The shady underbelly of principal media
Welcome to a midweek update from Unmade, mostly written on QF2 from London to Singapore and wrapped up last night at Changi Airport. Today: How Principal media became the latest challenge for media agency – client trust. And further down, a bad day on the Unmade Index.
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Things are the way they are because they got that way – as good an explanation as any for the rise of principal media
Last week I was in London for Advertising Week Europe.
Somewhere over France on the trip home yesterday, I started reading the Association of National Advertisers’ new report on the rise of what has become labelled as “principal media”. Afterwards, with the help a nice glass of pinot noir, I fall asleep with a podcast playing.
Waking up three hours later to the motion of our A380 turning a hard right somewhere over the Himalayas, the seat map showed we were flying a more zigzag course than usual – presumably to avoid Middle Eastern trouble spots.
(Wednesday morning edit: Having just arrived in Sydney, I’ve since seen the news about SQ321, an hour behind us on the same route, hit severe turbulence; perhaps that’s what the Qantas crew was cautiously manoeuvring to avoid. )
In my ears when I awoke, Brent Smart and Adam Ferrier were involved in a similarly zigzag conversation with Rory Sutherland, the world’s greatest exponent of the use of behavioural economics in advertising. Sutherland was in full flow as they politely tried to get him to stop talking. “Keeping you on a linear narrative is nigh on impossible,” Ferrier observed.
Overrunning what had presumably been an hour’s time slot – and I imagine with Telstra and Thinkerbell day job stuff to be getting on with – they asked the traditional wrap-up question for their Black T-shirts podcast: what creative philosophy would Sutherland have printed on his shirt?
Choosing not to take the hint, Sutherland offered up several options, eventually venturing: “There’s a brilliant phrase which is the most banal sentence you’ve ever heard, from a brilliant evolutionary biologist – ‘Things are the way they are, because they got that way’.”
Banal perhaps, but something immediately fell into place. It’s the most helpful explanation I’ve yet heard about the current state of media buying.
A few weeks back, I had an intriguing breakfast with somebody whose job entails helping advertisers in Australia to navigate their relationships with their agencies. To avoid narrowing the field, I won’t share that person’s gender. This person was looking at the relationship through the lens of last year’s landmark report from the US-based Association of National Advertisers which – against the odds – was able to get closer to the truth about what is going on in the programatic advertising chain.
I write about that in March after attending a discussion in Melbourne hosted by Sayers Group. The tone from that afternoon’s discussion, conducted under the Chatham House Rule, was one of surprise that marketers were not more worried or outraged at this credible report that they are losing 64% of their budget to links in the programatic chain.
Frustratingly, when it comes to media agencies owned by the global holding companies, my breakfast companion was struggling to get them to commit to the kind of disclosures and transparency that advertisers should be looking for.
The rebuttals would politely cite non-disclosure agreements and global policy for the reason they would not be able to help. A reasonable question would be whether such stonewalling is also a way of avoiding the risk of the information ending up in any sort of study of the Australian media ecosystem similar to the ANA one..
When the UK’s ISBA (the Incorporated Society of British Advertisers) did their study into the programatic supply chain in 2020 they flagged that a major barrier to their understanding was the sheer number of agency groups and other suppliers who declined to assist, even with the express permission of their clients.
But that’s not the whole picture. Within the circle of trust, one agency boss had confided to my breakfast pal that it wasn’t that they were necessarily holding back information, it was the fact that the chain is now so complicated they do not fully understand it themselves. Much of the budget vanishing trick happens in black boxes even higher up in the holdco.
The more one talks to people on agency side – which I have been doing since that breakfast – the more one realises that’s a major factor. There’s not so much a conspiracy of silence, more a slide to complexity. Most executives, even quite senior ones, don’t fully know how it works. It all got too complicated to follow from the ground. As Sutherland would have it, things are the way they are, because they got that way.
I began to ask the same question while I was in London. At a number of coffees and an off the record dinner party of agency folk, complexity not conspiracy was mostly (but not entirely) the explanation. The people I chatted to certainly didn’t feel they were part of a plan to con clients, but they were sheepish that they didn’t fully understand what happened to their budgets as they flowed through the chain.
Which brings us to this new report from the Association of National Advertisers which should be read by any marketer who uses a media agency to buy their advertising.
This time, the topic is Principal Media. That’s the concept that, instead of acting as an agent, literally, for a client, a media agency (or a related company elsewhere in the holding company) buys advertising inventory from a media company in bulk and then sells it on to the client at whatever price it sees fit.
When a media agency is no longer an independent agent on behalf of the client, then a fundamental question is whether “agency” is even the right word any more.
That agent-client relationship is far from as arms length as the phrase suggests. The bosses of the media agencies have traded and socialised with the media sales execs for many years; they have warm, career-long relationships. Meanwhile, clients come and go.
