Last year, 2016, wasn’t a great year for media agencies. In the US, the highly anticipated investigation into kickbacks and ‘non transparent’ business practices caused quite a stir while in South Africa, the Competition Commission and the MAC sector charter gave agencies food for thought.
It was an annus horribilis for media agencies in the United States. As the long awaited Association of National Advertisers (ANA) report into ‘non transparent practices’ (mostly around the issues of cash rebates to agencies and dual rate cards) landed, it wasn’t too long before vast amounts of muck was flung, leaving some of the biggest agencies in the country smelling rather iffy.
Despite not being named in the report, life for the big agencies in the US became difficult. Clients soon called in auditors to investigate their dealings with agencies. “The pervasiveness of these practices in the sample strongly suggests that non-transparent business practices are also common in the media buying ecosystem,” the ANA said. The report threw the issues of trust and transparency into the spotlight. “The controversy spotlights how complex and opaque the ad business has become after two decades of mergers that produced a handful of giant companies with hundreds of firms under their umbrellas,” the Wall Street Journal reported.
While the number of mergers and acquisitions in the sector slowed down in 2016, it was by no means smooth sailing for South Africa’s media agencies. Many were taken by surprise when several major media owners changed their rate cards literally overnight. This was the Competition Commission gazetting amendments to section 73A of the Competition Act, making it a criminal offence to engage in “collusive or cartel-like” behaviour.
Media24 and DStv Media Sales announced they had changed all rate cards – across their newspaper, magazine, television and online properties – to “exclude the long- established 16.5% early settlement discount or agency commission”. The Caxton group soon announced its agency commissions would be restructured. Fees payable to accredited advertising agencies would be 15.5% and to unaccredited advertising agencies would be 14%. Times Media Group said it had reviewed its structures and revised rates have been introduced for both accredited and non-accredited media agencies across all of Times Media’s media platforms.
At the time, The MediaShop’s Chris Botha said he didn’t believe the amendments to the Act would have a major impact on agencies that “operate above board and have transparent relationships with their clients”.
But media owners were in for another shock later in 2016 when the Competition Commission concluded its investigation into price-fixing. In a letter to media owners, the Commission said certain aspects of their business practices amounted to “the fixing of prices or fixing of trading conditions in contravention of section 4(1)(b)(i) of the Competition Act”. It said Media Credit Co-ordinators (MCC) and its intermediary, Corexalance, negotiated and imposed a settlement structure on agencies.
It offered the media houses the option of paying a hefty fine and meeting other conditions before it referred the matter to the Competition Tribunal for adjudication. Should they fail to take the offer, it would ask the Tribunal to levy a whopping fine of 10% of the company’s annual turnover for 2016. Asked how many had complied, the Commission told The Media, ‘The Commission’s processes in relation to this matter are ongoing. Unfortunately, we are unable to provide further details at this stage as this may affect our processes”. Which means this will probably be one to watch in 2017.
In The Media Yearbook 2016, a number of media agencies reckoned transformation and skills development in the sector was the elephant in the room for most agencies. In April, the final Media Advertising and Communications (MAC) sector code was published. The target for exercisable voting rights and economic interest in the hands of black people is 40%, increasing to 45% by 31 March 2018, compared with 25% under the general codes; and the target for exercisable voting rights and economic interest in the hands of black women is 20%, increasing to 30% by 31 March 2018, compared with 10% under the general codes.
And under the skills development element, the points awarded for the number of black people absorbed at the end of learnership and internship programmes is 10 points under skills development, compared with five points under the general codes. Which pretty much puts the onus on agencies to pay far more attention to transformation targets.
VIEWS FROM AGENCY LEADERS ON WHAT’S ON THE RADAR FOR 2017
Defending our clients’ margins
The market has slowed down in many SSA markets due to oil price changes and elections. This has had a dramatic effect on the liquidity of many of our clients who import a large part of what they sell locally. Local manufacturing is still low compared to many parts of the world. We have spent the year focusing on how we can defend our clients’ margins. This has worked well for us and we have experienced exceptional growth in all SSA markets. Our focus on insights and the launch of CCS, our bespoke insight tool in Nigeria, Ghana and Kenya (2017) has added tremendous value to clients. Through this tool we are able to deliver a better business outcome and ROI, beyond any agency group.
The elephant in the room, I would have to say, is talent and slow adoption of mobile. Our industry is investing far too little in the growth of people. As a result young people are moving around to attain growth. Clients are looking at good agency talent for recruitment too, so our industry is under threat if we do not focus on the growth and mentorship of talent. This has been our primary focus for the last five years in the continent. In terms of mobile consumption, we are seeing many markets in Africa providing over 50% smartphone penetration. Low data costs in East Africa are driving usage and high levels of brand engagement beyond traditional media, and yet spend levels do not mirror this trend. Where we have CCS, our bespoke insight tool, we are able to see the combined effect of multi-screening clearly and have in some cases provided clients with a 25% value improvement.
