicom, Publicis and Interpublic Group all have production and post-production in-house divisions.
Some of the biggest ad agencies, with their revenue streams under pressure, have focused on extending their expertise in creative strategy to actually producing commercials. The investigation throws some question into whether some agencies are gaming the bidding system in their favor. While nothing has been proven yet, even the hint of possible wrong doings could further undermine brand, agency relationships, which are already frayed.
Agencies' billing practices were called into question earlier this year in a report from the ANA that highlighted a number of nontransparent practices. Brands have lost trust in agencies to the point that large relationships have come under review while some brands have taken some digital marketing activities in-house and/or called for an audit of agency partners.
A recent study from Campaign USA found that agency employees reported a 34% drop in morale over last year with 47% of respondents saying morale was low or even dangerously low, with company leadership (73%) the most cited reason for flagging morale. All of this news comes at a time when more agencies are moving toward a performance-based pay model, replacing the more traditional billable hours for employees working specific accounts method of compensation.