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WPP’s digital media buying chief, GroupM CEO Rob Norman has hit back at critics — including IPG Mediabrands global CEO Matt Seiler — who suggest that there’s something wrong with “arbitrage,” the practice of agencies buying web ad inventory at a low price and then reselling it to their clients at a higher price.His clients are not in the dark, he tells Business Insider.
Arbitrage is controversial because traditionally, clients have wanted to buy media at the price offered by the publisher, and clients have known what that price was. In arbitrage, the agency buys the media for itself, then layers on extra data or expertise in handling, and resells it at a higher price to the client.
The risk is that the agency might not be able to resell it. The controversy is that it’s a lot more difficult for clients to find out what online ads actually cost.
Norman admitted that GroupM and its agencies, including Xaxis, practice arbitrage at a conference last week. At the same conference, Norman’s boss, GroupM chairman Irwin Gotlieb, was asked whether arbitrage was transparent enough for clients. He replied, “It doesn’t say in Genesis that everything we do has to be on a fully disclosed basis to clients.”
IPG’s Seiler seized on the unfortunate juxtaposition of the two quotes — which taken together seem to hint that WPP’s clients might not actually know how much they’re being charged for media — to tweet with glee: “We are TOTALLY transparent. We don’t arbitrage. A client’s money isn’t the agencies money”:
Norman told Business Insider in an emailed statement today that clients are fully informed of how GroupM operates:
We never operate on a non-disclosed basis without the specific contractual consent of our clients. Around the world we have over 1,500 such specific agreements. It is our unshakeable belief that the agency/client contract together with whatever law operates in the relevant territory has primacy and is inviolable.
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