If you were in Miami last week attending the #ANAAFM (ANA’s Financial Management Conference), you may be forgiven for thinking about your retirement. Not only because you were on the beach, but because you might wonder what hits first: the end of this industry as we know it or your retirement. Most folks clearly bet that it is the latter. Otherwise, attendees should have been kicking and screaming to a) get the agencies to change their model, b) the ANA to insist on the end of principal deals in its template contracts and c) the 4As to simply demand fair pay vs. insist on hidden compensation.
If you have not read Jack Neff’s excellent article in AdAge triggered by a McKinsey report (led by Sarah Armstrong) on the sorry state of our industry, you should: The title should NOT encourage you to continue to ignore the issue that is at the root of the transparency debate: “McKinsey: Not much has changed three years after media rebate uproar (subscription required).”
Here are its three absolutely mind-boggling take-aways:
1) No Rebate, no Agency Profit
Yup, it is that simple: in the McKinsey report an agency executive – as always, these fabulously courageous folks are reliably former and/or unnamed executives – is quoted: “Most media-agency profitability is driven by non-client revenue. We would not have a business if we didn’t have rebates.” Here you have it: our industry is making itself obsolete by not changing a model that any nine-year-old understands to be inherently wrong and unsustainable.
2) Fair Pay is idealistic?
Jack Neff knows this industry depressingly well enough that he coins the most obvious and only solution to the whole problem as a pipe dream: “That’s one reason McKinsey, perhaps idealistically, is also recommending a simpler solution: Contracts that compensate agencies fully to staff a realistic and mutually agreed scope of work plus a reasonable margin, combined with mutually agreeable performance incentives.”
Ouch. If this is idealistic, then our industry is in much, much more trouble than you might think. The “stable triangle of shit” as I have named it is very much alive and well: 1. Advertisers don’t pay their Agencies, which is why 2. They find income elsewhere which his why 3. Media incentivises them and loses control over their their pricing, which makes this industry horribly complex which in turn makes (see 1) advertisers not wanting to pay agencies, etc.
3) It’s the model, stupid
It is mind-boggling, how the discussion about transparency centers around if and who has done wrong. 4A’s CEO Marla Kaplowitz is at least partly to blame for this red herring. She is quoted: “The problem with reports that lean on unnamed sources to make broad accusations,” she says, “is that it tends to cast everybody in a bad light, and it’s never clear if they’re based on conversation and hearsay or tangible proof.”
Actually no. Of course some clients feel cheated, but as an industry, the problem runs deeper: it is not with a few bad apples, but it lies with the accepted model of advice driven by self-interest. We need no proof, no surveys and no unnamed sources: the problem is the dual-sided business model of agencies acting as doctors AND pharmacists and the conflict of interest this naturally entails: All sides in our industry have accepted the existence of principal deals, in which the agency acts in its own interest and therefore loses neutrality. Even the ANA thinks that this monster can somehow be tamed with smart contracts. But it cannot. You cannot contract trust. If you want true advice, you have to pay for it. And you must insist on its neutrality so that nothing gets in the way of achieving your benefit as a client.
So let us fix the model. We welcome any agency to copy our approach of operational neutrality as described here. Otherwise, it is a safe bet that unless our industry has hit the rock bottom of distrust, we will chitchat about transparency even five years from now. Mark my words – see you at #ANAFM2024.
Martin Albrecht is managing director and co-founder of Crossmedia.