Media Management

CMOs: Do you understand the terms within your advertising contract?

The Right Team

“As the role of the CMO gets bigger – and so too does the number of third parties involved in the media supply chain – it is crucial to bring in the right expertise”

Tony Whittingstall is Senior Partner at Media Marketing Compliance.

Advertising can be a significant outlay but a vital part of expanding your business, following the turbulence of the last year or so, it is as important as it’s ever been. But for all advertisers, the language of their contracts with advertising agencies can often be confusing and lead to poor deals.

In this piece, we have chosen a few examples that illustrate this and therefore should be considered carefully when defining your contracts.

There are dozens of areas which can be confusing for the uninitiated. That is why bringing in an independent marketing compliance expert can be crucial in understanding the practical application of your contract. Otherwise, the definitions of certain terms – or lack thereof – can lead to recurring difficulties. 

So, let’s dive into a few example terms from the client-media agency relationship that you should consider carefully:

• RELATED PARTIES – This is of particular importance when determining to which entities certain obligations extend (notably requirements to bill at net cost, return unbilled media, return AVBs or provide audit access). 

Many agencies use media specialists with whom they share the same ultimate parent company to handle certain activities. Ensuring such use doesn’t negate key contractual principles requires a strong and wide definition of the agency group and related parties along with use of such parties being contingent on their acceptance of the obligations in question.

• AVBs / REBATES – There are 4 key elements that it is important to consider when defining AVBs within a contract: 
• Are these defined as cash benefits or benefits received in any form (which crucially would then also encompass media value benefits)? 
• Are these limited to those directly attributable to client spends with the given vendor or does the scope of the definition extend to those indirectly attributable to client spends (such as in the case of fixed rebate amounts rather than a % of spend)? 
• Are these defined as AVBs received by the servicing agency or does the definition extend to encompass those received by any related parties (which then in turn is dependent on the definition of ‘related parties’)? 
• Are these defined purely as amounts received as a direct vendor response to client spend or does this definition extend to any amounts received from the vendor which use client spend as a variable in their determination.
• UNBILLED MEDIA – Whilst the general concept of unbilled media is now commonly understood, if the return of unbilled media is a contractual requirement, then consideration should be given to timing. 

A time frame for return of unbilled media should be specified, but it is also worth considering the time frame for a variance between billed cost to a client and received cost from a vendor to be considered as unbilled media. 

The overall time frame for return of these amounts would then be the combination of these two periods.

• PRINCIPAL / INVENTORY SALES – The specific term used can vary; principal media, inventory media or proprietary media. The essence being that this is media the agency buys on its own account without a specific client in mind. The media is then sold on to clients often with an attached waiver of audit rights, the benefit for the client being this is often at a discounted rate when compared to media bought in response to a specific client request. 

While the concept is common, it is important that the client gives informed consent to buy such media on a non-auditable basis. As such, many clients make their express prior written approval of each booking a prerequisite for the buy to qualify as inventory media. Clients should also be able to determine the source of this inventory.

As the role of the CMO gets bigger – and so too does the number of third parties involved in the media supply chain – it is crucial to bring in the right expertise. 

Rather than create cause for concern, a compliance audit simply ensures that both sides are speaking the same language and expecting the same things from their working relationship.

Establishing terms early on will hopefully lead to a successful, long-term partnership.

For more information on MMC, please visit: https://www.mediamarketingcompliance.com/