The SABC has decided to postpone its controversial move to institute a zero-based rate card in April 2016. The public broadcaster, in a letter to ‘business partners’, said after consulting with the media sector and “taking all factors into account”, it had deferred the introduction of non-commission bearing rate cards “until a later date”.
Group executive of commercial enterprises, Nomsa Philiso, said the SABC “recognised that current trading conditions are tough and that economic forecasts for the coming months are gloomy”. She said the broadcaster was “sensitive” to the increasing pressure under which some agencies are operating. She added that while the SABC considered some of the negative reaction to the proposal to be “more in self interest than in a spirit [of] partnership” it nevertheless “acknowledges that it may be prudent for all parties to have more time to digest the full range of implications accompanying a change to zero-based rate cards”.
Gordon Patterson, business director of Omnicom and president of the Audit Bureau of Circulations, said given that “2016 is certainly going to be a challenging year, filled with equal amounts of risk and reward”, he was pleased the SABC “had the courage and sensitivity to delay the possible introduction until the implications are better understood”. He said it couldn’t have been an easy decision but it was one he believes is correct.
“For the first time in ages, I feel that SABC might have turned the corner and found the sort of ‘in touch’ leadership that we need at the commercial helm of SABC. An intelligent, aware and trusted individual that leads by example and understands that leadership is not a popularity contest. And if it makes business sense then it’s probably good for the industry and employees alike,” Patterson said.
“As a critical component within the South African advertising profession, any disturbance or inconsistent strategic thinking within SABC ultimately creates a ripple that touches marketer and the general public alike… for better or worse,” he said.
Wanele Mngomezulu, general manager of business intelligence at SABC Group Sales and Marketing, said the SABC undertook an “industry-wide engagement across all our major regions, key stakeholders including small-to-medium agencies as well as large agencies”.
“Whereas a large group of small-to-medium agencies raised various concerns ranging from potential job losses, changes in systems etc, there were other small-to-medium agencies who welcomed the move to a non-commission rate card. These agencies felt that the standard 16.5% agency commission restricted their business growth,” he said.
“Why should the starting point be at 16.5% and not 30% or more? Who determined the 16.5%, when was this done? Has the 16.5% been reviewed since inception? While the 16.5% is a standard that has been widely accepted, it is counter new small business development,” he explained.
He said the SABC “took all views raised in making its final decision. There were views that were pro the non-commission bearing rate card and views that were against the non-commission bearing rate card.”
Some of the criticism by media agencies of the proposal was that not enough consultation had taken place. But Mngomezulu feels differently.
“The SABC took an industry-wide engagement to solicit views and input of what the impact of non-commission rate card would mean. The SABC presented forecasted timelines and roadmap subject to the approval of the project. This was communicated. It is unfortunate that an open platform whereby input was requested, only a handful agencies resolved to formally respond in writing as requested,” he said.
“In certain instances, emotions took over and no meaningful conversations were had. However, where valid suggestions and arguments were proposed, the SABC took this to heart. Trust is mutual and not one-sided. Throughout the entire engagement, it was evident that certain agencies were not disclosing their true and full remuneration with their advertisers. The non-commission bearing rate card would have meant a full remuneration disclosure. The SABC does accept that there are a number of agencies that are transparent with their advertisers/clients and this is supported and encouraged. Issues arose whereby certain agencies would need to full disclose their remuneration model and this is not the SABC’s objective,” he said.
Agencies claim proposal not well received
In September an e-mail did the rounds in which some media agencies claimed the SABC’s proposition was not well met and that some of the bigger agencies even “kicked them out of their offices”. The e-mail alleged the main reason for this was because some of the agency commission is ‘kicked back’ to clients. The introduction of the net rate card meant they would have to “renegotiate all of their deals, some of their clients are not on retainers and they do rely on the commission, the commission is so fragmented across the creative, digital, buying, client service agency – each receives a portion of the pie.”
The correspondence said bigger agencies are moving towards being fully inclusive so digital, activations, creative etc would move in house. “The smaller agencies rely on their commission – they essentially work for free and only make money when the client books,” the group said.
