What is principal-based buying?
Principal-based buying is when an agency buys advertising inventory on its own account and resells it to clients at a marked-up price, instead of buying as the client's agent and passing costs through. It can lower prices through bulk buying, but it means the agency profits on the margin, so clients should understand and agree to it.
In a normal agency relationship, the agency buys as agent and charges a fee. In principal-based buying, sometimes called inventory media or proprietary media, the agency takes on inventory risk and earns the spread. It became common among holding company groups in the 2010s.
Transparency concerns led to scrutiny, including the ANA's 2016 media transparency investigation into rebates and non-transparent practices. Advertisers now often write contracts requiring disclosure of principal buys, media rebates and audit rights.