Ad Sales Rep Consolidation

An interesting trend is happening in traditional media and it has interesting consequences for marketers.

Meredith Publishing is now managing all the business operations, including ad sales, for Martha Stewart’s print properties. Hearst recently launched a division that provides scalable solutions for smaller and medium sized publishers, including ad sales consultation. Today a number of spot radio rep firms announced they were partnering to form an umbrella radio and digital media sales rep firm.

While these decisions make sense for these media companies’ needs it will have impact on marketers in ways that might not be good, most notably upward pressure on ad inventory pricing.

Marketers get the best price when they pit multiple sales organizations against one another for share of a media budget. Now that Meredith represents an even larger share of the viable print inventory what is their incentive for negotiating price down? The power they have to creep pricing up will have dramatic impact on the market. And not just for the companies participating in the sales co-ops or outsourcing. Their competitors now know that fewer players are negotiating so it would not surprise me if CPM’s begin to inch up. I recall having this conversation over breakfast with Tom Harty, The President of Meredith’s Magazine Group, a few years ago when Hearst acquired Woman’s Day from Hachette. I thought, in the long term, that it was good for both Meredith and Hearst to not have a wildcard single book that could only be a spoiler on price.

On the radio side, this impact will be felt most by agencies that buy through the rep firms. As far as I can tell it is mostly large media agencies who buy their inventory this way because the buyers simply do not have time to negotiate with every station in every market. Again, where in the past two or three rep firms were negotiating against one another for radio buys now they will not because there is no incentive at the company level to do so. This is one of the reasons why the FCC has ownership limits on radio and television stations in any given market.

Does your radio buyer buy through rep firms? If so, what does that mean for you?

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Repercussions

The fallout from Jon Mandel’s statement at the ANA about Agency kickbacks has led to a number of anonymous executives admitting it has happened under their watch and some even confessed to participating themselves. Now, this doesn’t mean that these individuals received kickbacks, but that they allowed their agency/media company to take or give money for a media buy. Initially I thought Jon Mandel was overstating a problem, but apparently it is more prevalent than we could imagine. This is certainly more significant than an agency taking the 2% cash/pre-payment discount–which is still sometimes offered–and not offering the money back to the client.

In my last blog I focused on the kickbacks that were occurring out in the open via mega holding company specialty shops. Read that blog for background. So to go into more detail, here’s how the mechanics would work in two scenarios:

  • Moving buys through a barter division. To simplify things, media companies sometimes want to take clients on a trip or schedule a sales meeting in a nice venue away from the office. Rather than pay cash for these trips the media company will offer future access to media inventory at a reduced price or for free to a barter agency. This is easier than going to management and asking them to pay out-of-pocket, but the media company offers value of inventory that is higher than the cost of the trip. The media company can be more lavish and less cost-conscious, especially when it comes to taking clients on a trip. The barter agency sells the inventory either internally or externally at closer to market pricing and makes a significant profit. The barter division of the mega agency holding company tries to move this inventory internally first, where they can ask for equivalent market pricing. If they sell it externally it needs to be sold at below market pricing. Suddenly a 2% commission on national Cable TV becomes 25% or more–I’m being kind. Remember, some of this inventory can be accessed for free. Barter division provides kickback to media agency to ensure the deal goes through.
  • Non-disclosed media buying. Marketers less familiar with the agency process or infrastructure might be led to believe that their media buying is falling under the master contract with a creative agency when, in fact, it does not. The media agency adds their commissions into the media prices they quote, taking a high commission rate. The creative agency keeps all of their fees, not having to pay for media service while completely offloading the labor. Sometimes they even get a kickback above and beyond their fee.

Both of these scenarios would pass muster on an audit because the audit only goes one transaction deep. The auditors are not examining every transaction nor do they know there are secondary transactions. The kickback would always be treated as a separate transaction, not discounts on invoices.

The more you know, the more you don’t want to know.

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I’ll Have Two Scoops, Please.

The ad industry is abuzz with the recent accusations by Jon Mandel, a longtime media exec, regarding widespread kickbacks between media companies and media agencies. I can believe that there are kickbacks, personal favors, some tit-for-tat agreements, but the claim that it is widespread is difficult to believe because of the number of people that need to be involved, all either partaking in the fraud or looking the other way. In order for them to be as widespread as Mr. Mandel states it needs to be systemic. To get away with it strict non-disclosure agreements between the agency and the media vendor must be in place. It would also survive an audit because any kick-backs would be treated as a secondary transaction. It would be disturbing if it is indeed happening. Read the following for more info on Mr. Mandel’s statements: http://adage.com/article/agency-news/mediacom-ceo-mandel-skewers-agencies-incentives/297470/

But there is another practice that is widespread in our industry, one that happens out in the open. I’ll call it “double-dipping”. Double-dipping is when an agency buys services from itself in order to improve its bottom line. And it is happening at the biggest agencies out there.

