Matt Miller on the DoJ Investigation into In-House Production Two Years On
Production companies have been outspoken on the perceived injustice of agencies’ in-house production units being included on bids against independent entities for several years now, but two years ago an unexpected tankload full of petrol was suddenly poured onto that debate. In late in 2016 it was revealed that the US Department of Justice was investigating whether advertising agencies in several major holding companies had inappropriately steered business producing commercials to their in-house production units and away from independent companies by rigging the bidding process for that business.
That investigation is ongoing, but news of progress has been slow to emerge. It’s unlikely that anyone is watching more closely than Matt Miller, CEO and President of the US Association of Independent Commercial Producers (AICP). Speaking recently at the Association of Spanish Advertising Producers (APCP)’s Advertising Production Days event in Valladolid, Matt was keen to keep the topic front-of-mind.
“When the Department of Justice in the United States starts investigating something, something’s going on that they think is wrong,” he explained. “In this situation they looked into certain activities, starting with media transactions then looking deeper into what was going on in the creative area and specifically commercials. They felt that there was enough evidence to investigate whether or not there was something that they were calling ‘bid rigging’ - that the agency was not being fully transparent with their clients and doing things within the bidding process that change the facts of the matter for the clients to truly be able to evaluate and understand what they were buying. That’s conspiracy. It’s not playful games within the advertising industry. That’s a federal crime where people go to jail if they are guilty.”
To stress this, Matt reminded the audience in Valladolid’s Teatro Zorrilla that in the early 2000s the same investigator, the attorney Rebecca Meiklejohn, looked into bid rigging between Grey Advertising and the print company Color Wheel that ultimately sent six executives to prison. “And not for a short period of time,” he added.
But since the flurry of media attention two years ago, news of the ongoing investigation has dried up. “I can’t say I know much about it because the Department of Justice works quietly,” admitted Matt. But he did give a sense of the extent of the information gathering. “I can tell you that hundreds of people in the advertising industry - production companies, editorial companies but mostly advertising agencies - have been questioned at length by the FBI, (which is the police branch of the Department of Justice, if you will). They have gone into agencies and confiscated their computers, hard drives and information and have interrogated and investigated at length what their practices have been. They don’t tend to do that unless they think something wrong is systemically happening - not here and there, but systemically.”
Speaking to an international audience in Spain and sharing a stage with his French counterpart, the APFP’s Julien Pasquier, he added: “While [the investigation] is in the United States, many of these entities they’ve been looking at are global entities. Just because they’re looking at it there doesn’t mean this won’t have a ripple effect around the world.”
While the machinery of the DoJ churns away, digesting the reams of data it’s accumulated, marketers, agencies and production companies have begun to take the issue of in-house production best practice more seriously.
Having been at the centre of this debate since before the DoJ’s involvement, Matt respects agencies’ motivations to create in-house production capabilities. “The agencies have a lot of pressure on them right now to become profitable because their core business is having a lot of problems,” he said. “So they’re looking into moving into other areas. But if that other area happens to be production, they cannot play the role of objectively selecting the right approach, the right execution and the right partner to put out a piece of film for the marketer. The marketer can’t trust them to do that because they are conflicted just by the very definition of what they’re doing. If they’re going to be producing and putting themselves in the bidding pool, they can not certainly be objective in selecting who the best party is to execute.
“For marketers that must be a really scary time because these are your trusted partners. These are the people who are supposed to be evaluating and giving you the best advice, except there’s something else at play.”
This feeling has motivated some marketers to extreme measures, he said. Some marketers in the US are no longer allowing their agencies to even see the production bids on the campaigns those agencies have devised.
“I think I can speak openly about Chrysler being one of them,” Matt ventured. “Chrysler takes the bids directly from the production companies and negotiates with them. Their agencies don’t even see them until they’re negotiated and then the budget of the job is passed back to the agency to oversee the production. Frankly, I don’t see that’s a productive model but what it shows is a lack of trust. And if I were in the agencies’ shoes I would be scared to death about the value of the agency if the marketer is taking them out of that advisory role in overseeing, evaluating, negotiating a deal in the bidding process. If the client has to take that into their own hands to feel like they’re getting a fair shake, that is not a trend that, as an agency, I would want to see happening.”
Those on the other side of the debate around agencies taking more production and post in-house would argue that it allows agencies to create more responsive, streamlined pipelines, particularly when it comes to creating online content. What’s more, as business models evolve, there has also been a rise in production and post houses hiring creatives and strategists, as well as other kinds of talents, or working directly with brands’ in-house creative agencies.
Production associations’ attempts to limit in-house production overstepping the mark has continued apace since the investigation started. Among the AICP’s responses was the report ‘Suggested Best Practices — Bidding’, released in November 2016 as guidance for a competitive and transparent bidding process. Matt calls it a list of “common sense areas” that production companies should raise with an agency that is trying to engage them in a bid, including what they should tell you up front about their expectations and how this be communicated and transparently relayed to the client. “We’re all in this together,” he said, “and if there are transactions going on there should be no hidden assets.”
He noted the exhaustive list of information that AICP members provide in each bid, observing that while production companies are subject to increasing scrutiny from agencies and cost consultants, that transparency is unilateral. “I can think of no other industry that puts more information out there in the bidding process than our industry. There is no more transparent bidding process than the one we [production companies] undergo. So if we’re being that transparent, allowing people to analyse every nail and piece of wood that goes into the set, the agencies owe that transparency to the production companies. And the clients are owed to understand those aspects as decisions are being made.”
Julien Pasquier from the APFP also shared a perspective from the other side of the Atlantic. He explained how the French production community’s fight ensure that clients understand the value of choice and competition has taken a different shape (and has seen quite a unique outcome as a result).
As the UK’s Advertising Producers Association told its members this summer: “French advertisers have decided that the market - independent production companies - provides best value and, as a result in house agency production has all but disappeared in France.”
APFP ran a campaign that gained the publicity it needed to convince advertisers to consider the issue. It took six years, he said, starting with reporting what it described as “unfair, unequal and fallacious competition” to the public authorities. Producers met with key figures in French government, the Ministry of Culture, the media and the economy. They hired law firms and lobbyists to reach decision makers and write reports. But the legislators struggled to understand, viewing the ad industry as a self-regulated sector and best left to their own devices.
For five years they continued their campaign, making little impact. As Julien wrote in a letter to APA members from across the Channel, “the independents were going to disappear, vacuumed by the finance departments of the communication agencies. David had lost to Goliath. Our lifelong friends and allies would eradicate us by explaining to us that this was the natural evolution of business. Cut.”
But the surfacing of the US DoJ investigation started to shift things, said Julien. And the French reacted by going on strike. The APFP mobilised 80 producers in two days, all committed to a common manifesto, which it sent to the press.
Advertisers began to respond, questioning the value of what agency in-house production offered. “The key to success in France was simple,” wrote Julien in his letter. “As they saw the investigation in the USA, advertisers looked at the issue and concluded that they did not want their work to be done by agencies, particularly under any arrangement where production companies were invited to bid against an in-house agency production unit and then chose the winner. Advertisers did not want anything to do with such a system, so they told agencies they would not accept their working in that way.”
“It was a moment in France,” Julien reflected on the Valladolid stage, “It was the first time we’d faced this all together.”
Production associations like the AICP, APFP and APCP are uniting across borders like never before. And it seems that the existential threat that agency in-house production seems to pose to independent production companies has been key to this. When the DoJ investigation reaches a conclusion, the debate will have the whole industry’s attention, but for the meantime the production companies won’t let us forget.
