Andy Pearch: five ways for clients to find out what’s really going on as media agencies become media owners

The increasing complexity of the digital media landscape and the sustained pressure on advertising budgets present daily challenges for modern marketers. It is perhaps inevitable therefore that transparency in media trading is an issue that is attracting increasing attention and concern for media budget holders.

At MediaSense, we address “the transparency issue” from a different perspective. While forensic accounting and legal counsel have a place in the debate, this will not change the direction the industry is heading in.

There has been and will always be a transparency problem within the media industry – it comes with the territory and sustains the business model and to date many clients have turned a ‘blind eye’ preferring instead to benefit from lower fees and commissions.

The reason why the transparency issue demands to be taken more seriously now is down to two recent factors: the emergence of two dominant trading giants (Group M and “Publicom”) in the global media marketplace, and the suitability of digital media inventory for the arbitrage model.
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Brand owners need to face up to the reality that they can no longer rely on leveraging suppliers when those suppliers have become bigger than their clients, and are now market-makers themselves. Legacy supplier management techniques need to evolve: the old media audit to pitch model is left broken by these developments.

In this new world, it is the agency which sets the price of the media, not the media owner. If the agency sets the price, clients must learn how to negotiate with their own agencies for a better market position. Financial engineering is meat and drink to a media agency, and clients need to acquire or hire the know-how to keep pace with and manage their agency partners through a robust governance programme.

While it is fair for clients to expect to have rights and protections, for the foreseeable future it is optimistic to expect these rights to be implemented to the letter, and it is naive to hope that the most dominant agencies will cede competitive advantage and margin by becoming sufficiently transparent.

Clients need to change the conversation with their agencies, and build more choice, flexibility and self-reliance into their agency relationships. This means becoming less dependent on their media agency across disciplines, developing alternative outlets for spending their media budgets, and paying agencies on outcome-based performance improvements as opposed to relative price delivery.

Clients will not level the playing field simply by re-drafting contract clauses or by ferreting down rabbit holes for hidden margins. Clients need to have a more grown-up negotiation with their agencies, and take a more strategic approach to agency management.

Here are five recommendations for advertisers:

1/ Face the facts. The genie is already out of the bottle and the media industry has moved on to a wholesale/retail model. Transparency issues are in no way limited to agency trading desks – the grey market exists in all media channels and is growing. Clients need to learn to live with it and acquire the requisite know-how to manage through it.

2/ Be better informed. Marketing and procurement professionals now have a duty to make sure they understand agencies’ operating and trading models; what role technology, platforms and intermediaries should play for their business; what data they are prepared to share and how that data is being used and safeguarded. Many clients are sleep-walking in a massive data give-away which will have very significant repercussions, not least in terms of future accessibility, usability and portability.

3/ Have a strategy. It is now more important than ever for clients to develop a media management strategy and to identify strategic alternatives, and other potential commercial partners. Clients should reduce single-supplier dependency and increase competition for their budgets based on capabilities matching requirements. Many clients should be closer to the media owners: there is no reason why they can’t have a direct and transparent relationship with key media suppliers, especially when the media agency has effectively turned itself into a media owner too! Clients with more resources and valuable data should also consider the benefits of setting up their own trading desks.

4/ Reward outcomes. The true retail price of media is becoming less and less known, and price benchmarks less and less reliable. Agency reward systems now need to shift away from price to incentivising outcomes and behaviours – after all, these can be more reliably measured and drive far greater benefits. The faster the industry can move away from incentivising on units of media to business results the better.

5/ Show more leadership. Clients need to set the example and should be prepared to take a tougher line on cases of non-transparent practice and contract infringement. There is no substitute for robust governance across all aspects of media, including stating what level of transparency is required, why it is important, what ground-rules and processes are in place and ultimately, how and when sanctions will be enforced.

unnamedAndy Pearch is a director of media consultancy MediaSense.

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