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But not everyone is toeing the CAANZ line, with some media buyers welcoming the move to replace an “outdated” pricing structure.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 Matt O’Sullivan of Carat Auckland says media commission is now widely considered as an “outdated model …because it’s far too transactional for the amount of thinking that goes into media.”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?