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Better by half? Fairfax to follow TVNZ's lead by reducing agency commission

The rumour's been doing the rounds for a good while, but it seems Fairfax is soon to take a leaf out of TVNZ's book by decreasing its agency commission from 20 to ten percent.Fairfax group marketing manager Sandra King confirmed the decision and while it's been on the table for around 18 months, six months before TVNZ decided to halve the commission, the new bit is that it's now officially going to happen—and perhaps as early as 1 July.

She says the ratecard is being lowered accordingly, which, "as you can imagine, is a long process", but she's confident the decision won't cause too much aggravation because the "market is relaxed about it" and many of the agencies now work on net media and service fees.

More information about the decision will be released soon, she says.

But DraftFCB's Derek Lindsays says he was disappointed to learn it was happening.

"I'm unsure what benefit Fairfax will gain from doing it ... It's down to their performance in the market."

When TVNZ proposed the reduction in commission, the word 'boycott' was mentioned, such was the strength of feeling against it. But given the reach of the network, that was never going to happen because it wouldn't be in the clients' best interests. And, as TVNZ spokesperson Georgie Hills said in August last year, TVNZ actually increased its share of ad revenue to 63 percent from 61 percent and secured 81 percent of the market's total growth of five percent in spite of the fairly unpopular decision.

Things were looking even better last month, with a $19 million profit announced. And this gives King some confidence it won't have too much of an effect.

TVNZ has been very coy about what, if any, benefit the commission decision has brought. And understandably so, as it would be a bit unseemly to mention, either publicly or privately, how well it's done by, as TBWA\'s David Walden said in typically Walden-esque style last year, "taking the bread from the mouths of our children".

So who loses? Apparently, the larger agencies weren't too badly affected by TVNZ's decision, due to the changing remuneration factors mentioned above by King, but smaller agencies would often use the commission to fund production, so it was more difficult for them.

Back when TVNZ announced the cut, Walden said it would result in a migration of power and talent to Australia and other larger markets if picked up by other media.

“Cut the commission by half and suddenly everyone has to work for even less. How can an agency afford to hire top talent like Andy Blood or Nick Worthington?” asked Walden.

But ANZA said the changes would be a catalyst for open dialogue between advertisers and agencies on the best model for agency remuneration.

“Many advertisers have already moved to fee-based remuneration, often with a performance component. TVNZ’s plan will accelerate this evolution,” Lindsay Mouat said.

But whatever theory you believe in, it's happening. And it will be interesting to see if this is the catalyst the other media owners need to follow suit.

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