Rebates have been an open secret for years. The payments and discounts that media owners give to agencies in return for certain volumes of spend are a fact of trading life in the UK. But few media owners like to talk about rebates for fear of upsetting agencies. Suddenly, however, the issue is being thrust into the spotlight for two reasons.
Advertisers, led by ISBA, have been asking agencies searching questions because of growing transparency concerns. At the same time, media owners have come under pressure to disclose rebates because of new, tougher accounting rules called FRS 102.
Since December 2015, three publishers have disclosed in their accounts how they pay rebates.
DMGT, owner of the Daily Mail, was first to make a disclosure. It set aside £21m in rebates in its most recent financial year. Guardian Media Group was next to admit the practice, without giving a figure. DMGT and GMG use the same accountants, PwC. Now, News UK has said The Sun and The Times pay rebates. Accounts for the tabloid show it set aside £8.1m to cover rebates in its 2016 financial year. The Times did not disclose a figure. News UK’s accountants are EY.
The disclosures are important because they suggest the payments are material, although accountancy experts caution the published figures do not present a full picture.
For marketers, the fear is that agencies may not be passing back all rebates. An agency group is likely to be under a legal obligation to return cash to a client but a weak contract might say nothing about having to pass back "value" such as free ad space. ISBA has urged advertisers to toughen up their agency contracts and published a new framework last year.
Rebates are more controversial in America because media owners supposedly don’t pay them. The US Association of National Advertisers found in a report last year that rebates were endemic, although agencies hotly denied that. It adds to the significance of the admissions by DMGT, GMG and News UK, and further disclosures seem certain.
Graham Brown, co-founder of media consultancy MediaSense, says: "The only way we’re going to get trust back in the market, which has been eroded further by the Department of Justice investigation [into US ad production], is for companies to make disclosures like this where they have hitherto not done so."
Given that rebates and discounts are common in sectors including digital and outdoor, shouldn’t every media owner disclose such payments? As the old saying goes, sunlight is the best disinfectant.