Advertiser trade body ISBA’s latest Paying for Advertising report moans about agency profits even as it reports that agency fee levels are still falling. This is according to Campaign which seems to have been given a sneak preview of the report which is published next week.
Agency profit margins “remain remarkably resilient,” say the advertisers darkly, despite their best efforts to reduce them presumably. However net payment rates to media agencies have improved for the first time in 13 years.
Fees to media agencies need to improve as on many of the biggest accounts they are close to zero, agencies making money investing the client money on the overnight markets before paying the media owner.
Fees will have been a matter of animated discussion in Kraft’s UK media pitch for the consolidated Cadbury/Kraft account, the same for billings levels.
Omnicom’s PHD, which has rather fallen from grace in recent years, will be relieved to have added Kraft to its existing Cadbury business against competition from Publicis-owned Starcom.
Kraft borrowed heavily to buy Cadbury, so much so that veteran investor Warren Buffett, who opposed the bid on price, recently reduced his stake in the company. So it will have looked for fee savings in this latest negotiation. It’s also rather doubtful that it will maintain levels of spending in the UK, previously £25m apiece for Cadbury and Kraft.
But back to ISBA. It’s a bit of a cheek to complain about agency profits. ISBA says that nearly all agency payments are a combination of fees and ‘payment by results’ these days rather than commission. So if agencies are maintaining their margins it presumably means they’re more efficient.
The survey also says that agency tenure on accounts has increased a bit since last year’s report. But this is probably because a lot of advertisers weren’t spending.
When things really pick up the pitches (and the fee negotiations) will resume in earnest.