‘Is principal media evil?’: Public clash over a divisive practice
Chris O'Keefe and Mark Coad
Panellists clashed over the ethical status of principal media at yesterday’s Future of TV Advertising conference in Sydney.
Principal media is the practice of agencies buying advertising inventory on their account and then reselling to clients. Critics say this undermines the agency-client relationship because as resellers, agencies may no longer be incentivised to provide the best deal.
Chris O’Keefe and Mark Coad
The panel consisted of Chris O’Keefe, from independent media agency Match and Wood, Aimee Buchanan from Group M, and Mark Coad from IPG Mediabrands.
“Is PMT, principal media trading, as evil as the press make out?” moderator Justin Lebbon asked.
“Yes,” answered O’Keefe, before going on to refine his position. “ My honest answer is: it’s 80% evil … with my friends who have global clients, I can understand the pressure that is put into pitches where they’re asking for guarantees of pricing and in return they’re applying principal media methodology to that.”
IPG’s CEO Coad took exception to the question.
“ I don’t like the way you framed the question,” he said. “ There’s an overriding assumption that it exists on an industrialized level. With that assumption, have [the press] demonized it? Yeah, of course they have, but they’re demonizing stuff that barely [exists].”
Buchanan, CEO at GroupM, also seemed to indicate the practice was not widespread in Australia.
“ I think the problem with the whole conversation is you’re speaking in generalizations, but if I was to generalize, I think Australian clients still put trust and transparency as paramount,” she said.
Aimee Buchanan
Coad used an example of buying a beer as a transactional process quite unlike a relationship between agency and client.
“There’s an assumption that [principal media trading] exists at scale. It doesn’t exist at scale at all … working for a global company, do I have awareness of some global arrangements? Of course I do. Do I have a local principal media arrangement in this country? No I do not.”
“If it did exist, would it be bad? If the product was competitively priced, if it was of high quality, if the client knew exactly what they were coming in for … it’s no different than some of the capital programs arranged now except the money’s up-front instead of in the bank.”
The tension in the panel’s divergent views was primarily between Coad and O’Keefe, with O’Keefe saying Match and Wood did not have to deal with the issue because it only dealt with local procurement offices.
“I would say for local clients here, there’s no benefit to doing it at all. And actually it’s really covering up a lack of understanding from global procurement offices.”
Responding to Coad, he explained his position further.
“ I take your point … it’s not like the whole media plan is principal media. It’s specific line items. And so if you take that and go, let’s imagine that it’s BVOD and it has principal media and it’s actually getting charged at 50% more than what they’re buying it for. When you come down to doing a marketing mix model, that means that that marketing mix model, which is using that inflated price, is also incorrect. And so it has layers of issues in my mind.”
Coad: “This has become an indie versus holding company thing. They’re not subjected to the same levels of compliance. Contracts are normally not as complex as ours … [but] there is a whole host of reasons why this is not a holdco versus indie thing. I put it to you … indies are probably doing more principal media arrangements that holdcos.”
Laughable that Mark and Aimee both suggest it is either non existant or not widespread. So if Principal Media doesn’t exist at scale in Australia, what about Prop Media, Inventory Media, Monetisable Value Banks (or GMI Aimee?)
Same smell, just a different name?
I have no idea why this has become such a debate between indies versus holdco’s. Principal media buying is not evil, and it is only bad when it is done poorly or with bad intentions. When it is done well it should benefit everyone, the media owner gets a confirmed buy from an agency where the agency takes a principal position, usually for something they have purchased before for a client that likes the media/it has performed in the past. The agency takes the risk, the client doesn’t bear the commitment, and in my experience selling it for/to the holdco’s (outside of Australia across APAC and globally) – the deal will only be entered in to if they have multiple clients who use the media owner/format/space and they can genuinely diversify their own investment risk (of taking the principal position and often paying up front). So the media owner gets some surety of revenue, often up front payment, and often the ability to work more closely with the agency as some goals are more closely aligned. The client has to sign up to a specific agreement that says they will spend X on media that is principally traded by the agency, they often get visibility on where and what this is. The trade off for this is the client get a better price for media they have bought before, fully aware that the agency has taken a principal position, usually one they are not willing to take themselves, to get a longer term lower unit cost on media that works for them. The agency, who are actually taking risk that clients move, cut budgets, cashflows, bad/long payment terms and the like, get to make a margin. The media owner gets longer term guaranteed revenues.
This is like any real world/non-media investment, the party bearing the risk and making commitments gets to make a margin where they take the risk and if this is agreed and signed up to by all parties I am not sure where the boogeyman is hiding.
I think there needs to be a massive separation between the compliant way holding companies can trade principally where clients sign off on deals and are fully aware what agencies are doing, and the old practices of some of the holdco’s in programmatic where they buy the space, obfuscate their margins and just charge more for the same inventory in the name of “adding value” hidden as a “product” where they just mark-up media.
Painting it all as the same thing is simplistic and shows that people don’t understand what is actually being offered to clients and what they are buying in to no matter what geography they are in. Clients aren’t idiots, some like it, some don’t. Most of the multi-nationals and their very hardcore procurement teams know exactly what they are buying and why.
What does Coady think IPGs Orion does then?