Advertiser Beware: You Need A Contract With Your Media Shop And Separately One With Its Holding Company
Hidden payments seem to be everywhere these days. In fact, it’s hard to move without bumping into allegations that someone somewhere is being disadvantaged.
First, controversy rages over the debate in the US concerning media trading rebates and alleged hidden payments. Second, controversy rages over the ethical or otherwise activities of FIFA, with the FBI and Swiss authorities investigating possible hidden payments. Third, controversy rages during the court cases of FOREX traders, over alleged market rigging of exchange rates. In London, the LIBOR rate fixing controversy continues.
Sadly there are parallels across all three. Leaving others better qualified than me to explore the FIFA and FOREX issues, it's appropriate to investigate further the sufferers and beneficiaries in the media trading controversy.
I am in no doubt that the current state of the media trading market serves to disadvantage the unwary and uninformed advertiser, especially those paying insufficient attention. At its worst the problems focus around marketing management who have abandoned oversight on how their budgets are spent who rely exclusively on procurement executives to protect their best financial interests.
I base this perspective on having been a significant player for many years as a media auditor for advertisers and my subsequent work for media owners, working with their trading books and helping develop trading metrics with media agencies. My observations on current practice and on the recent US controversy are that many commentators express opinions based on their rather narrow and prescriptive perspective and many operators feign a detached naivety.
I hear media agencies state they rebate to their advertisers clients 100% of all discounts earned by their negotiations with media owners. In my experience that's correct. I hear advertisers state they have a rigorous media auditing service that ensures they receive excellent value. In my experience that's correct. I hear media auditors state they access prices direct from agency systems so ensuring that evaluations are based on net prices. In my experience that's correct.
But as famously sung by Jazz great Ella Fitzgerald, “it 'taint what you do it's the way that you do it.”
Media agency holding companies are the key differentiating ingredient. Enquire why they exist. Don't be fooled by explanations based on administrative matters and data co-ordination. The holding companies exist as negotiating arms. Otherwise why would they employ so many senior high-profile, well-remunerated executives?
The deals they create for themselves with media owners generate discounts of which their own media agencies are unaware. These negotiations never enter the media agency trading systems. So the media auditor data never embraces them and hence the average prices recorded are inflated. That's why no one gets a bad audit these days.
And the media owner never has to reveal these additional discounts in their trading books because they come from a different part of the business. The media agency holding companies hold these additional discounts to use in any way they chose: to inflate their profits, to reward selective advertisers, to attract new business with extra savings and so on.
Without insight into their activities an advertiser will never be able to get their hands directly on these extra discounts and ensure they are used to benefit them. Everyone is telling the truth but very few appreciate it’s not the whole truth and certainly it's anything but the complete truth.
The stakes are enormous. The dollars slushing around the system are significant. Far too many advertisers are being disadvantaged. The solution for the major advertiser is two-fold and straight forward.
First, you need a trading contract with not only your media agency but now also in addition a trading contract with your media agency's holding company. I know of only two (but there may well be more) major international advertisers who do this.
Second, you need your own direct contract with your largest media owner suppliers. I know of few advertisers who pursue this with the necessary energy and commitment. But as the legendary Ms. Fitzgerald added in her famous song, “that’s what gets results.”
This article was originally published in MediaPost on the 7th of July-2015