What Are Barter Agencies, And How Do They Tie Into The Transparency Debate?

barterWhile media bartering isn’t commonly discussed, the ANA’s two reports on agency transparency referenced the practice 49 times.

Here’s how it works: A barter agency might agree to buy an advertiser’s surplus product, such as an airline’s unsold flight tickets at full price, which it would give to employees for business travel. In return, the airline agrees to invest in a certain amount of media from the agency – often media that the agency acquired at a discount.

“I have to imagine that when you add in what money they can get from the asset to the cost of the markup, they’re making a very good profit,” said Cindy Stockwell, president of Trilia Media, Hill Holliday’s media agency. She guesses it could be upward of 50%.

The airline needs to sell those seats, so it opts in to the nontransparent deal. It is, after all, getting discounted media in exchange for a useless product.

“Clients don’t know what the markup is on that credit,” Stockwell said. “That’s where the non-transparency comes in.”

Barter could make up 20% of all media buys in the US, Stockwell said. Active International, the largest independent barter agency, placed more than $1.7 billion in media in 2014, according to research from Pivotal analyst Brian Wieser. Eden Road Trading, owned by Horizon, made up 5% of the agency’s $4 billion total billings that year.

Most major holding companies own a barter agency. Omnicom’s is called ICON International; IPG owns Orion; WPP has The Midas Exchange and Dentsu Aegis owns Carat Trade.

Those agencies declined to comment.

Media buyers and suppliers told AdExchanger the industry generally supports barter because it allows the advertiser to exchange a product with no value for the high-value purchase of media. They claim marketers are aware the value exchange is nontransparent.

They also said, however, that most marketers are unaware of how barter works, and its place in the media world is murky.

The Buy Side: A Conflict of Interest

If an advertiser needs to get rid of an asset, a barter agency might be brought on by that advertiser’s media agency during the planning phase.

The media agency will only accept a barter deal if the barter agency can provide media similar to what’s already on the media plan. For example, if the plan calls for inventory on AOL, the barter agency can’t swap that out for media on an unknown or fraud-filled site. It can, however, likely swap it out for Yahoo, if it has access to inventory on the site.

“A barter agency needs to ask, ‘Can we deliver that plan with all of that quality media, get the added value that the media buying agency would’ve gotten and still make a profit?’” Stockwell said. “If the barter agency evaluates that they can, they’ll deliver.”

A former ICON International employee told AdExchanger his company walked away from business when they couldn’t deliver against a plan, or if the client didn’t explicitly opt in to the deal. He said he saw a repeat client rate of 91% because he was able to offer the client high-value media that fit with its plan.

But because a barter situation gives agencies an asset they can use as well as the opportunity to transact media, it can be tempting to push clients into an agreement – regardless of whether or not they’re the ultimate beneficiaries.

“If there’s a preference given or pressure to buy based on barter, there is a conflict and it could potentially be detrimental to the marketer’s end goal,” said Matt Greitzer, COO of programmatic platform Accordant Media.

Contracts generally don’t allow advertisers to audit barter agencies, so it’s difficult to know whether a barter deal offers the same value as a regular media buy. In its second report, the ANA suggests that advertisers update their contracts with more extensive audit rights that include barter agencies.

The Sell Side: Compromising Quality

Barter agencies often buy media from suppliers who are willing to sell at a discount. These are often lesser-known publishers or those looking to meet quarterly revenue goals. They may or may not meet the quality of an advertiser’s media plan.

“[Barter agencies] are limited in what they can procure because not every seller will do a barter sale,” Greitzer said. “If a media plan is based on who will or will not accept the barter deal, that’s probably not an optimal way to plan media.”

A barter agency, however, is inclined to sell media it’s already bought. Swapping out inventory treats media like a commodity, which ultimately hurts the advertiser’s plan, Greitzer said.

“Media is worth different things to different people,” he said. “There’s much more nuance to a well thought out media strategy than you could necessarily orchestrate in a barter deal.”

But media suppliers who will engage in barter are often considered by agencies over those who won’t.

“When we’ve seen [barter] deals from the supply side, there’s generally always an instruction that says, ‘Those providers who are willing to engage in barter are going to be preferred over those who are not,’” Greitzer said.

In digital, barter also makes it easy for publishers to game inventory by manipulating CPMs. Since the barter agency is often buying a bundle of media upfront, the publisher can sell low-value inventory at a jacked-up price without the barter agency knowing its true value.

“Digital gives a publisher a lot of ability to come back and meet the request, but not necessarily give the marketer any more value,” Greitzer said.

Despite toeing the line of non-transparency, advertisers will likely continue to engage in barter. But, as the ANA urges in its report, advertisers should be a bit warier of their agencies and educate themselves on these buying practices.

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