The Department of Justice Is Investigating the World’s Largest Advertising Agencies in a Potential Price-Fixing Scandal

The weeks around Christmas and New Years are always slow and disjointed, as everyone is on vacation to varying degrees, and news items can slip through the cracks. This is a story that has been reported in mainstream media, albeit selectively. The Wall Street Journal, America’s largest newspaper, broke the story in early December. Bloomberg and the Financial Times also covered it, but information has largely been absent from other traditional outlets like CNN.

Now, no guilt has been determined yet — but given the West’s recent history, this saga sounds almost mundanely familiar. Per The Wall Street Journal, the potential for price-fixing isn’t exactly a complex operation:

The U.S. Justice Department is investigating whether advertising agencies inappropriately steered business producing commercials to their in-house production units over independent companies by rigging the bidding process for those contracts, according to people familiar with the matter.

Rigging contract bidding is a practice as old as the contract itself. The method in which this potential scheme takes place is as such:

1. A client hires an ad agency to produce a commercial.

2. The agency comes up with and designs the idea.

3. They outsource the final production to a post-production company (editing, visual effects etc…).

4. The final advertisement is produced for approval by the client.

The industry these specific contracts pertains to is valued at $5 billion, so the motive for malfeasance is there for any entity whose modus operandi is profit maximization. Where the scheme purportedly comes in is that the ad agencies have created their own post-production companies, and the agencies then tilt the bidding field in their direction.

The fact that the strongest arm of the American prosecutorial system is issuing subpoenas to the globe’s largest advertising agencies for potential price-fixing should raise more eyebrows than it has. If the result is that budgets of the CNN’s of the world become dependent on this scheme, that will influence the amount of resources they can devote to their main purpose of covering the news, with an exponentially more detrimental effect to smaller news outlets — not to mention the financial leverage these ads have over the specific topics they cover.

It is important to keep in mind that just because it looks, swims, and quacks like a duck, it still may not be a duck. The false sexual assault accusations that the Duke lacrosse team was convicted for in the public eye should constantly be in the back of any journalist’s mind when the word “alleged” or one of its cousins appears in a news story. Just because some evidence exists in a story that neatly fits into a larger picture doesn’t mean that it all will. It’s understandable that the clients of these ad agencies would want the best work done on their jobs, and these super-agencies can afford the best talent. If Apple can build an empire on controlling the supply chain from start to finish, why can’t advertising agencies?

All that said…

Boy does this ever fit into the larger narrative of the West’s ongoing three-plus decade descent into an oligopolistic kleptocracy which gets falsely labeled as capitalism. In theory, the largest post-production firms would attract the best talent. But in the age of the internet, flexibility has become almost as important as money — especially in any industry whose work can entirely be conducted online. Talent is everywhere.

If this does wind up being the duck that it looks like, there is reason to believe that it would break with the narrative of powerful executives getting away with federal crimes. Rebecca Meiklejohn is the prosecutor conducting the probe, and she has sent advertising executives to jail before. Given how dependent the news industry is on advertising, it will be instructive to see who is and who is not paying attention to this story going forward.