What you need to know:

• As global regulators run the rule on the proposed merger between Interpublic and Omnicom, the ACCC and New Zealand's Commerce Commission are probing local impacts.
• Agencies and ad watchdogs are urging them to put principal media models at the heart of their investigations.
• They fear local publishers and agencies will be further disadvantaged by increased pricing power and higher discounts that a larger group will be able to leverage, and that platforms like Meta and Google will likewise benefit further from relationships and incentives in place.
• They want agencies to have to disclose those discount rates and incentives.
• Overseeing the investigation for the ACCC is Morag Bond, who co-led the watchdog’s 2019 Digital Platforms Inquiry and subsequent 2021 Digital Advertising Services Inquiry which covered media agency trading practices as part of its investigation.
• While the 2021 inquiry stopped short of regulating the media agency market, Bond is well versed in the potential for interrelated agency and tech market failures that may subsequently require intervention.
• The question for Bond and the ACCC is whether competition within an advertising supply chain left to self-regulate has improved over the last five years, or has got worse.

Australia’s competition regulator the ACCC and its New Zealand counterpart the Commerce Commission have been warned that the Omnicom and Interpublic merger risks putting ANZ publishers and smaller media agencies out of business due to market distortions arising from principal media arbitrage.

Rubber stamping the merger would lead to more money being siphoned out of local markets, which in turn become “a throughput mechanism for offshore value extraction” with local advertisers, publishers and the media supply chain further hollowed out as a direct result, with advertiser choice and market competition diminished, according to submissions from agencies and ad watchdogs.

They have urged local regulators to make large groups disclose volume-based discounts and mark-ups, amongst other interventions.

The calls come as regulators globally weigh-up whether to wave-though the US$13bn merger, or call it in. So far it’s been cleared by a handful of markets, including China and Brazil. But the US, UK and EU as well as Australia and New Zealand are now investigating the potential for market distortions and harms – and the merger has to achieve regulatory approval in all major markets before it can go ahead. Meanwhile India’s competition regulator is in the middle of investigating allegations of price fixing and collusion between ad holding companies – with Interpublic one of the groups being investigated. The same regulator is now running the rule over the IPG-Omnicom merger.

Despite those hurdles, IPG and Omnicom intend to complete the merger before the year-end. The latter’s global comms chief Joanne Trout told Mi3 it remains “on track to close the deal in the second half of 2025”.

ANZ: Principal trading fears

Should the merger be approved, a collection of independent agencies in New Zealand fear they may be forced to take a loss on media, with  “market exits” as a result. That’s because a combined Omnicom-IPG entity would control more than half of the NZ media buying market, forcing publishers to commit to cheaper deals to that other agencies cannot match.

Independent Media Agencies New Zealand, a trade association representing circa 40 agencies, said the merged entity would control 55 per cent of local media buying. It cited particular concerns about “excessive buying power” and its distortionary effects, and “arbitrage based profit models … often with profits repatriated offshore. This practice is entirely legal but increasingly opaque and problematic when one buyer dominates the majority of market demand. The risk is not just economic but structural: New Zealand's media industry becomes a throughput mechanism for offshore value extraction, rather than a sustainable local ecosystem”.

A separate group of agencies – Lassoo Media, YoungShand, Conductor, Thompson Spencer Group, Sneakers Digital, Stanley Street Agency, Rascal Media and Hemisphere – likewise warned publishers will lose more revenue and be forced to cut more jobs.

They argued global platforms like Google and Meta will be key beneficiaries of any incentive-linked spend agreements – because they can afford to pay such incentives given they do not fund content production while rival local publishers ability to fund content and attract audiences will be simultaneously weakened.

“While Principal Trading is not illegal, the holding companies … who collectively hold a dominant share in the market, require local media transact on these terms by providing the media inventory for purchase upfront and, it is believed, by requesting better rates for purchasing large amounts of inventory,” per the submission.

“Those local media are companies like; TVNZ, NZME, Stuff, Warner Brothers Discovery, Mediaworks, JCDecaux and Ooh! Media. Most of these companies have been headline news over the last few years due to the need to severely cut costs and reshape their business. Whilst this has not been an issue exclusively to New Zealand, a common factor also in other markets is the dominant position media holding companies like OMG have, and their desire to push Principal Trading onto local media companies.”

Australia would suffer similar impacts, according to ex-IPG exec turned chief operating officer at advertising watchdog Check My Ads, Arielle Garcia.