Our growth in SSA has been high over the last two years in many of our businesses. This has led to a high demand for further specialised services from our clients. We see our operating model expanding in every market in 2017 in both East and West Africa.
Dawn Rowlands, CEO for Dentsu Aegis Network SSA.
Video consumption growing at unprecedented rate
The greatest growth area has been mobile advertising, given that 97% of South African households own at least one smartphone. Due to the personal nature of mobile devices and the data we are able to collect based on browser behaviour, location, devices, conversion points and many more, we’re able to make advertising more relevant than ever before.
In 2016, we saw a huge rise in location-based targeting – this is where users are targeted based on where they are at that specific time. The more relevant the ads are to the person, the more likely they are to engage with the ad and convert, which is every advertiser’s dream.
As with every year, there have been many trends which have come and gone, but one that’s stuck and is set to have a meteoric rise in 2017 is video content. People are consuming video at an unprecedented rate. In South Africa, we’re only at the edges of 360 video and virtual reality but the possibilities are endless.
We’re looking forward to seeing programmatic audio advertising and programmatic video advertising take off next year with highly targeted, relevant advertising being served to users based on their listening or viewing preferences – think ShowMax, Netflix, podcasts and streaming audio.
As for social, Snapchat has been well received in South Africa – yet another sign that augmented reality is hugely popular with ‘millennials’ and we’re keeping our ear to the ground for when Snapchat sponsored filters and location-based advertising is introduced here.
Ultimately, data-centric advertising is where it’s going – we know so much more about our audience and are able to target them much more efficiently. 2017 is the year that this will be refined and perfected, with advertising wastage being steadily decreased with more relevant targeting, better quality ad units that are more engaging and pertinent to the user.
We’re getting closer and closer to the “segment of one” which is quite simply, the ability to track and understand individual customer behaviour.
Dominique Warr is head of marketing at Mark1 Media.
Talking talent, teaching talent, growing talent
From a global standpoint our EMEA region has experienced an organic gross profit growth of 6.7% in the first nine months of FY2016, including 5.0% growth in Q3 FY2016, which is a strong positive projection that will give us momentum going into the final quarter. In South Africa, as currently experienced globally, economic instability has played a role within the industry. The repercussions have clearly been seen in our Rand value fluctuations and we have seen clients reducing their budget spends which has had an impact on our margins.
Usually, media investment is the biggest single purchase that any brand or company makes.
It is probably bigger than their cost of people and if one can help to save costs and defend their margins, it is possible to come out of any instability in a stronger position. Our high performance culture of agility and ambition definitely assists us in being resilient. Attracting the right talent has always been a challenge within the media/digital industry, we invest a lot in our internship programme where we mould fresh talent and always work toward permanent placements. Our open evening this year was a resounding success and we look forward to having a great pool of talent to select for our 2017 intake.
Despite the leaps and bounds SA has taken with regards to pro-women legislation many regions of South Africa still experience inequality. As a leader I aim to continue to drive my mentorship of young women, through my Phakama Women’s Academy, which uplifts women and assists them on their career path by equipping them for the workplace. Focusing on ensuring women are confident in their abilities in the workplace and that they make their opinions and voices heard is crucial in equalling the numbers in the workplace. It is vital to ensure that young women take their seat at the boardroom table.
Transformation is a continuous work in progress and we are working towards our transformation goals for next year and is top of our agenda, in leading by example within the industry. We will continue to drive skills development through our programme DAN Academy, which was rolled out across Africa. Talent management and career planning is a strong element to empowering and nurturing talent.
Koo Govender is CEO for Dentsu Aegis Network South Africa.
Budgets hit, everyone looking for savings
This year, 2016, has been one of the most challenging business environments that the advertising industry has faced in many years. The well documented global slowdown in demand for commodities has impacted the South African economy at every level. This has led to belt tightening all around and the first thing that gets hit when companies are looking for savings is the advertising budget. There is also a parallel process of seeking to spend that advertising budget more effectively to give a greater return on investment.
Total ad spend in South Africa is likely to end up static for 2016, which in real terms means a decline.
Media agencies are in a position to mitigate billings reductions from existing clients via new business (OMD and PHD have had a good year in this regard) however media owners are at the end of the line and will have felt the reductions most keenly. The continued migration of content delivery from traditional (print and broadcast) platforms to digital is irreversible and accelerating, which adds more pressure to revenue streams for those who do not have a coherent strategy to manage the change. The challenge for media agencies (as ever) is to help clients navigate a changing landscape, both in South Africa and across the continent.
This requires a real financial investment when budgets are tight and we are under scrutiny from global holding companies like never before. However, if you still want to have a business in five year’s time, there is no option, so smile and write the cheques!
What’s on our radar for 2017? Roll out current acquisition strategy (smile and write the cheques). Try and have some more fun, come on, it’s advertising guys! n
Josh Dovey, CEO Omnicom Media Group Africa.
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