Is your media agency acting in your best interest? The rise of Principal Media Buying has blurred the lines between partner and profit-seeker. There is much debate in the media industry about the lack of transparency in media agencies, the risks associated with it, and the role Principal Media Buying plays in boosting the profits of Media holding companies. Historically, media agencies have acted as agents of the client, meaning they negotiated media buys in the client’s name and best interest. However, this is not always the case today, as many agencies now operate as Principals in contracts with clients. The purpose of this article is to define Principal Media Buying, outline the potential risks it poses, and recommend actionable steps to minimize those risks.
What is Principal Media Buying?
Principal Media Buying, also known as inventory or proprietary media, refers to the process of media brokerage, where media agencies obtain media inventory in their own name (not on behalf of the client) and then resell it to advertisers, often at a non-disclosed profit. In this model, the agency acts as a wholesaler, profiting from the difference between the purchase and resale price.
This practice was pioneered by Carat in France, eventually leading to the media transparency law, Loi Sapin, and gained momentum in the 2000s with the rise of digital media, particularly programmatic buying.
How Does It Differ from the Agent Model?
In the traditional Agent Model, a media agency negotiates directly with media owners on behalf of advertisers, leveraging the client’s media budget to secure the best conditions. In this setup, the advertiser and media owner enter into a direct contract, with the agency acting as a facilitator, ensuring both parties fulfill their obligations.
In contrast, under the Principal Model, the contract is between the advertiser and the agency, while the agency independently negotiates with media owners. The agency pools together the media spend of multiple clients to negotiate better terms (pricing, annual volume bonifications, etc.), often securing inventory at a lower cost. The agency can then decide how much of the benefit it will pass on to the advertiser and what price will be charged. This arrangement may disconnect the final price paid by the client from the actual media costs in the marketplace.
To explain using an analogy: imagine a juice producer looking to buy apples. In the Agent Model, the agency negotiates with the apple farm on the juice producer’s behalf, and both the juice producer and farm are accountable to each other in case of any issues, while the agency plays a role of a facilitator: acting on behalf and in the interest of it’s client, the juice producer and is compensated for this work.
In the Principal Model, the agency buys a large quantity of apples from the farm (representing the combined demand of multiple juice producers) and resells them at a markup, making a profit. The agency takes on more accountability as a seller and there is no formal transaction between the buyers (juice producers) and the apple farm. Interestingly enough, the agent would continue to charge the juice producer for its services, even while making a margin on the apples.
Risks for Advertisers
The risks for advertisers under the Principal Model arise from various factors, each posing a significant threat to the transparency and efficacy of advertising investments.
Lack of Impartiality
In a Principal Media Buying arrangement, the agency’s role is no longer impartial, as it now holds an interest in selling specific media inventory it has already secured. As a result, this model creates a conflict of interest between the agency’s profit motive and the advertiser’s campaign goals. The agency may prioritize selling media that generates the highest margins for itself, rather than recommending placements that would maximize the effectiveness of the campaign. For example, if an agency pre-purchases inventory from a less desirable media partner, it may still push that inventory onto clients to maximize profit, even if better options are available. This can lead to suboptimal media placements, with an adverse impact on performance metrics like reach, engagement, or conversions. Moreover, since agencies also provide media planning services, they have the power to shape the entire media strategy. By acting as both planner and media owner, agencies can disproportionately favor media that aligns with their financial interests, not the advertiser’s objectives.
Overriding Contracts
Principal Media is a specific product that is explicitly sold under separate conditions carved out from the general contract. These addendums to the contract exclude audit rights and tracking of the actual costs and essentially nullify any kind of protections we have painstakingly negotiated in the MSA. The agencies need to get this document signed by the client to legitimize the principal media sales. In order to do so, some choose not to fully disclose the implications of the principal media buying, highlighting only the selected benefits the client may enjoy, while omitting the risks associated with it. Some agencies have been using questionable practices to have their client’s staff sign off on the addendum authorizing principal media buying without fully disclosing the potential risks and the protections that are wavered from the MSA.
Non-Transparent Media Quality
Principal Media deals may hide not just financial details but also the quality of the media being purchased. Advertisers are often provided with summary metrics (e.g., CPM, impressions, or reach), but the specific placements, publishers, or inventory sources may remain undisclosed. This lack of visibility is especially concerning when Principal Media includes unsold or remnant inventory that agencies acquire at steep discounts (or even for free). Such inventory is typically of lower quality, appearing on websites with less reputable content, or in formats that may not align with the advertiser’s brand or audience. In extreme cases, agencies may repackage low-quality or even fraudulent media, such as impressions from bots or invalid traffic, which provide no real value to the advertiser. The advertiser, however, is unaware of this due to the lack of transparency.