Not to pick on any one, but look at the major holding companies and you’ll see how agencies are making money today when the stated commissions seem to get lower and lower every year. Each major holding company owns creative agencies, media agencies, barter companies, mobile agencies, tech platforms, CRM companies, research and strategy companies, branded content companies, etc. So you can see for yourself, below are links to their organizations:

IPG: http://www.interpublic.com/our-agencies

Omnicom: http://www.omnicomgroup.com/ourcompanies

WPP: http://www.wpp.com/wpp/companies/

Publicis: http://www.publicisgroupe.com/#/en/maps

Their worst offenders are their trading desks where there is no transparency between the amount they are paying and the amount that they are selling it to themselves.

High-level executives at any company like this are encouraged, and likely their bonuses are dependent upon, how they can improve the bottom lines of the parent company by moving money between organizations internally. Whenever and wherever possible they will buy services through an internal partner who is arbitraging inventory. The client thinks the margins are slim, but they can easily double or triple when no one is paying close attention.

Marketers have contributed to this by creating an environment where this can happen. Every year procurement led reviews occur wherein a marketer’s stated goal is to reduce the service costs. This is compounded by their insistence on extending payment terms. Who in their right mind would continue to accept lower terms AND wait to get paid? The answer is simple. Someone who’s figured out another way to make money.

If you’re a marketer who is now concerned about these practices look carefully at your agreement. Is your agency able to subcontract without your permission? Is your main agency constantly parading in specialty divisions? If they use an internal subcontractor with your knowledge do they not want you to have a direct contract? Do you not audit your agency and their vendors? If so, there’s a possibility they are double-dipping.

Holding companies developed these arcane multi-discipline organization charts for one reason and one reason only. They’re not interested in being the best at anything, except discovering new ways to separate you from your money.

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A Matter of Efficiency

If you ask any media planner or buyer what the term efficiency means they will tell you that it is the way to determine relative value of different media and is usually defined as the cost per thousand impressions, CPM, of the media vehicle or buy. This results in their decisions on which media to buy being made strictly on costs.

That definition is dead wrong and leads to overemphasis on a surrogate measurement that may not correlate with sales results. Something is efficient if it is capable of producing the desired results without wasting materials, time, or energy. Can the vehicle deliver sales at a lower cost than other options? There is a cost/benefit perspective inherent in that definition. Nowhere in this description is there any indication that trying to get as many people as possible to see your efforts compared to other choices is the goal.

Making decisions based exclusively on audience cost of a media vehicle can waste tremendous resources. One of the sayings I’m known for is that the cheapest media is the most expensive media you might buy if it does not work.

Today we have so many tools at our disposal to apply metrics other than CPM to define efficiency. We also have ways to insert intermediate steps in the purchase consideration path to measure whether we are on the right track.

Are your media buyers looking at data other than audience delivery to track your progress? Are they looking at your Google Analytics data? Are they making adjustments based on how well their buy is driving traffic? Even if your ultimate goal is sales at retail there are intermediate steps that can be taken to identify what is working and what is not.

The secret is predicting in the planning stage what the potential return on each vehicle will be based on syndicated data, prior transactional data, behavioral modeling, etc. During the execution stage, make sure you align an inbound intermediate mechanism for tracking. You can use unique landing pages or promo codes, statistical modeling on web traffic, coupon downloads, social media actions or good old fashioned phone calls. A holistic look at this activity can prove helpful in making the proper optimizations to your campaign. Now that’s efficiency.

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The Television Data Shift

Today NBCU announced that it is going to be using data other than Nielsen to help marketers better identify audience value of their networks and programs. Linda Yaccarino, the head of sales for NBCU, thinks it puts TV on an even playing field with digital media’s data driven targeting, but in reality it does not.

Using data other than Nielsen ratings to decide which TV programming to buy ads in should be more commonplace today than it is. I’m glad that NBCU has made this step and hope others follow their lead, but to suggest that now TV is on equal footing with digital is a misstatement. Why? Because I cannot tell NBCU that I ONLY want my TV ad shown to those in their audience who exhibit the behavior I value. I still need to buy a TV ad in an entire program.

Don’t get me wrong, I think NBCU is taking a big stride in improving the way marketers make decisions on which TV shows to buy but any media planner worth their salt was already using other metrics and data streams. In truth, NBCU hasn’t even caught up with what can be done on TV with this move.

