Four of five big media agency bosses silent on question of value banks in Australia
The local heads of four of the five major media agency holding companies have failed to answer questions about whether they operate ‘value banks’ and other controversial media rebate practices in Australia.
An ANA report released yesterday claims the US ad industry faces “systemic non-transparent business practices” in terms of media owners providing “kick backs” to agencies.
But asked whether they operate similar media rebate, media credit or value bank practices locally, the heads of major holding groups Dentsu Aegis, IPG Mediabrands, Omnicom and Publicis Media all refused to comment.
In March 2015 GroupM admitted its agency Mediacom had not only operated value banks but that it had charged four clients for advertising inventory that should have been passed on at no additional cost.
anybody in their industry worth their salt knows that this is widespread but what we need to discuss is the root cause of the behavior not the symptom.
agencies are screwed down to low single digit margins and sometimes at loss making positions by prospective clients. This is frequently in full knowledge by clients and their procurement teams and places loads of commercial risk onto the agency. The clients motivation is simple extract as much value as possible to to prove to their managers and board of their ability to show savings without compromising quality ‘because they have just ‘RFP’ed’.’
This client behavior (and there are some brilliant exceptions) has so many unintentional consequences. One is the the agency must look at alternative revenue possibilities ‘value bank’ would be of those. But more worrying is that quality of work, investment in staff , and experimentation are all completely lost. These are the things that have significant and long lasting negative impact on our industry.
You can argue that agencies need to show benefit and value over price but this is void of any real market insight, clients have the whip and use it, especially in a highly competitive small market like Australia
It is imperative that companies must start to realise the link between the way the remunerate, the quality of the work and the long term consequences.
so i ask Mumbrella please start digging into what clients pay and their behavior and start truly revealing the root cause that is killing our brilliant creative industry.
There is obviously an industry problem here, and it needs to be addressed. But I do get the sense that it’s the media agencies that continually get portrayed as the bad guys. They may well be, but it feels to me that we need a holistic solution that includes procurement departments, media suppliers, pitch consultants etc in order to understand the full value chain. Well done Mumbrella for keeping this on the agenda.
No comment on this issue from the media sellers (whose inventory makes up the value banks presumably)?
Why is that I wonder?
Having worked in media agencies for many years, I can tell you that the practise of certain media agencies demanding kick-backs in the form of either cash or free inventory to on-sell to clients existed at a time when agencies were enjoying very healthy commissions (i.e. the 90’s). So to say that the cause of this is clients demanding unreasonable terms is bare-faced nonsense, media agencies did it because they could and the owner proprietors (as most of them were then) wanted the money.
That said, the current astonishing ubiquity of the practise has come as a result of 3 forces in the market. One, the globalisation of ownership has seen the universal introduction of the practise as it is seen as ‘Business as Usual’ by Head Office. Two, the explosion of media availability has introduced both the means and the motive to scale it up. In digital, it is utterly endemic. Three, yes, procurement practises have turned the heat up on agency margins, but agencies themselves have chosen to respond to the pressure by seeking recompense elsewhere. Believe it or not, they could have actually refused unprofitable business, God forbid!
No one is innocent in this sorry situation: advertisers turn a blind eye to it at best (in fact, I have seen some clients who demand a disproportionate ‘share’ of the agency value bank and/or use its existence to justify a zero profit remuneration scheme); and media owners feel obliged to ‘pay-to-play’ so keep the whole charade ticking along. But, without question, it is the agencies who have driven this phenomenon and value banks are just the tip of the iceberg. Yes, just the tip.
The piss-weak position taken by local leadership (see the Danny Bass’ whining attempt to rebut the fact-based case put by Mark Ritson recently) and the MFA (‘Nothing to see here’) on the issue would be laughable if it wasn’t for the fact that the practise is doing irrevocable harm to quality thinking, content, value creation and the media ecosystem in general.
Yes. I bet 4 out of 5 agency heads were silent on this topic.Yes, there is a role played by clients screwing down agencies and a role by media by being willing to engage in these practices. However the truth to me is plain and simple; if you had a service or product differentiated enough and valuable enough for clients to pay for then you wouldn’t have to resort to this type of practice. No one said it was easy, but that’s the truth.
@Mr Corbett – Facebook is differentiated enough, but its spectacular rise in share of adspend isn’t attributable to product – it rewards agency groups in a very generous, sophisticated manner for their adspend, particularly when it comes to video spend. Google’s efforts to swing budget to its display network works in a similar fashion. Until these practices are ripped apart, local publishers are forced to deal with subjective media assessments on the part of agencies, no matter how competitive their product is. This is the ultimate tragedy.
And another thing…wake the fuck up people.
They are still at it.
A major agency group are offering “booking incentives” to publishers to move to the tech company they hold a major investment in.
“Switch to them and we’ll guarantee more revenue” Same group used exact same incentive to push their content recommendation engine and kill X [Edited under Mumbrella’s comment moderation policy]
I find it gob smacking after all the revelations and protests of innocence they continue to use their clients billings as leverage.
nothing has changed.
you probably won’t publish this but email me if you want to know who to ask.
We just lost a pitch. We played straight. But the procurement team took a lower % elsewhere. The client CEO is happy. He thinks his team just saved a bunch of cash. Next year his ads will end up in crappy slots and his team will be full of juniors. But who cares? Marketers just want their boss to know how important they are and the consumer is 99% bored. So Head Office gotta make payroll and that means publishers need to keep stocking up on brown paper bags. Thats just how they stay alive these days. And when procurement analysts negotiate us down to zero because we all look the same, then they can take some credit and get a holiday in before the next fake RFP.
I guess I’m wondering if it matters that the other agency is skimming value from the top of a group rate. Seems to me like we all work for free now anyway. Value banks pay the bills and I don’t see marketers offering more money or asking less service. Just faux outrage. Bah. Screw your industry scandal. I wanna get paid next time.