Battle lines forming over TVNZ
Indie agencies face a “major threat” and some inside large agencies claim it’s the “biggest issue to face advertising agencies for a long, long time”.
Battle lines are forming in what could be an industry-defining move by TVNZ to review its pricing and commission structures.
Major accredited agencies have been officially quiet on the subject but CAANZ today will reply to last week’s bombshell from TVNZ chief executive Rick Ellis.
But not everyone is toeing the CAANZ line, with some media buyers welcoming the move to replace an “outdated” pricing structure.
To recap, last week’s letter from Rick Ellis and head of advertising sales Dave Walker alerted agencies that it was reviewing the way it pays a commission to agencies. Says the letter:
“We do believe that the current system of pricing and commissions requires reform.
“We can assure you that we will share our thinking and consult appropriately with clients, agency partners and industry bodies before we make any final decisions.
“In addition, we can promise you that there will be no TVNZ price increases to advertisers as a direct consequence of any changes we might make. For example if commissions were to be reduced or eliminated, the full impact would be passed on to advertisers as a price adjustment.”
The move is regarded as provocative at a time when all businesses are under the recessionary kosh.
That said, the storm’s been brewing for years. And TVNZ has given plenty of notice that commission levels may be changed. Keen observers of Rick Ellis will recall his influence on the travel industry when he headed Ansett. In that role Ellis successfully challenged the cosy mark-up that travel agents had been collecting by flattening commissions and going direct to the public.
Media welcomes move
And not everyone in adland is against the move. Matt O’Sullivan of Carat Auckland says media commission is now widely considered as an “outdated model …because it’s far too transactional for the amount of thinking that goes into media.”
O’Sullivan says the prospect of reducing commissions “should be viewed as a really positive one, because it will fundamentally force the media exponents within agencies to assess what they really want to be paid for.”
Media strategist Martin Gillman says it’s ironic that those making the most noise are not directly earning commission at all. “Surely the dialogue on the subject should be with accredited agencies, not creative agencies, although creative agencies often earn a share of the media commission from buying agencies as a simple and proven way of being remunerated.”
Gillman believes the value provided by both media and creative agencies is not proportionate to the media spend and with the growth in digital where commissions actually need to be much higher.
“Most media agencies have been gradually moving away from commission as the main source of income,” he says, “but it’s not always easy to do with existing clients who have been used to paying nothing or receiving a discount from part of the commission.”
Small agencies’ big headache
And therein lies the rub.
The problem for all agencies, large or small, is that they will have to re-negotiate every contract with every client. Currently, remuneration based on rebated commissions are in the minority, and clients will undoubtedly see the re-negotiations as an opportunity for them to save money at the expense of their ad agencies.
So where does this leave the smaller independent agencies? For many, the problems seem insurmountable, with business models and expensive software having to be adapted or even discarded. That may be fine for the multi-national agencies but it is a nightmare scenario for small businesses.
Many could go to the wall.
Garry Jordan, general manager of Lassoo Media and PR, complains TVNZ has released few details. “The press release states ‘no TVNZ price increases’ and ‘the full impact would be passed onto advertisers as a price adjustment’. If there is not going to be an increase to advertisers then why make changes?”
Lassoo believes discounting has got out of hand and the TVNZ move is just a fancy guise to realign its ratecard.
TVNZ denies this. Spokesperson Megan Richards told StopPress: “We’re aware that there is a degree of apprehension about our intentions in some quarters. It’s understandable given that the economic climate is not great, and that tends to make people somewhat jumpy.
“However we think that the alarm is not necessary. It is very early days, we’ve stated clearly that we will consult before making changes, and no, the purpose of the exercise is not a rate card increase.
“Our belief is that there is a significant section of the industry that agrees there is a need for change, with an eye to the post-recession future. We’re happy to take the lead in exploring this.”
Is TVNZ positioning itself to compete directly with advertising agencies for client dollars? Is that a bad thing?
Not if you’re media owner. Or an advertiser. Or does it?
How does it affect you?
David Chalklen
September 2, 2009
I had a case where a third party internet booking agency took my quote and inflated it to account for the agency planners insistence on a discounted rate. Completely unaware of it until somehow my original quote got back to me. We set our rate card to compete at market rates and allow for agency fees. I don’t need someone else inflating my quote without me knowing. So wrong on so many levels.
Vincent Heeringa
September 2, 2009
The issue is perplexing for media owners. On the one hand we (HB Media, owner of this site) are excited at the prospect of not paying a comission to agencies – but then what? The industry is like an ecosystem, so if you take one thing away others grow to replace them, sometimes less statisfactory than the first.
Jason Sharman
September 2, 2009
It’s a peculiar situation we, as an industry find ourselves in.
The FTA Broadcasters very survival depends on its ability to generate audience numbers and in turn sell available commercial airtime, which Ad agencies purchase on behalf of their clients and in the process earn a healthy commission, which may or may not, be funnelled back to the client to begin the cycle over again. (Media 101)
I look at it from another angle, somewhat deeper than the just commission rates, and as radical as it may sound, here goes.
Advertising Agencies are CLIENTS!
Advertisers are CLIENTS!
And without showing either of the above parties’ value in your offering, whether you’re a media buyer, creative director or network broadcaster, you won’t win their business, let alone trust, loyalty and continued investment.
Surely the goal is to attract clients to utilise TV as a medium and if it works they will come back and spend more because of the “value” it holds for their business.
Question: If the commission rate was reduced to say 10%, would the “additional” revenue TVNZ generates go back into funding quality programmes to attract higher ratings and lift TV media industry appeal to customers or will the dollars head straight into government coffers to be swallowed up by Wellington’s bureaucracy leaving audiences to put up with the same dribble played out each week? As a taxpayer and viewer, I sure want to know! And what if they do invest more in programming, what will they buy that they don’t already have access to? Sport??….hmmmm
The debate on where the commission levels should sit can be geared either side of the argument but essentially the answer lies with striking a suitable balance between profitability and viability. A review is long overdue and if some belt-tightening is required, it shouldn’t be at the expense of cutting off circulation to some advertising agency’s legs.
That being said, media suppliers are also “feeling the pinch” and agencies should also be asking themselves, what “value” do media suppliers get from the current deal?
Whatever is decided TVNZ needs to tread carefully. Its days of monopolising TV advertising have gone. Clients have other cost effective options to choose from and will vote with their wallets (and advertising schedules) if value is not delivered.
Glenda Wynyard
September 4, 2009
The argument should not be about media commission; the reality is that media buying agencies either work on a fee structure or a vastly reduced commission based structure – which may be based from either a net or gross media expenditure base. The non-existence of commission in other markets has very little impact upon the media agency communities.
The issue is whether or not media owners use the removal of commission to implement a surreptitious rate increase; and this will impact upon our mutual clients – not the agencies.
What should also be explored, at the same time, is a movement to structure payment terms from Agencies to Media Owners on a 45 or 60 day basis. It is a well known fact that many agencies, particularly the global agencies have issues with clients that have global contracts allowing anything from 60 to 90 day payment terms on vastly reduced revenue models.
The recession has seen many clients stretch payments their payment cycle, and yet the media owners are unwilling to recognise flexibility on payment terms may be a necessary evil in these times to ensure our industry as whole (and this includes the media owners) survives.
These are industry wide issues and not media owner versus agency. Or CAANZ versus non member agencies; we need to work together collectively to come up with a sustainable model for all.