Tag Archives: IPG

The Model Isn’t Broken. It’s Fixed.

Sony, VW, P&G, J&J, Bacardi, SC Johnson, Visa, 21st Century Fox, L’Oreal, Coca Cola, BMW, BASF. What do all these companies have in common? They all have placed their media business in review, or recently completed a review. Their incumbent media agencies; the usual suspects—OMD, Zenith, UM, Mediacom, Vizeum, Carat, Starcom/MediaVest. The agencies involved in the review; the usual suspects.

Insanity is doing the same thing over and over again and expecting a different result.

I’ve heard and read that some people believe that industry change (content, integration, analytics) is driving this rash of reviews. If so, why are the same agencies that some clients are dissatisfied with all of a sudden appealing to others? Why would OMD be a good repository for Bacardi, which they recently won, when current clients J&J and Visa have put their accounts in review? Is it because what is shown in new business pitches is not what is used on a daily basis? I witnessed much of this when I was at Initiative, albeit a dozen years ago. The people who work on client business think many of the tools and sexy stuff shown in new business pitches is just that, only shown in new business pitches. It’s not practical for everyday use because the planners have too many boxes of GRP’s to fill in. They do not have the time to solve real business problems.

So what is the value proposition of these mega-media agencies? It certainly isn’t buying leverage because smaller agencies can match the big guys on media pricing—and often beat them. The big guys speak of relationships with the media companies, but the media companies are putting more and more inventory up for sale in the open market, using exchanges to eliminate the human aspect of transactions that is rife with inefficiencies.

Others suggest that the reviews are procurement driven, which explains why only the usual list of invitees are participating. These big agencies hate losing business and they’ll promise everything to win. They have a beast to feed to perpetuate their own myth and they believe their own BS.

You don’t have to. If you want the same-old solutions join in the Mad Hatter’s Tea Party. If you want real change you really have to want to change.

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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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Long Live The Independents

With the recent shuttering of KSL Media many have been suggesting that this is the end times for independent agencies. Nothing can be further from the truth. According to all the news reports, KSL Media was undone by its owners’  mismanagement and financial improprieties. My opinion is that KSL Media was never anything more than a traditional media buying shop who favored non-disclosure buying, lucky to survive as long as they had. They had some smart people there through the years, but many were chased away or pushed out because the owners were greedy and did not want their egos challenged. They began a downward spiral of business losses and the owners, having nothing to sell, decided to extract as much cash as they could. The side story here is that when you push out the talent that can help you rebound from business losses you do nothing but accelerate your demise.
 
Unethical behavior and financial improprieties happen at large public companies too. How soon we forget that IPG settled with the SEC only five years ago for accounting fraud and misreporting income resulting in a penalty of $12 million, chicken scratch when compared to the hundreds of millions of dollars that were improperly reported as revenue and the impact it had on employees and investors. The IPG mis-statements date back as far as 1997 and went on for as long as eight years. During this time IPG acquired other companies, including True North–for whom I worked, using IPG stock. Basically acquisitions were made under false financial pretenses. Many TN stockholders and employees got hurt and IPG’s stock suffered for many years because of this. Public companies are as likely to commit fraud as private companies. Companies are only as good and ethical as the people who run them and the quality of the personnel who work there.  The only difference between KSL and IPG was that IPG could survive the hit and KSL could not. 
 
We need independent agencies now more than ever. Large multinational agencies have a place in the world, but so do the smaller independents. Today’s small independents challenge the public companies to keep adapting and later become the acquisition targets needed to boost revenue as their established holdings get stale.  
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Automation Infatuation

I’m a big process, math and science guy yet I am not one to fall head over heels for programmatic buying. Last week IPG announced they would be using an automation platform for buying video inventory not just for web-distributed video but for traditional TV outlets as well. They’ve set up deals with multiple networks, local station operators and cable operators. IPG’s goal is to automate up to half of its media buying by 2016. Media Post had a quote by Tim Spengler, Magna Global CEO who said that their “goal is to ignite real change in the way media is transacted for the industry.”

 http://www.mediapost.com/publications/article/207108/interpublic-strikes-deals-to-automate-buys-with-5.html?edition=63600#axzz2cVuTF8FJ

 That’s a great goal for a media buying agency. Not. I see no mention of client benefits and, in fact, the article suggests that clients could be harmed because programmatic buying isn’t an auction or a way to drive media prices down. It’s a way for sellers to set a floor price at which they will not go below. While it also enables agencies to set price ceilings the only thing it accomplishes is allowing the agency to better predict the pricing by reducing the range of pricing paid. It also removes most, if not all, of the human and qualitative factors from the show selection process. Some TV shows are better than others at adding value to a marketer’s commercial—I’ve got case studies to prove this. Robots and computers cannot discern that from the numbers they are analyzing. Some shows are highly marketable to the trade based on name alone for purposes of getting higher quality merchandising in-store. In true Real Time Bidding situations a client cannot tell the retailers in advance what programs are going to be on a buy

There are some positive aspects of these developments. Incorporating more than Nielsen audience data is in my opinion the biggest benefit.  I’m sure access to data from set-top-boxes and over-the-top boxes are part of the agreements between the cable operators and IPG, or at least I hope it is. Combining this with shopper loyalty card data on product purchases can be beneficial IF the agency is driving to the proper metric.

Programmatic buying doesn’t help an agency make better decisions for its clients as much as it helps an agency make better decisions for itself because the agency can manage more work with fewer people. It helps the sellers because they will have even more control over pricing—most notably their worst inventory–and it harms clients IF they are not using the right metrics to select programs.

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