The report – The Acceleration of Principal Media – does not take an overly censorious tone to what is potentially quite an ugly practice. It observes that one reason it occurs is because if advertisers want to get the level of service from their agencies they are used to but at an ever lower price, then the holdcos need to make their money somewhere else. It quotes a consultant as saying: “The client side continues to pressure agencies to do more work for a lower fee, so the agency has to make up the shortfall with other revenue streams.”
That other revenue stream is principal media. The big difference is that when an agency buys media as an agent of a client, that advertiser should be entitled to know everything the agency knows about the deal, including any benefits being paid out by the media owner. With principal media, the price paid by the agency – or more often a sister company within the holdco – is none of the advertiser’s business. All they’re entitled to know is the price at which they are being onsold the media. But the ANA report estimates that the markup varies from 30 to 90 percent.
Every market is different, and the ANA report focuses in the US. However citing audit groups Cortex Media and Media Marketing Compliance, the report observes that Australia’s agencies have been leading the charge: “Principal media has been around for some time — at least 10 years, according to both Cortex Media and Media Marketing Compliance. Per Cortex and MMC, principal media has historically been ‘heavily used’ in Australia, Canada, Germany, and the U.K., and in the past 18 months, ‘it has been seen everywhere’.”
Phrases like “value pots” or “inventory media” are bandied around as ways of describing principal media. In Australia the muttered phrase for a while was “value banks”, which seemed to be most commonly associated with TV inventory.
According to the ANA report: “Television and the open web are the most common media types. But other media and non-media are also used: digital walled gardens, audio, search marketing, print, influencer marketing, and research.”
A serious issue is when advertisers don’t know or understand what they are buying. In the ANA study, less than half of marketers said they were very familiar with how it works.
And the more that agencies recommend to their clients that they buy media directly from them, the more it hurts trust in them for unbiased advice “I don’t know if my agency is recommending principal media because it’s the best media for me, or the best media for them,” one anonymous marketer told the ANA.
Another questioned the claimed benefit of buying that “exclusive” inventory, saying: “That is where the shady underbelly of principal media is on display.”
The ANA argues: “The agency should be required to provide a clear business case detailing why principal media is recommended and is consistent with the marketer’s media strategy, objectives, and buying guidelines, and is in the best interest of the marketer. There should always be options presented that do not consist of principal media.”
It adds: “Require that principal media be clearly identified on media flowcharts. Do not accept vague language such as, ‘Principal media may be included.’ Require specifics.”
The report is also sceptical of one of the justifications used for agencies being able to make markups which is that they take a risk by buying inventory ahead of time. It says: “An agency theoretically runs the risk that it will realize a loss if it fails to resell the media within the specified time period. Source reported, however, that agencies take specific steps to greatly minimize that risk.” In other words, would a TV network really hang a key agency trading partner out to dry with unsold inventory? Of course not.
The report also quotes financial analyst Brian Wieser, who writes the excellent Madison and Wall newsletter: “Publicis and Omnicom have been the most aggressive in this field in the past year, while IPG and WPP have been the least aggressive, and each company’s organic growth trends mirror these orientations.”
Publicis does it via its trading entity APEX; Omnicom through a mysterious arm called OMnet. The report observes: “Yet information on OMnet is difficult to find on the Omnicom Media Group website.”
Many marketers seem to have failed to get on top of the issue. According to the ANA report, 40% of those who said they were already buying principal media were doing so without having created any guidelines. I bet the number is even lower in Australia.
Marketers risk buying overpriced crap. According to the report: “An auditor felt strongly that principal media, most times, is not ‘better’ or ‘exclusive,’ telling us, ‘Principal media often includes free space, as part of volume deals between the agency and a media company. And it’s free for a reason’.”
Principal media is now a widespread enough practice that it’s here to stay. And it’s better that it as at least now being talked about, so marketers can ask the right questions.
As Manuel Reyes, founder of Cortex Media says in the report: ‘The horse is out of the barn now.”
There’s no point in shutting that barn door. Things are the way they are because they got that way.
Rough day for the broadcasters
It was a bad Tuesday on the Unmade Index for Australia’s ASX-listed broadcasters.
ARN Media lost 5.26% while its takeover target Southern Cross Austereo dropped 2.92%. Seven West Media lost 2.38% and Nine dropped 1.93%
Ooh Media was down 2.82%.
The overall index lost 2.15% to land on 520.7 points, a much worse performance than the wider ASXAll Ordinaries which was flat.
Time to leave you to your Wednesday. We’ll be back tomorrow with an audio-led edition in which I talk to the new boss of Mamamia, Nat Harvey and proprietor Jason Lavigne.
Have a great day.
Toodlepip…
Tim Burrowes
Publisher – Unmade
tim@unmade.media
