PUBGY Publicis Groupe SA (QX)

U.S. subsidiary shifts $500 million business from Publicis unit to independent agency

By Alexandra Bruell and Suzanne Vranica 

Honda Motor Co.'s U.S. unit said in January it would shift its more-than-$500-million media-buying account from Mediavest Spark, a unit of advertising giant Publicis Groupe, to an independent agency.

Companies switch ad agencies for all sorts of run-of-the-mill reasons, including simply to cut costs. In Honda's case, there was more at play: The change reflected, in part, an erosion of trust in its partner, a dynamic becoming more common on Madison Avenue.

The car maker had learned of troubling alleged irregularities in how its account was handled, including that Mediavest wasn't paying media companies within the expected period of time, people familiar with the matter say. Honda also found that money that was meant to pay bonuses to certain agency staffers on the Honda account didn't get to them, the people say.

Honda believed that at one point it was overcharged as a result of the way Mediavest allocated personnel to certain work, according to people close to the account.

"Trust is the bedrock of our client-agency relationships," said a spokeswoman for Publicis Media, the umbrella group for the Publicis Groupe's media agencies. "Following discussions with our client, we immediately took steps to address their concerns. We are committed to full compliance with the terms of the client-agency agreements we sign, and we have strict internal rules designed to support that."

Publicis didn't specify which concerns Honda raised.

It is unclear if any terms of the contract between Honda and Mediavest were breached, and some of Honda's concerns may have been the result of miscommunication between the parties, people close to the situation say. The delays in payments, for example, may have been partly the result of a bottleneck at the media vendors, those people say.

Still, the accumulation of issues contributed to Honda's decision to hire RPA, an independent, Los Angeles-based agency with which it has decadeslong ties. Mediavest won the media account for Honda and Acura from RPA in 2013.

Honda representatives declined to comment on whether concerns about payments contributed to the company's decision.

Tom Peyton, assistant vice president of marketing operations for Honda's U.S. operation, said one factor in shifting to RPA was the "changing nature of the media world" and the desire to consolidate its media-buying account with its content creation account, which RPA was already handling. He also said the team wanted "people who will get into the whole world of programmatic and [data management platform] usage and really understand that and staff it accordingly."

The Honda and Mediavest split is one example of the increasing strains in relations between marketers and their ad agencies. The trust that has long been the foundation of dealings on Madison Avenue has frayed in recent years, especially as advertisers pump more dollars into the more complicated digital media ecosystem.

On the extreme side, marketers are worried there is systematic bad behavior at agencies, including the undisclosed collection of rebates from vendors in return for reaching certain spending thresholds in the U.S. Last spring, the Association of National Advertisers, a trade group representing big marketers, outlined such issues in detail, which spurred a number of marketers to question and even audit their agencies' ad buying practices.

The ANA report didn't name any specific ad companies as offenders. All the major advertising companies have denied any wrongdoing.

Underlying the turmoil is the intensifying pressure on Publicis and other ad giants, who are battling on many fronts. They have long felt squeezed by marketers on fees, and the rise of digital media has thrown up new rivals as well as new demands from marketers. Publicis is one of many ad businesses that has gone through significant organizational and management changes over the last year.

The timing of payments has been a contentious subject between media agencies and their clients. Marketers' ad dollars go to agencies, who purchase the actual ad space on media outlets like TV networks and websites on their behalf. Some marketers delay payments to agencies -- more than 100 days in some cases -- which puts pressure on agencies' dealing with media vendors.

Honda is among the marketers that pays its agencies swiftly, with the understanding that the agencies will follow suit and get the money to media vendors quickly, people close to the company say. The company has made a number of changes in its marketing department since hiring Mediavest in 2013.

For Publicis, the loss of the Honda account followed the departure of other big media buying clients, including Wal-Mart and Procter & Gamble. Honda spent more than $500 million on U.S. media in 2015, not including spending on certain types of digital ads, according to estimates from research firm Kantar Media. Publicis also has won some big accounts, such as MillerCoors, in recent months.

Write to Alexandra Bruell at alexandra.bruell@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

(END) Dow Jones Newswires

March 21, 2017 02:47 ET (06:47 GMT)

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