If a marketer wants to use addressable video ads delivered via TV there are already methods of doing that. Rather than place a buy with NBCU I would go directly to the cable provider. Remember, for many product categories the household is the buying unit, especially FMCG. Knowing which household is buying which laundry detergent is the most important consideration for Tide. The cable provider can tell me which households had a set that my ad (and my competitor’s ad) aired on based on set top box data. Many retailers can tell me which households bought which brand based on loyalty card data. A simple list match can reveal enough households to see whether advertising has any impact on sales, but more importantly new penetration.

The cable provider can execute addressable TV. I can “serve” different TV ads into different households based on their buying behaviors. Does Tide have an advantage they want to use to steal customers from Wisk? Is there a different benefit or incentive they want to use to lure away Cheer buyers? We can do that.

Thanks NBCU, but no thanks.

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Relics Part 2–BLUR

In a meeting earlier this week a client was discussing what classes of trade they have distribution in and I mentioned that there’s no longer such a thing as a class of trade. For those of you under the age of thirty, product distribution used to be contained to what we called grocery stores, drug stores or mass merchandisers. Today, these types of stores are one and the same. Food products were sold primarily in grocery, health products were sold primarily in drug and household staples, mostly dry goods, were sold in discount stores. Today, Wal-Mart makes up about 40% of all product sales in almost every product category. Drug stores sell milk and grocery stores sell prescription drugs. The concept of selling through a single class of trade no longer exists. Why? Because consumers want convenience. Whether it’s a quick stop into a convenience store for coffee and breakfast while they’re gassing up or to have one destination for their once-a-week major shopping trip (if that even exists anymore). They don’t want to go to a drug store for their prescriptions, a food store for their groceries and a discount store for paper goods.

I call this blur. Blur refers to the blurring of the lines of delineation that historically existed to differentiate different “channels”. Blur is not only a retail channel phenomenon; it is a reality in the marketing world as well. Today, everything is everything. In my Integrated Marketing class I refer to video and audio as communication techniques, I hate to call them TV and radio. Why? Because TV and Radio are terms that reflect an archaic distribution AND consumption system that no longer dominates. Most of the students in my class don’t listen to traditional radio, but they are exposed to a lot of audio content. The same is true in video.

Even within traditional media concepts like dayparts in TV are blurred. Many cable networks air the same programs in daytime that they do in Prime. Many people DVR whatever they want and time-shift the viewing to their convenience, yet we still plan TV based on old reach curves and buy daypart ratings numbers.

Last year I recall speaking with a client who considered Social Media PR and not advertising. We said it’s neither and it’s both. The line between PR and advertising has blurred dramatically. Is Content Marketing advertising or PR? Is Native advertising or PR? The answer lies in redefining what we do not as advertising or PR but as marketing. And if it’s smart to do PR and advertising for your brand it doesn’t really matter if there’s a line. It only matters that it gets done right. But doing it together, in an integrated manner, where paid promotion of Tweets/Posts and DJ endorsements and product integrations and content all magnify the messaging to a brand’s business advantage.

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Relics

The media world is changing more rapidly than the tools and metrics we use to plan, buy and evaluate our efforts. I’m now teaching a media course at NYU for graduate students and as I’m preparing materials for the class I realize how out of date some concepts are that are still widely used in the industry.

First up, the Designated Market Area. This is a Nielsen definition to divide the country into mutually exclusive territories based on where the preponderance of over-the-air viewing comes from. Ad supported cable has a higher share of viewing than broadcast, upwards of 70% of the ratings generated are from cable programs. If cable is the dominant medium from time spent and ratings why isn’t the default geography based on cable geographies?

With the technology we have today and the software we use to analyze data, what is wrong with breaking down a brand’s performance on a county-by-county basis? Micro-planning can be done and programs can be executed locally this way.

Think of the changes this would create for franchise or dealership businesses. Currently they organize based on DMA’s for coordinated promotions and media efforts. They can still operate along these lines, but does it mean they have to ALWAYS buy media across the entire DMA? Or in areas like NY where urban and suburban business characteristics are so different why can’t there be a NY five-borough group and a NY suburban area group?

Next, planning TV by daypart. Why do you need to have a certain number of GRP’s in each daypart you want to buy? If there’s one or two programs in a time period that your target watches why should an artificial parameter force you to buy more or less? I know TV buyers would have a fit if they were told to buy only one program in daytime or late night. This is most problematic in network buying departments where certain buyers specialize in only one daypart.

As more and more TV viewing is time-shifted we’re fooling ourselves if we think there’s a minimum threshold of ratings to buy in a given daypart. People watch TV programs, not dayparts and they watch when they want. Taking the shackles off daypart based planning and buying will enable clients to get more value out of their TV investments.

Creative or Re-creative?