“The SABC’s rationale for doing this is because the Auditor General is not happy with them reporting gross figures as the agency commission is not deducted so the figure reported is not accurate and they are making less money. The opinion of the agencies is that this is just an excuse. The trust for the SABC has completely gone. The agencies feel they are being forced into this with no consultation,” they said. They also said this was counter-productive in terms of supporting SMEs.
Mngomezulu, however, says the 16.5% is a standard agency commission. “It means as a small-to-medium player, you can’t negotiate higher than the standard even though the service you provide dictates for a higher commission. Services should be remunerated based on a negotiated service provided and not based on some standard industry arrangement. This is counter to small business development. An accredited agency is entitled to certain favourable terms that small-to-medium non-accredited agencies do not enjoy and this in turn restricts small-to-medium business growth,” he said.
Little impact on big agencies?
Chris Botha, who heads large agency, The MediaShop, said a net rate card would have very little impact on The MediaShop.
“Most of our clients pay us a fee, and all commission is rebated back to the client. In other words, commission, or no commission, doesn’t impact us. On the clients where we do earn commission, our clients are fully aware of how much we earn, and how much we pay back to them or to the creative agency. With those clients, we will now just reflect the commission or remuneration differently. The quantum (or net rate) the client pays stays the same. The people who are kicking up a fuss about agency comm being removed are sometimes the people who have been hiding from their clients what they charge them,” he said.
“Clients are then unaware of agency commission, with the agency pocketing the vast majority of the cash. Agencies that show real value to their clients, and have an open and honest relationship with them, do not have to worry about clients running away with their business. Our clients pay us for our service – whether it be through a fee, commission, or a management commission. The OOH media industry also went net a while back without a single glitch. TV will go the same way. In fact, I won’t be surprised if more media owners follow suit, and sooner than we think,” he said.
Botha said the Competition Commission’s allegation that payment for services rendered should be based on a negotiation between buyer and seller and not on a set standard industry percent and/or amount was “for the most part right”.
“That is after all the law of the land. Agency commission can be construed as collusive behaviour. It does to a certain extent challenge smaller players from entering the market. Agency commission has also morphed from what it was initially conceived to be,” he said.
How to deal with smaller agencies
Managing director of PHD Johannesburg, Wayne Bishop, believes moving to a zero-based rate card actually benefits smaller agencies. He said should the move go ahead later in 2016, larger agencies would need to “form a committee to see how they are going to deal with smaller agencies.
“This move absolutely benefits smaller agencies more than larger ones. There is now very little need for MCC accreditation which takes away the barrier to entry. In addition, clients might bring more and more of their buying in-house since it is a much simpler model of doing business. The SABC will need to work out a way to maintain the larger agencies as clients but I’m positive they have their plans,” he said.
“In all honesty I think small business wins which is good for the economy. Barriers to entry are lowered, entry costs decrease and things like guarantees (which are normally cash based) would be less of a priority,” he says.
The biggest losers, he says, would be trading directors. “Trading directors are probably the ones who lose the most as all the history that has been built up on effective discounts and client rebates have to be re-worked. It becomes a slightly new ball game now and perhaps requires a slightly different skillset to navigate the trading environment,” Bishop explains.
‘Measure twice, cut once’
Vizeum’s Tanya Schreuder agrees. “Concerns are that clients are incentivised to go direct, however agencies offer an impartial opinion and skill set,” she said.
As Philiso says in her letter, the in-principle decision to move to a zero-based rate card was taken on the basis of “both external issues relating to the Competition Commission and changed internal SABC accounting practices that resulted from a finding by the Auditor-General that revenue was being under-stated”.
Philiso said while some agencies had no major objections to the proposal, there was a caveat about proceeding if zero-based rate cards were not the ‘industry standard’.
“Interactions with other agencies elicited concerns that the proposal would result in lower earning potential, job losses and the possibility that advertisers might spend directly with the SABC.
“A common thread was that the proposed change would have an impact on administrative and logistical processes and that it might cause confusion if there wasn’t conformity in the industry. Seen in totality, the responses indicated insufficient readiness within the media advertising industry”.
Last word to Patterson. “As my father always said, ‘… measure twice, cut once’. Many small businesses, agencies and media owners would have been affected negatively by this change and now, no doubt, will be heaving a sigh of relief.”
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