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Who Is Minding The Store

The marketing world is being turned upside down. There are as many as 25 major media reviews going on right now, as I wrote about in my last post. There are many theories as to why; Is it the agency kickbacks/rebate issue? Is it about service pricing? Is it about getting better expertise? Any one of these is legitimate enough and I’m sure there is a mix of reasons. For the agencies the impact is tremendous. Whether it’s to retain or acquire the account the resource dedication for a pitch of this magnitude is huge. I’ve run new business and worked at more than one of the agencies involved in these pitches. Dozens of people, freelancers hired to help, weeks and weeks of late nights and weekends. This isn’t done in someone’s spare time, because they have none. People are working on the pitch throughout the day and into the night.

So what does this mean to existing clients? One unintended consequence of these reviews is the labor shortage it creates on existing clients because all hands are on deck for these pitches. It means someone who is supposed to be working on your business is not. It means the junior people are doing more of the work because the senior people are involved in the pitch. It doesn’t mean total neglect, it means inattentiveness to everyday matters. And that’s when mistakes happen. An assistant sends an incorrect IO to a media company. A cancellation order doesn’t get issued. A decimal place is off on a CPM and a plan is totally miscalculated. These things happen and they usually happen when people are forced to choose where to devote their time.

Also, in every new business pitch these agencies are being asked to show the organization chart if they win. No one shows empty boxes. They are promising your people to the new client. Don’t be surprised to find out your favorite person is being reassigned.

If your account is at one of the agencies involved in these pitches pay close attention to how many mistakes happen during this time. Pay attention to who is/isn’t involved everyday. It will give you an indication of how important a client you are to them.

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Audience Fragmentation and Media Consolidation Are Hurting Most Clients

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Typical media agencies are ill suited for getting client’s real value from media buys. Media audiences are fragmenting at an increasing rate. There are very few opportunities in mass media to reach large audiences, yet most brands need reach to drive new buyers to their brand. Buyers at large agencies are siloed into “centers of excellence”, meaning some buyers only buy Cable, some only buy Prime, some only buy Syndication, etc. While this might give them some knowledge of a media market there’s an entire ecosystem occurring over their heads and they know nothing of it. It comes from media company consolidation. And only savvy, de-siloed media agencies can capitalize on it. Disney is a large media company. The image below includes many of their media properties. They operate in Network, cable and local TV, radio, online, print and on-site. They also have partial ownership in Hulu and other properties.

Now think about how companies like CBS own TV, online, radio, outdoor properties. Every major media company owns multiple properties, and I’m not just talking about online extensions. They own different brands in different media.

How are today’s large over-siloed media agencies structured to get clients an advantage? Media buying is set up to favor the sellers in every way these days. How else can you explain audience CPM’s increasing while individual media property audiences are shrinking? One reason is that media agencies don’t negotiate price. They negotiate increases.

There’s a better way. Smaller media agencies are better suited to deal with today’s complex media market. Senior management who establish the strategies stay close to the end product. They identify media companies and deploy programs regardless of which department should get which budget. There are fewer fiefdoms to feed and fewer “centers of power” fighting for survival internally.

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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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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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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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