Garcia, formerly Chief Privacy Officer at UM Worldwide, zeroed in on principal-based trading as a key area for regulators to investigate, given the potential for market distortions with negative knock-on effects for advertisers, publishers and the broader agency market.

“By controlling more advertising budgets, the merged entity can negotiate more lucrative incentive deals with vendors, further compromising its objectivity. Where IPG and Omnicom have stated that the acquisition will position them to compete with big tech, the exact opposite is true: big tech companies can wield their endless funds to advance their own commercial imperatives,” per Garcia.

“If the agency wields its buying clout to secure more lucrative hidden kickbacks from tech giants, it would be detrimental to advertisers who effectively overpay for less effective media placement, and anti-competitive toward smaller agencies that cannot negotiate similar kickbacks. It could further be to the detriment of publishers or smaller platforms that simply cannot afford to offer the same benefits to the agency.

“If Omnicom-IPG leans even more into pre-negotiated deals with these giants, it could further channel ad budgets into a few walled gardens, making it harder for independent publishers and ad tech entrants to compete. We must consider the Australian ad market context: around 70 per cent of media investment already flows to Google and Meta alone,” she continued.

“Scale by itself does not guarantee better outcomes for advertisers in this environment. The key is whether agencies use their scale to demand more transparency and control from the platforms, or merely to entrench relationships. If the latter, the outcome could be fewer alternatives for advertisers.”

While from a publisher perspective the ACCC’s investigation focuses on the impact across all media channels, Garcia suggested some publishers may have more to lose than others, with the pressured TV sector potentially facing further headwinds as a result.

“Nascent local broadcast streaming platforms”, i.e. BVOD and AVOD platforms, “would likely struggle to retain advertising revenue amidst such principal trading deals driven by large global tech firms”, she warned.

ACCC: Agency inquiry revisited?

The ACCC’s merger investigation is being overseen by Morag Bond, who co-led the watchdog’s 2019 Digital Platforms Inquiry and subsequent 2021 Digital Advertising Services Inquiry. While the latter inquiry stopped short of regulating the media agency market, Bond is well versed in the potential for interrelated agency and tech market failures that may subsequently require intervention.

The purpose of a merger review process, per the ACCC, is to test the transaction against section 50 of the Competition and Consumer Act 2010, which “prohibits acquisitions that are likely to have the effect of substantially lessening competition in a market”.

A key question for the ACCC, IPG and Omnicom shareholders and the broader market will also be whether the competitive landscape for media and advertising services has improved over the last five years – or whether is has become less competitive.

In the 2021 report, the ACCC nodded to principal media models as a potential problem, highlighting buying practices in which holding companies “acquire digital advertising inventory from publishers and then pass this ad inventory to their agency subsidiaries which then re-sell to clients”.

Per the report: “This may achieve benefits such as volume discounts or rebates which can ultimately be passed on to advertisers. However, the holding group structures can negatively impact the level of transparency in cases where visibility into these arrangements is not contractually available to advertisers.”

The scale and scope of services within holding companies was also flagged as a potential issue where an advertiser engaged multiple agencies within the group – particularly where the holding company is both purchasing inventory and reporting on performance, or where an agency encourages a client to invest in other group services that may not be in the advertiser’s best interest.    

Self-regulation rethink; 'rebates disclosure'

Instead of regulating media agencies, the ACCC recommended industry refer to industry frameworks and checklists provided by the Australian Association of National Advertisers (AANA), the Media Federation of Australia (MFA) and PwC to resolve potential issues.

Per the ACCC, the development of those resources, along with the actions advertisers can take “to reduce the risks from potential conflicts of interest in agency relationships” and the competitiveness of sector meant “government intervention” was not “currently required”.

As the regulator now probes the proposed mega merger, it may also be examining whether those frameworks and checklists have been sufficiently developed, updated and proactively managed over the last five years, especially given the rise of principal trading models over that time, or whether regulation may now be required. Advertiser body the AANA has not updated its framework. Media agency body the MFA is now believed to be updating its guidance.

Garcia urged the regulator to consider targeted interventions, such as making agencies allow auditing across contract types, while forcing them to disclose the rebates and incentives they receive from publishers and platforms.

“Without such measures, the conflict of interest inherent in a larger principal trading entity could substantially harm advertisers’ interests and distort competition on honest terms,” she stated.

If it does green-light the merger: “The ACCC may wish to scrutinise any exclusive, volume or KPI-based agreements between the merged entity and major ad platforms as part of its analysis of post-merger conduct,” suggested Garcia.

