Media Management

Advertisers need to start asking agencies new questions

The Full Picture

“Get the full picture, just don’t focus solely on the fee. In fact, the other piece of advice that advertisers would do well to listen to, is get a good media contract lawyer or at least use the ANA media template as a starting point”

It’s always astonishing to reflect that if a supermarket wants to build a new warehouse, there will be a plethora of steps executives will go through before the decision gets anywhere near C-suite approval. There will be in-depth rounds of meetings with procurement and other departments before the board is asked to sign off on plans to press the button to spend, say, £20m. In advertising, you have the same company spending hundreds of millions of pounds on media with nothing like that level of sign-off or scrutiny.

That’s why we have financial auditors, so brands can make sure their agencies are adhering to the commercial terms of their contract. This has got more complicated over recent years because of spending on a proliferation of digital advertising channels. Contracts used to be just a handful of sheets of paper but now there can be dozens of pages.

While the principle of ensuring a contract’s commercial terms are being adhered to is largely the same, advertisers now need to understand they must ask a different set of questions. Looking for transparency and compliance with their agreed financial terms is like a game of whack a mole. You address one issue and then another pops up somewhere else.

Buyer and seller, at the same time?

Everyone will know about the long-standing question marks over whether media agencies are sharing rebates in a fair manner. We’ve had to extend our oversight to look at different types of rebate, whether that is cash or free space an agency wins by pooling their spend. Clients have to remember that it is their budget earning free space or rebates. Our job is to make sure client contracts that say the client will receive an equal amount of that commercial benefit on a pro rata fair share basis are kept to.

Want to know more? Hear Stephen Broderick discuss Media Transparency – Beyond the Financials at The Marketing Procurement iQ Conference – Kia Oval London – 16 & 17 April Book Now!

This has now extended into agency-owned media. In the UK it’s called inventory media and in the US, it’s referred to as principal-based media. Part of it comes from when a media agency buys a huge amount of discounted media from publishers up front so they get a good discount. The first problem here is they are paid a fee to buy the best media at the best price for their clients and now, all of a sudden, it seems they can buy the same media cheaper for themselves than they can for those clients.

That does not quite make sense. The second problem is they then become the buyer and the seller of the same media, so there’s the possibility of a conflict of interest. The inventory is bundled together and sold at what brands are told is a great deal, but the difficulty is when an advertiser asks what the agency paid for the media. This is why advertisers need clear financial terms and someone to audit those agreements. The final problem here, though, is agencies insist the media is sold on a non-disclosure basis which contravenes the vast majority of client-agency agreements.

New questions brands must ask

The rise in the proportion of budgets going into new channels in digital advertising means advertisers need to be aware of new areas where they need an agreement with their media agency they can be held to.

Client contracts need to include very important clauses around new issues, such as whether using Made For Advertising (MFA) sites is allowed and, if so, what is the permissible limit. The same applies to invalid, fake traffic. How much is permissible? Who is monitoring viewability to make sure an advertiser is only paying for viewed adverts?

Are we insisting on inclusion and exclusion lists of where a brand will be advertising? Who is providing these lists and, the really important questions, who is monitoring the spend? Who is responsible for ensuring limits on MFA sites or fake traffic are not surpassed, who is protecting brand safety? Who is keeping an eye on viewability?

These are all service that an agency will normally be charging for and so an advertiser needs to be on top of what is in their agreement and then check it is being honoured. It’s partly the cost of running these extra services and the waste that is lost to fake traffic that is behind a recent ANA report that found only just over a third of advertising budget actually goes into an advert the public sees. When you consider how huge the big advertising budgets are, it’s clear why brands need to ensure roles and responsibilities around finance are agreed and then audited. 

Look at the whole picture

To be fair to agencies, they’re under a great deal of financial pressure. They are committed to delivering growth to shareholders and, at the same time, advertisers want to negotiate hard on fees. So brands need to think long and hard when they are negotiating around price alone because any agency will come in and say they will get great results for less. It’s like any procurement discussion, though, if you’re paying 15% or 20% less in one area, you can imagine that you’re paying for it somewhere else, it’s just there isn’t the full transparency there to find out.

The best advice for any advertiser is to not always be tempted by the lowest price but to look at the full contract terms. Get the full picture, just don’t focus solely on the fee. In fact, the other piece of advice that advertisers would do well to listen to, is get a good media contract lawyer or at least use the ANA media template as a starting point. You’re talking about such large sums of money over typically a three-year period and so paying a lawyer up front to go through the terms will nearly always represent very good value of money.

Similarly, running regular audits is highly advisable because, again, it’s rare that the process doesn’t save the brand more than the cost of the audit. This is often delivered through spotting purely accidental human error in billing mistakes, let alone any potential improvement from ensuring the commercial agreement between both parties is fully honoured.

Regular auditing not only maintains the pressure on an agency to ensure the commercial terms of an agreement are adhered to, it keeps agreements up to date by addressing the financial side of issues that have arisen from digital advertising, such as inventory media, viewability and traffic monitoring and safety. 

Interested in this article? We have much more on this topic and more at our next Marketing Procurement iQ Conference (Europe) on 17th April, Kia Oval, London. Book Now!