Honest, decent and truthful – are advertisers right to question media agencies profits?

It’s an interesting debate, especially coming from big brands that make large profits being less enthusiastic about suppliers doing the same.

Add to the mix, some big brands have been criticised for exploitative employment practices, this debate has a moral aspect to it.

ISBA MEMBERS 3

By contrast, big media groups like WPP make so much profit out of big brands that they can pay their CEO, Martin Sorrell £70m, bigger bonuses then the CEO of most big brands gets.

The issue of Sorrell’s bonus is a different debate, but I believe he should share it with his staff who do the hard work and actually make the business success.

But big brands seem happy to pay over the odds to large agencies – on average twice as expensive as the independent ad agencies – WPP saw a 5.1% increase in quarterly revenues to £3.1bn – mainly made from big brands.

I was shocked to see the rip off rates one big agency was charging a former client, following an international alignment, that could only be defined as abusive. Worse, the client’s new ads failed to deliver sales.

So is ISBA’s review of media agency commission just the start?

The digital industry has been rife with false accountancy on social media figures for years, when that’s linked to bonuses it’s fraud.

Debbie Morrison of ISBA said, “I don’t believe that [media agencies] have the best interest of their clients at heart any more.” Some of us in adland are tempted to agree, but I would point the finger more at the large media groups rather than the independents who I do believe do care about client’s business success.

We’re at a tipping point, we’ve got to do something,” added Debbie Morrison.

In the US the Association of National Advertisers have recently hired specialist investigators to reveal hidden commissions and even fraud. This shows an all time low level of trust of the ad industry by brands. And possibly justified.

I personally take the moral high ground and believe we need a fair pay balance policy between brands and agencies – both need to make profits. If agencies are forced into smaller and smaller margins people will get exploited.

IPA will certainly be opposed to ISBA’s template, but all it is really doing is forcing a more honest, decent and truthful approach, but that needs to apply to both sides.

I have also been shocked to see how some media agencies cream off large profits for little work, especially compared to the creative agencies. Media agencies don’t need to invest in expensive creative talent, sorry but media buying is glorified accountancy compared to what creative agencies do.

Take outdoor for example. To quote one example, the media agency in this case farmed it straight out to a outdoor specialist for up to 15% of the media spend. The specialist took 10% and made the outdoor media company do most of the work writing a proposal. Easy money for a few calls and rebadging a proposal. Meanwhile the brand’s creative agency was sweating blood for its money. The media agency got twice the fee of the ad agency.

More fool big brands not going to media owners direct. I am surprised that while many are setting up in-house studios the big ones aren’t setting up in-house media planning and buying departments, they’d save millions. Unlike creativity, which is talent based, media isn’t rocket science.

A separate debate is that big brands need to actually invest less percentage in the media and more in creativity – even Google preaches that 70% of ad effectiveness is down to good creativity.

Brands also need to invest more in disruptive innovation.

To quote The Garage, “brands need to see creativity as not just something that exists within the marketing department but at C-suite level.”

Of course demands for agencies to be transparent isn’t new, the now disbanded COI was very demanding about commissions. There was a famous case of one ad agency being struck off because their below the line agency got commission off a printer and didn’t declare it.

The way forward is for the ad industry to publish an acceptable and fair rate of commission, profit margin and pay. Agencies are not charities but the big groups are certainly making fat profits. I wonder how more efficiently their business would be if they operated like the smaller independent sector, who often offer better value.

If ISBA’s motivation is for a fairer deal in a climate where media groups like WPP are boasting about big profits, that’s one moral debate. But if it’s motivated by big brands just trying to make more money by squeezing suppliers more, that’s a different moral debate.

As they say “the love of money lies in the power it gives you”, and while big brands hold the purse strings I think the industry has little option but to accept this template.

Links

Sorrell defends his £70m bonus.

http://www.bbc.co.uk/news/business-36157729

Disruptive InnovationThe Garage

http://www.co-garage.com/

ISBA

http://www.isba.org.uk/

FT coverage

http://www.ft.com/cms/s/0/cd98d3ba-0c7b-11e6-9456-444ab5211a2f.html#axzz47CoJzVBC

Chris Arnold is founder of Creative Orchestra and former chair of both the DMA Agencies Council and the Creative Council and  former board member of both the DMA and Saatchi & Saatchi.