It’s sublime irony. Even while the sun is rising over a new, professional media planning and buying terrain, the calendar ahead should see more ‘biased’ media plans rolling out from some of these specialist agencies. All hues of financial opacities and ethical issues are increasing shading the media agency-client relationship worldwide. Says a leading Indian media specialist, “This financial mess has become a critical component of clients calling for pitches these days. They want to know precisely where their money is going.”
Client concern is mounting over where their ad monies are really going. Their nagging fear: Are their media agencies pocketing ‘hidden' commissions and discounts from media owners (publications or TV channels), beyond their usual media commissions and discounts, and not passing it back to them? More critical, are they adding some publications or channels to their media plans based on the level of ‘hidden’ surcommissions or discounts offered to them by the media owner, rather than considering the vehicle’s reach?
“Biased media plans are coming in more these days, as increasingly discount-led media decisions rather than reach-led ones are being taken. Publication X gives an agency a much better discount and is signed on, even if the reach is not the best – of course, not all this discount need be transferred back to the client. Wrong recommendations are being made,” comments a media veteran.
After a year of accounting turbulence, the Interpublic Group recently included ‘hidden’ media discounts in its restatement of accounts. This further put the spotlight on various ‘dodgy’ or ambiguous practices that clients suspect their media agencies of indulging in to pad up their margins. Tick off: over-riders, surcommissions, volume-based deals and discounts.
Says Ravi Kiran, CEO-South Asia, Starcom MediaVest Group, “I know of at least one agency (which used to be large in the past) which has as many as seven streams of revenue, each of which is of a dubious nature. These include year-end volume discounts not passed on to clients, position premia charged to the client but not paid to the publications, over-billing on dealer panels, disputing media owner bills on the smallest pretexts and stopping payments, while collecting money from the clients in full. Similarly, many creative agencies routinely overcharge clients on production jobs such as films.”
Take from Jack to win Joe
Sir Martin Sorrell, CEO, WPP Group in an interview with ‘DNA’ recently spoke about global media companies like Aegis and Havas and their “desperate behaviour” to keep up with competition. “In many cases, they have taken their fee and guaranteed that, against getting certain media prices. If the guarantees didn't work, they would give back their fee to clients. In one or two cases, they have given unlimited guarantees. So, if the fee is not enough to re-compensate the client for the difference in the prices, they can have it all back. Even if it goes beyond the fee. This particular model can't work for anyone, because if you give a guarantee of that nature, all that money has to come from somewhere. Which means shifting money from existing clients.”
Some clients themselves are spurring this pernicious practice. Says Punitha Arumugam, CEO, Madison Media, “The market has become much more corrupted in terms of unrealistic client expectations and what they expect from agencies.” This encourages aggressive undercutting of rates by some agencies at the pitch, who later don’t have the means to deliver and land up taking from client X to give to client Y.
Then again, there are some clients who don’t understand the dynamics of the media scape and evaluate media buying as a commodity. It’s not always that the higher the budget decodes to the lower the media rate; there are a myriad factors involved, adds Arumugam.
Brokering Agency Discounts
Financial gymnastics can get added spring when certain media agencies and media owners hammer out agency discounts, rather than client-specific discounts based on the volume of ad space or time booked for that client and considered more transparent.
Swing this trapeze: a media agency promises a publication or TV channel ‘X’ amount of business on the provision of getting Y discount – which may or may not get passed on to the client. Or else a media owner could dish out a surcommission of 5 per cent beyond the usual commission for the media agency to decide what to do with it.
The glitch here – other than the ethical breach – is that the media owner is privy to these fudges and gets the upper hand over the media agency in rate negotiations. Also, some media owners are often wary of dealing with clients separately in fear of exposing discrepancies in ad rates quotes by them and their media agency, adds Arumugam.
Google recently fanned a bonfire of debate by deciding to move from agency commission to ‘best practice funding’, which parleys to a volume-based rebate. Still, it’s transparent, say some.
Again, media rates hammered out by certain media agencies with certain media owners differ for different-spend and -category clients Thus, for an FMCG client which does not need to use news channels, the media agency could get a rock-bottom ad rate of say Rs 10 and bill the client Rs 25. And for a car client for whom these channels are a critical medium, they would get a Rs 30 rate. This is obviously unfair to both parties and make for biased plans, cites Arumugam.
In their desperate scramble for new business, some media agencies tend to over-commit offerings and under-cut rates at pitch stage, and then cut corners later.
“Greedy clients get a terrific sense of achievement by beating down the agency compensation at the pitch stage to an unsustainable level, thereby encouraging agencies to either earn extra money through not very honorable means or to cut down service levels. Clients need to realise that peanuts normally do not get tigers to come running,” says Ravi Kiran.
That said, some agencies have a devious process of creating a large expectation at pitch and then give the vanilla product to the client at a low cost and charge for every thing extra, he adds.
Kiran says that he also knows of several clients who create a large revenue expectation at pitch stage and fail to deliver even a respectable fraction afterwards. His observation: here are also some clients who play with the agency systems and financial processes by delaying or stopping payments under trivial pretexts, refusing to honour commitments, renegotiating pre-agreed terms without qualms.
The point being made: Transparency, professionalism and ethics are significant issues in business and both clients and agencies have a role to play in ensuring good practices. “It takes two to tango.”
Any remedies? Well, media agencies could give supplier bills to clients. Or have tripartite contracts involving agency, client and media owner, urge some media specialists.
The best sum-up on these murky waters would come from strategic consultant Chris Ingram in Campaign magazine, “Over-riders are rarely illegal, only occasionally unethical, but very often unprofessional. And for an industry that wants to be thought of as a profession, in a world where transparency is inexorable, there’s no place to be.”