Federal prosecutors in Manhattan have opened an investigation into media-buying practices in the advertising industry and have begun issuing subpoenas as part of the probe, according to people familiar with the matter.
The investigation is looking at, among other things, nontransparent ad-buying practices, including agencies receiving rebates from media outlets, the people said. One advertising company under scrutiny in the investigation is Havas SA, the ad company owned by media conglomerate Vivendi SA, the people said.
A spokeswoman for Havas declined to comment. Over the past several months, the Federal Bureau of Investigation has been interviewing people in the ad business about ad-buying practices and about a 2016 investigation of the industry commissioned by the Association of National Advertisers, according to people familiar with the matter. The ANA represents sizable advertisers such as Verizon Communications Inc., General Motors Co. and Procter & Gamble Co.
The 2016 study, which was conducted by corporate investigations firm K2 Intelligence, found that rebates and other nontransparent practices were “pervasive” in the U.S. The investigation comes amid deteriorating trust between agencies and marketers, an increasing number of whom have taken ad-buying duties in-house and demanded more transparency in their agency contracts in the wake of the ANA report's publication.
An investigation into media buying “is bad for the holding companies,” said Brian Wieser, senior research analyst at Pivotal Research Group. He estimates that media-buying activity accounts “for the bulk of profit growth for ad companies since the beginning of the 2000s.”
The 2016 ANA report didn't name specific ad companies but laid out the ways ad companies used the buying power of their advertiser clients for their own benefit. It detailed a range of suspect practices, such as agencies receiving cash rebates from media sellers for reaching spending thresholds and not returning those funds to clients.
Ad companies broadly denied wrongdoing when the ANA study was released. The FBI recently requested the cooperation of the ANA but the group hasn't held any discussion with the government, according to people familiar with the matter. Ad trade magazine Campaign reported in June that the FBI was gathering information about the ad industry's media buying practices.
The ad business is dominated by six ad holding companies — WPP PLC, Omnicom Group Inc., Publicis Groupe SA, Interpublic Group of Cos., Dentsu Inc. and Havas. Combined, the six firms are responsible for roughly onethird of the $580 billion in global ad spending, Pivotal Research's Mr. Wieser estimates.
Representatives for Dentsu, Publicis, Interpublic and WPP declined to comment. A spokeswoman for Omnicom said the firm hasn't received a subpoena from federal prosecutors. This isn't the first time the government has taken a hard look at Madison Avenue. In late 2016, The Wall Street Journal reported that the Justice Department began an investigation into whether ad agencies inappropriately steered commercial-production business to their in-house production units — rather than independent companies —by rigging the bidding process for those contracts.
Ad companies such as WPP, Omnicom, Publicis, Interpublic and MDC Partners Inc. disclosed that some of their subsidiaries were subpoenaed by the Justice Department, which is investigating whether agencies have manipulated the bidding process by urging independent companies to inflate their prices so that contracts could be awarded to the agencies' own production and postproduction outfits. At the time, the ad companies said they were cooperating with the investigation.
Price-fixing and bid-rigging are prohibited under federal antitrust law. The status of that investigation is unclear. A Justice Department spokesman declined to comment.
BY SUZANNE VRANICA AND NICOLE HONG