She also underlined for the potential privacy risks that may arise from the planned integration of IPG’s Acxiom unit with Omnicom’s Flywheel.

“While ACCC’s merger remit may not directly cover privacy, a larger unified dataset intended to be used for extremely granular targeting or consumer profiling may raise regulatory concerns under Australian privacy law, and ACCC’s own interest in not letting data concentration harm competition,” said Garcia.  

Global scrutiny

For the deal to go through as intended, both parties need approval from competition authorities within 18 markets. So far, China, Colombia, Brazil, Egypt, Saudi Arabia, and Singapore have given the green light. But some major markets, including the US, EU, UK and India, remain undecided.

If any single major regulator blocks the deal in a market where both parties operate in a significant capacity, Omnicom and IPG could challenge the decision in court. But that could prove costly and would unlikely be quick. Or they could restructure the deal to meet jurisdictional requirements – or abandon it entirely.

The EU tends to be more interventionist than other jurisdictions – and there is precedent for the bloc blocking deals even when they have met with US approval. However, its interventions tend to be when a merged entity would have significant market dominance – and the European Commission gave unconditional clearance in 2014 for the previously proposed merger between Publicis and Omnicom.

The US Federal Trade Commission (FTC) has issued a second request for additional information and supporting documents. Key regulatory concerns under consideration include the reduced client choice in the agency marketplace, the increased pricing power of the combined entity, and the potential for the merged unit to leverage its scale to disadvantage competitors.

Per the FTC’s own data, 75 per cent of mergers subject to a second request are abandoned or voluntarily restructured – though Omnicom and IPG have assured shareholders it’s a “standard part of the regulatory process”.

The regulatory situation in India may be affected by an ongoing competition investigation in India, which began weeks after the merger filing and which directly implicates IPG in alleged anti-competitive practices, including accusations of price fixing and collusion on discount rate following raids on offices belonging to IPG, Publicis Groupe, WPP and Dentsu.

The live investigation could take as long as two years to conclude, potentially drawing out the timeline for the local closure of the merger deal.  

The UK’s Competition and Markets Authority (CMA) is yet to launch its formal investigation process, having only just closed out its industry invitation to comment. It has not yet set a timeline for the formal investigation into competition impacts to commence.

Transparency vs rates

The market remains deeply divided on principal media models and its competitive impacts. Globally former GroupM global business intelligence chief turned Madison & Wall founder Brian Wieser has argued that “collectively [marketers] are saying that they kind of accept, if not sometimes prefer, that model,” because principal media allows them to access non-working media services that procurement departments have effectively vetoed and thereby secure a better overall service while allowing the agency the leeway to make enough money to pay for those ‘free’ services while making a profit.

Wieser thinks marketers are more clued-up than when transparency blew up in 2016 – but others, including former senior global holdco execs now leading independent agency groups, strongly disagree.

Locally IPG Mediabrands Australia boss Mark Coad has insisted the network is not striking principal trading agreements, only honouring global deals.

Former Omnicom Media Group CEO Peter Horgan has defended principal media arrangements. “The way we structure it, there are similar benefits to client and agency, on a pure opt-in basis," Horgan previously told Mi3. "We have a philosophy of transparent end-to-end supply chains – a client will be able to see a supplier invoice, compare and see our position of no mark ups.”

But Horgan acknowledged that marketers seemed to be less focused on transparency in recent years, admitting it was no longer a “halo” for OMG’s business.

“That is disappointing. We had quite a firm position on that and it drove a lot of business for the past eight years. Certainly, I'd say that momentum has definitely slowed and that client propensity to reward transparency, has definitely waned.”

When asked if the supply chain as a result is returning to old opaque practices, Horgan said: “There’s enough noise to suspect there something going on. You hear about things and roll your eyes. All I can say is, ours isn’t.”

Long view

Regardless of the outcome in the Omnicom-IPG merger, Check My Ads' Garcia thinks that regulators are beginning to recognise that antitrust frameworks may not be adequately equipped to deal with principal media – and that the exponential increase in arbitrage models across the agency landscape may require additional safeguards to be brought into play.

"Regulators are keen to learn more about principal trading and agency deals with big tech, looking to understand how they impact the market, and advertisers in particular,” she told Mi3.

“Irrespective of whether competition regulators take action to stop the Omnicom-IPG acquisition, their review of the deal is illuminating these practices and industry dynamics.

“These reviews are the beginning, not the end. I would certainly expect greater scrutiny across various jurisdictions of principal trading and vendor incentive deals going forward.”