Business is business – but media agencies allegedly ‘forcing’ media owners into paying more for volume deals have raised the ire of the industry. Peta Krost Maunder tackles this minefield in a story first published in The Media magazine.
Media Agencies’ raison d’être in this industry is to provide intelligent planning and strategy to ensure that the client is best matched with the media owner (publication, station or channel) for their particular campaigns. So, when a few agencies started insisting that media owners pay for agency volume bonuses – otherwise known in the industry as AVBs, agency volume deals, kickbacks, rebates and other far less savoury names – many media owners, clients and other agencies were angry.
Those angered were very clear: just how strategic can an agency be if it favours those who give it ‘rebates’ and refuses to work with those who won’t? What kind of planning or research goes into those decisions? So, if SABC won’t accept this (which it categorically won’t), does that mean that this particular agency’s clients won’t be able to advertise on the biggest platform in the country? Also, there was concern that if the large media houses agreed to this, it could potentially destroy the smaller ones.
The outrage led to a special industry meeting and panel debate to thrash out this and a few other problems facing media agencies.
Among the panellists was MediaShop’s Harry Herber, who explained: “Objectivity flies out the window when threats are made that if you don’t pay, you don’t get. Who gains from bulking? Not the media owner or the client, only the media agency. I worry clients will end up saying this is not worth it; if the media agency is not offering us objectivity, then fuck ’em, let’s find another way…”
Many clients, particularly the larger ones, are against AVBs. South African Breweries’ portfolio communication manager, Lauren Stevens, and commodity specialist ATL, Michelle Anderson, called it “anti-competitive”.
“We won’t get involved in this because it borders on bribery and bullying, and is not an appropriate way for our brand to operate,” says Stevens.
She was adamant that hiring a media agency is not about the agency making the best deals for themselves. ”It is about finding the perfect place for us to market our brands. So, unless they have this kind of deal with every media owner, we would certainly not be getting the best solution and that is what we pay for,” she says. “How can we trust an agency like this who clearly doesn’t have our best interests at heart?”
Stevens says the media industry has worked hard to bring media inflation down, and this will cause it to skyrocket. “Ultimately, media owners still need to deliver their own profit targets, and therefore they will have no choice but to put their rates up if they are being so tightly squeezed by agency group deals. The money has to come from somewhere, and it’s going to come from us…”
Media owners were also – for the most part – against this. Outgoing MD of Oracle Airtime Sales (OATS), Peter McKenzie, says: “Despite many approaches over the years, OATS has never done an agency volume deal. There are no exceptions and the policy will not change. Our policy has always been to negotiate discounts on a client-by-client basis that acknowledges the size of the investment on our pay-TV platform. If this increases our revenues, then it works for us.
“I question the veracity of media decisions if these were to be influenced by over-riding agency deals. Would the media decision be based on what was best for the agency or dictated by what was best for the client? To me, there is an immediate conflict of interest. If I were a client, I would be concerned.”
He says media agencies “conveniently forget” that their commissions (16.5%) are already higher than the international 15% norm. “I suspect the bottom line is that competitive pressure in the media agency world has resulted in margins being pared to levels that are not sustainable,” McKenzie says. “The traditional business model is fundamentally flawed and some agencies are now turning to media owners, where they undoubtedly have some clout, in the hope that they can create an alternative source of revenue. Clients also need to understand that this potential pressure on media owner margins can only fuel media inflation.”
Ads24 and SABC are also very open about having none of it. Linda Gibson, CEO of Ads24, says she’s been approached by a number of agencies for AVBs in the last 18 months. “We don’t operate like this and never will. Besides, if a company the size of Media24 did it, we’d be putting smaller publishers out of business.”
The others would never get their fair share.” She says these deals have the potential to cripple the industry. “We won’t let that happen,” she says. Although she is aware that AVBs are common practice abroad, she say, “There, because it is across the board, if the buying house is going to do this deal, the strategy and planning is already decided and is just about trading. What people are doing here is before the strategy or the planning.”