Impact on Direct Deals and Volume Commitments
Many advertisers negotiate direct deals with media owners to secure discounted rates, better inventory placement, and volume-based bonuses (e.g., rebates or added value media). However, if a significant portion of media spend is shifted to Principal Media, this can reduce the volume allocated toward direct buys, impacting negotiated benefits. Lower spend on direct deals may result in missed volume commitments, causing the advertiser to lose out on rebates or bonuses that were otherwise guaranteed. Additionally, reduced spend with specific media owners could push the advertiser into higher pricing tiers for remaining direct buys, increasing overall media costs.This can create a vicious cycle where the advertiser loses value on both fronts—paying more for Principal Media while forfeiting benefits from direct buys.
Double-Dipping on Fees
Agencies typically charge service fees for their media planning and buying functions, which are agreed upon in the MSA. However, with Principal Media Buying, agencies often generate additional, undisclosed profits from the margins between the media acquisition cost and the resale price. This practice, sometimes referred to as “double-dipping,” presents a clear conflict of interest. The advertiser ends up paying not only for the agency’s services through established fees but also for the hidden markups on the media itself. In many cases, these markups can far exceed the agreed service fees, and advertisers remain in the dark about the true cost breakdown. This lack of clarity is compounded by the agency’s control over both the planning and buying processes. Without transparency, advertisers may find themselves paying high service fees while unknowingly overpaying for the media itself.
Market Manipulation and Inflation
Agencies that purchase large volumes of media inventory in advance influence the overall supply-demand dynamics in the market. By holding significant amounts of inventory, agencies can dictate prices and control the flow of media to advertisers. In digital media, especially programmatic environments, where real-time bidding (RTB) is common, there is a risk that agencies may artificially inflate the price of their own inventory. By leveraging their clients’ budgets to place higher bids on agency-owned media, they can drive up demand and inflate prices for that inventory, making the client pay more than they would in a fully transparent auction process. Over time, this market manipulation can lead to overall media inflation, where agencies have more control over pricing than the actual market conditions. Advertisers may experience rising media costs without corresponding improvements in quality or performance.
Data Ownership and Usage
The final, often overlooked risk relates to data ownership. In many Principal Media arrangements, agencies collect vast amounts of first-party data from advertisers’ campaigns, including audience engagement metrics, conversion data, and more. However, agencies may not grant full access to this data or may even use it to benefit other clients without disclosing such practices. If advertisers lack clear contractual terms specifying data ownership, they could lose valuable insights into their own campaigns. Agencies could use the data to optimize other clients’ campaigns or inform future media buys without the advertiser’s knowledge. This undermines the advertiser’s ability to independently assess campaign performance and fully leverage the value of the data generated by their media investments.
Remedies and Action Steps
To mitigate these risks, advertisers should implement the following measures:
- Regulate Principal Media in the MSA
A robust contract is the foundation of media control. If an advertiser wishes to avoid Principal Media entirely, this should be explicitly stated in the MSA (Master Service Agreement), including consequences for breach of this clause. If Principal Media is allowed, clear approval processes should be required, and strict audit rights imposed, which would allow the advertiser to verify everything apart from the actual price the agency paid to obtain the inventory. It should be made clear that undisclosed or unauthorized Principal Media buys will not be paid for and/or it will have to be subject to full audit rights, just like any standard buy.
- Establish an Approval Process
The MSA should specify how and when Principal Media will be used, who can approve it, and what level of detail must be disclosed. This process should also be reflected in the advertiser’s internal media governance model, ensuring alignment across procurement and marketing teams.
- Educate Your Teams
Advertisers must ensure their internal teams understand the risks and specifics of Principal Media Buying. Educating marketing and procurement staff on the media governance framework will reinforce agency compliance with contract terms.
- Track & Measure Principal Media
Principal Media should be tracked and compared to direct media buys to ensure transparency and accountability. Agencies should provide enough detail to enable this comparison, ensuring that advertisers know the true value of what they’re paying for.
- Data Ownership Clauses
Ensure that all first-party data generated through media buys is owned by the advertiser and not the agency. The agency should only use the data with explicit consent from the advertiser, and the advertiser should have full access to it for internal analysis.
- Mandate Independent Media Audits
Commission regular independent audits to verify pricing, transparency, and quality of all media buys, including Principal Media, to the extent possible. These audits will provide accountability and flag any potential issues with media reselling, markups, or quality.
- Separate Fee Structures for Principal Media
Establish clear, separate fees for media planning and buying services. Avoid “double-dipping” by ensuring that agencies don’t charge standard fees for media services while profiting from undisclosed markups on Principal Media.
Conclusion
In summary, Principal Media Buying introduces a host of risks that advertisers must navigate carefully. By establishing clear contractual terms, maintaining transparency, educating internal teams, and implementing robust governance and audit measures, advertisers can mitigate these risks. Ultimately, advertisers should be fully aware of the cost-benefit equation and associated risks before authorizing Principal Media purchases, ensuring that agencies act in the best interest of their campaigns and objectives.