Do you trust your builder?
Deals of this nature are, of course, not limited to media buying and are also prevalent across a number of other businesses.
Builders, says Young, strike deals with suppliers that allow them to bulk-buy products at a reduced rate and are then free to sell them on at an increased rate.
“Do I mind that my tradie is selling me these light fittings and taking a bit of a margin on them? I don’t mind, but my wife might mind. So there are different views,” Young says.
However, to have a view on something, you need to know that it’s going on in the first place. And this is where the controversy comes in.
While dealings of this nature have been widespread and common practice across the industry for a number of years, the issue really came to the fore when former MediaCom CEO Jon Mandel spoke at an Association of National Advertisers (ANA) event in Hollywood.
His series of off-the-cuff remarks were essentially the snowball that triggered an avalanche that would later see an ANA investigation into the transparency issues in the media business.
“When this got blown open, a lot of CMOs got exposed and realised [there were issues with] their agency agreements,” says Young who, though not interviewed as part of the process, was in the States during the ANA investigations. “And the next thing, you’ve got the CFO breathing down your neck.”
What the ANA investigation did was give marketers insight into how media agencies make their money and thereby better equip them to negotiate contracts that they’re comfortable with.
So, this poses the question: should local marketers push for a similar investigation in this market?
ANZA chief executive Lindsay Mouat doesn’t believe there’s much to be gained from doing this.
“Whether the same [international] rorts occur here may be moot; that the potential exists for them to occur is certain,” he says. “So instead, our focus is on the steps advertisers need to take to assure themselves that their media transactions are transparent and that they can have confidence that one of their largest business costs is managed correctly.”
The point Mouat makes here is that marketers already know what to look out for, so there’s no real value in running the same drill here. After all, the ANA investigation didn’t name and shame any organisations; it simply gave a rundown of what some unnamed agencies were getting up to.
While alarmed by the trickery at play in the international markets, CAANZ chief executive Paul Head doesn’t believe local agencies are engaged in similarly nefarious activities.
“The market here is different from the US and Australia,” says Head. “The way media is bought and traded is different, with negotiations with media owners done at an individual client level... In my experience, both as a client and CEO of CAANZ, agencies are transparent and if clients have concerns they should ask agency heads to address them.”
While most agree that New Zealand agencies do tend to be more transparent than their international counterparts, one source expressed doubts that things were as squeaky clean as they might seem on the surface.
“Where [agencies] are part of global groups, the local operations are under the same pressure as in other markets to deliver revenue to their shareholders, and to use parent company systems, so it’s difficult to see, in this globalised media landscape, that they can be an island of transparency,” the source says.
In this context, it’s easy to cast the media agency as the villain, which has deftly found a way to make more money while appearing to offer a better deal.
However, Head warns against such a simplistic narrative, saying that clients have also played a role in creating the environment in which shady deals flourish.
“Local marketers should expect their agencies to be transparent about how the agency makes a fair margin on their business—and the key word here is fair,” Head says. “Over the past decade or so we’ve seen agency margins squeezed, particularly by large multi-national clients. It doesn’t make sense in a world where media is increasingly complex and media agencies arguably add more value to marketing outcomes than ever before, that so many clients treat media as a commodity, and by extension, under-value the service provided by their media agency.”
This also goes a long way to explaining why P&G’s head of marketing (and industry godfather) Marc Pritchard posited some of the blame on his own marketing teams for not scrutinising their contracts closely enough and agreeing to terms that were prejudicial.