Allegations of threats having been made to media owners should they not agree to these deals has heightened the anger. A number of reliable sources claimed that, when SABC would not agree to Andrew Kramer of GroupM’s AVB proposal, its team was informed that this could affect their clients’ advertising on the national broadcaster.
Kramer denies having these conversations with any of the traditional media, saying he has only had them with out-of-home, because they do this as a matter of course. “We would never say that if you don’t do this, you won’t get our business. But we are looking at how the media owner is positioned and who will give you the best deal in terms of pricing, volume deals and other angles. It is all about good, solid business practice.
“The media owner has a choice to take on our business, it is not about threats but terms, and trying to get the best terms for our clients and us,” says Kramer. “We are answerable to our stakeholders, clients and shareholders and, if they are not happy, then we have a problem. But we are not answerable to our competitors. And media owners who are not happy with our terms have the choice to go elsewhere.”
Kramer says GroupM’s deals are totally transparent as it is SOX audited, in accordance with the US Public Company and Accounting Reform and Investor Protection Act that came into being after the Enron and other corporate and accounting scandals. “Our reputation is everything, and AVBs are just a service we offer. We don’t bully or force people into anything; if we did, we wouldn’t keep our clients.”
He says media owners, though, are not as transparent, and cites an instance when the same media owner offered one discount to one client and 11.5% lower to another in the same week. “All we want is transparency.”
SAB’s Stevens disagrees about transparent deals. “Business deals are not meant to be transparent. I don’t want my competitors to know what I am paying. But we won’t accept anyone holding people to ransom.”
While Anderson accepts this is happening internationally, she says it doesn’t mean the system is working well. “We’re happy to pay for a skill we don’t have and have no problem with different strategies, but we need to ensure they are sustainable. Value for money – and thus the lowest cost for the best service/product possible – is key for sourcing and procurement, but bullying or subversive tactics, anti-competitive behaviour and non-transparency in the relationships between client and agency, or agency and media owner have an adverse effect on the industry as a whole and are not sustainable for any one party in the long term.”
Kramer says this outcry in the industry is “an allergic reaction before looking for a solution”. He says: “People should stop whining and work on a way of doing business so we all win.”
He says he is pleased about the reaction because it sparked the special meeting and debate. “Creating debate is healthy, and it is certainly time to relook at media agencies’ business model.”
AVBs are a typical feature of the model in many countries. The media agency groups, like GroupM and Aegis that are pushing for AVBs, are part of international companies that are clearly putting pressure on them to go this route. At the special meeting, Avusa’s GM for advertising revenue and strategic communications, Enver Groenewald, agreed there was pressure put on local agencies to deliver the profit imperative. “It is no different to any other industry, but just the normal evolutionary process.” He believes that media agencies need to find a better way of dealing with this.
Behind the uproar over the issue is a very clear picture of many struggling media agencies not making enough money out of what they do, and considering this as a possible solution. SABC board member Clare O’Neil, tasked with overseeing the broadcaster’s advertising sales division, explains: “Media owners do give rebates – 16.5%. The fact that the media agencies hand that back to their clients is not the media owners’ problem. It’s between them and the clients.”
Gibson agrees: “The problem is that media agencies have so devalued their skills and what they offer that they have given so much of their 16.5% to the client that not enough is left for them,” she says. “Now they’re looking to the media owner to solve this problem for them. It isn’t going to happen.”
From the clients’ side, Stevens says: “We are willing to pay good money for skilled planning and strategising, because it is well worth it. But if you discount your services so much, what does that say about what you believe your value is?”
But Herber puts it in a nutshell: “Underpricing and undervaluing our own services has led media agencies to where we are today. There are a lot of us under huge amount of scrutiny. Now we are apparently looking at media owners to bail us out. This model they are looking at works overseas, but it won’t work here.”