Dive Brief:

• Vivendi's Havas is among the agencies under scrutiny as part of a broader federal investigation into the advertising world's media-buying practices, The Wall Street Journal reported Thursday, citing sources familiar with the matter. Federal prosecutors have started to issue subpoenas, the Journal's sources said, though the status of the investigation is unclear and the Justice Department did not provide comment to the publication. Havas declined to provide comment to the Journal. Among the other major agency holding companies, WPP, Publicis, Interpublic and Dentsu also declined to comment, while a representative from Omnicom told the Journal the company hasn't received a subpoena from federal prosecutors.  

• The FBI has, for the past several months, been interviewing people from the ad world about business practices and a 2016 report commissioned by the trade group the Association of National Advertisers (ANA), the Journal said. The ANA's report, which was conducted by the consultancy K2 Intelligence, investigated widespread non-transparent business practices among ad agencies, including cash rebates that brand clients were not privy to. However, the report didn't name any specific agencies for shady behavior and was met with resistance by some groups who believed that the lack of specificity unfairly painted the whole industry.

• The ANA has yet to speak with any government officials as part of the current investigation, though the FBI has asked for the trade body's cooperation, according to the Journal's sources. News of an FBI probe into media buying practices in the U.S. was first reported by Campaign back in June.    

Dive Insight:

More than two years out, the ANA's rattling transparency report continues to create shockwaves in the industry, with a reported federal probe adding to a catalog of pressures weighing on the agency space and on agencies' media businesses, in particular. 

Pivotal Research Group analyst Brian Wieser told the Journal he estimates that media-buying has contributed to "the bulk of profit growth" for agencies since the early 2000s. But profit growth has been particularly sluggish for major agency conglomerates over the past several years, and a looming FBI investigation could cause already wary brand clients to take their business elsewhere or, as is becoming more common, simply handle those marketing functions themselves.  

The number of marketers with in-house agencies has increased to 64% from 42% a decade ago, according to a recent study by Forrester and the In-house Agency Forum. Cost effectiveness and speed were cited as major contributing factors to the uptick in internal shops. Separate research by the Interactive Advertising Bureau from May found that 65% of marketers were moving all or parts of their programmatic media buying operations in-house.   

The current federal probe could additionally cause some marketers to rethink their current agency arrangements, which was happening more frequently already. Back when the ANA report was first published, it was viewed as helping to accelerate a so-called "Mediapalooza," where a historic number of advertising accounts went under review as brand clients took a closer look at their agency partnerships.

In 2018, agency business outlooks haven't generally improved and analysts, including Wieser, have speculated that the year could mirror or potentially surpass the amount of business that went on the move under Mediapalooza. A report by Observatory International and the World Federation of Advertisers (WFA) published in June found 74% of major multinational marketers were reviewing their agency rosters. Clients surveyed for the study rated their current agency arrangements at 5.7 on a 10-point scale gauging "fit for purpose."

Marketers' frustrations could be compounded given that this is not the first federal investigation into agency practices in recent memory. As noted by the Journal, the Department of Justice two years ago probed several companies, including WPP, Publicis, Interpublic Group and Omnicom, around potential rigging of commercial contract bidding in favor of in-house teams over third parties. 

"The problem lies not so much with the practice itself, but with a lack of transparency," Adonis Hoffman, the chairman of Business in the Public Interest, told Ad Age at the time. "Thus, if agencies disclose to clients what their intentions are and discuss their business practices to those clients, we would not have this investigation or discussion."