Marketing Thingy

“Imitation is the sincerest form of flattery.” So the saying goes. But when that imitation becomes a direct lift of concept and content, is it flattery or is it something else? This question is begat with a new ad for an organization called GrassIsNotGreener.Com, who recently ran a full page ad in The New York Times to caution against widespread legalization of marijuana, and protest recent supportive editorials.

The ad uses a headline comprised of the two words “Perception” and “Reality.” [If it sounds familiar, you’re probably over 40 years old and in the marketing business. More on that in a moment.]

Cleverly art directed, the “perception” typography sits adjacent to an inset head shot of a semi-cute 20-something long-haired bandana-wearing stoner dude with a 2-day scruff (just long enough to denote slacker, but too short to pass for intended hipster stubble.)

The “reality” typography sits two inches below…

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Buyer’s Remorse

A new CEO comes in, ousts the CMO and VP of Marketing and tells his smaller media agency that he won’t renew their contract because he has a larger media shop he’s worked with and believes their BS about bigger agencies always buying better than small ones.

This happened to us recently. When the CEO’s preferred media agency submitted a ridiculously high compensation proposal suddenly we’re back in the mix. Our fee proposal was very fair. We even offered the client a better deal. We get an opportunity to pitch ourselves to the new CEO who, for the previous two months, wouldn’t even acknowledge our existence.

We have a great meeting. We explain the fallacy in believing that larger agencies “always” get better pricing. We tell him you get best pricing (and overall work) from people who care about their work and have time to do a great job for you. They take the time to negotiate for value and continue to drive down costs if they can rather than stop when they reach the benchmark. Sometimes those people work at bigger agencies, but more often they work at smaller ones. He mutters on his way out “that was a great meeting”.

We have the support of the marketing team, the research team and the field marketing personnel who all lobby for us to be retained. The CEO asks us to submit pricing on a prototypical buy in 50 markets. We bought those markets the prior year so we used our actual achieved costs. The CEO hires his preferred media agency. We’re disappointed, as we should be. We felt we had a chance. We believed we won the CEO over. Then we felt used simply so he could get a better compensation deal from the agency he hired.

A month later one of the marketing managers calls us to ask how we got our media pricing because the new agency can’t meet those costs. Why weren’t they asked to submit pricing on the same prototypical media buy that we were asked to? The CEO could have hired the better agency if he held them to the same standard throughout the process.

We get more calls asking us to meet with the new agency to tell them how we achieved the costs we got. We outright refuse and offer to handle the business instead. “Hire us and you’ll get those costs”.

Now the CEO has a recruiter calling one of our senior people to ask him to interview for the head of media position. Our guy says to the recruiter “If he respected me so much and wanted me working on his business why didn’t he hire my agency?”

He wanted a larger media agency. He got one. Be careful what you ask for. You just might get it.

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Questionable Priorities

Yesterday it was announced that Group M is cutting deals with TV vendors to use C7 ratings instead of C3. For the uninitiated, this refers to Nielsen ratings guarantees for commercial ratings that includes live viewing and played back within seven days (C7) or three days (C3) from DVRs.

Back in 2007 when C3 ratings were first served up Group M quickly forced this new measure into their upfront deals before the industry was ready. There wasn’t much enthusiasm from other agencies at the time and most researchers felt it was premature but Group M’s Rino Scanzoni plowed ahead and C3 became the new currency. I think part of the rationale was that in most cases C3 ratings were fairly similar to Live program (not commercial) ratings—which were the norm to that point. Making the shift from Live to C3 meant no real change in economics for the vendors and an easier transition for the agency. I remember when peoplemeters were introduced to replace the old diary method. Many TV programs’ ratings took nosedives due to passive measurement. One of the challenges for agencies then was year-to-year comparison of different methodologies AND explaining to their clients why the ‘old’ numbers were so far off from reality, thus questioning the recommendations made by the agency. By using a measure (C3) that was similar, by happenstance, to the old measurement (Live) in 2007 the agencies avoided this controversy. Could that have been the reason C3 was forced on the industry?

Now with Group M pushing for C7 I am questioning why and for the benefit of whom? Obviously TV vendors are the biggest beneficiaries because they can monetize four more days of commercial playback. But why is an agency pushing a methodology that could harm their clients financially? Whose priorities are they concerning themselves with? Certainly not a client with time sensitive campaigns. What value is there in an ad promoting a sale that is over within the 7 day window? Of course that was the case—but lesser so—with 3 day playback.

Group M has a self-serving interest in TV ratings being high. It validates the largest part of their business model. It perpetuates their existence, as it does for all mega-media agencies with deeply entrenched TV buying units. But in doing this they may be in conflict with their client’s interests.

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