Media Agencies: the route to the C-Suite – Part Three: Accountability, transparency, and trust

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Parts One and Two of this series show how media agencies can attain higher standing with clients, firstly through the adoption of the right technology and data analytics, with continuous optimization of messaging in the full range of channels to improve marketing performance. The second part describes how important it is for media agencies to provide hard evidence of how marketing investment increases business success, and to use the language of the C-suite.

This third part addresses another key requirement of boardroom access: to become a client’s trusted advisor, agencies must become fully accountable and transparent. No board will give you the time of day unless they believe that you always have their best interests at heart, and that recommendations are genuinely impartial.

Time was that clients and media agencies didn’t look at the contract that bound them together. It was often short, unspecific – often unsigned, indeed – but there was a mutual understanding that the media agency would devote its resources to the client. Things are very different today. Contracts have become elaborate, precise, and much more difficult to agree. The basic bond of trust that used to exist has been diluted, and it can no longer be taken for granted that agencies always work exclusively in the client’s best interests.

The media industry has consolidated over time, and big agency groups now command over two-thirds of the worldwide market, and more than 80% in the developed world. Even within the big groups, a big gap has opened up in market share (RECMA 2013).

The biggest groups now have enormous purchasing power with the media vendors, even with the biggest global players such as Facebook and Google, and they are publicly-owned entities under constant pressure to improve profit and margin. They also are the guardians of client cash, with millions of dollars flowing through treasury management systems daily. Increasingly they act as the principal in the media transactional process. This entails buying inventory on their own account, and this is then sold on to clients. Effectively there is now an opaque internal market within big groups, and margins can greatly exceed the fees and commissions derived directly.

When the World Federation of Advertisers (WFA) polls its members each year on the subjects that preoccupy them most, ‘transparency’ always comes out on top.

In fact, the way that digital media are traded has dramatically increased the level of client dissatisfaction with the lack of accountability and transparency they routinely encounter.

It is ironic that the most measurable of media channels are the most opaque and unaccountable for most clients.

The complexity of the online trading eco-system has facilitated the creation by the media agency groups and associated companies of  some very lucrative trading partnerships. Ebiquity’s measurement of the market and WFA research showed that only 40% of an advertiser’s budget actually reaches the publisher, once all of the various parties have been paid and the various trading incentives earned.

The net result is that the advertiser loses significant value and the publisher is under-rewarded, with the knock-on effect of less revenue to reinvest in content. Multiple service providers earn fees, commissions and rebates in ways that are almost entirely invisible to the advertiser.

The WFA research also shows that the vast majority of client respondents take the view that agency trading desks are inherently less transparent than their traditional media counterparts.

Media groups have become increasingly reliant on trading revenues, and this has been exacerbated by the groups’ move into inventory media. Essentially they have become both buyers and sellers of media, often operating within associated companies selling and buying from each other in a way that advertisers cannot see, hidden under a cloak of technology.

“It is also generally acknowledged that around half of all online advertising is not ‘viewable’ in the accepted sense, at the low threshold of 50% of the ad for one second for display, and two seconds for video.”

Programmatic trading of online media has added yet another spin to this wheel, with large swathes of client budget being automatically traded. There is no doubt that in many instances advertisers are better off as a result, but this is not always so, and the lack of performance and financial transparency is a major concern.

It is also generally acknowledged that around half of all online advertising is not ‘viewable’ in the accepted sense, at the low threshold of 50% of the ad for one second for display, and two seconds for video. Non-human traffic and fraud reduces effectiveness further.

Meanwhile, money continues to pour into programmatic, with estimates from Ebiquity CEOs suggesting that more than half of digital display advertising will be traded programmatically in the US in 2015. Advertisers are being encouraged to adopt programmatic without necessarily understanding all of the implications, and without the checks, balances and audit rights they have come to expect in traditional media.

The consequence is that some advertisers, normally the larger ones, have been looking to make alternative arrangements. Some have already separated out their online trading via an independent trading desk, and others are investigating alternatives outside their existing media agency set-up.

That media agency groups are making significant additional profit from the arbitrage of buying media inventory wholesale is at odds with the promise of programmatic trading, in that audience buying (i.e. better targeting based on an individual’s data) implies that all inventory has the potential to be right for any given occurrence. The fact that the big agency groups have moved into the selling of media may ultimately mean that the media agencies will find it hard to be seen by clients as a trusted advisor. It will be hard to adopt a genuinely impartial position with clients with the groups selling and buying on an internal market.

So if the media agencies really do want to reach the boardroom, their business model may well get in the way. The conundrum for the front-line agencies is that most of the obstacles are not created by them, and they don’t see the benefits. These are normally taken at group level, so the model compromises the front-line agencies by association, and can damage the trust which maintains day-to-day relationships.

In an attempt to justify nontransparent behavior, it is often said that agencies retain additional, undisclosed income because they have been pressurized by client procurement teams into lower fee and commission pricing. So they compensate for this by keeping other income lines which the client is unaware of. Often the additional income is hidden by the structures of the buying groups and their associated companies and sub-contractors.

It is also sometimes claimed that the client doesn’t automatically have the right to know what their agency groups actually pay for media, and this especially applies to ‘inventory media’ bought by the buying groups on their own account. An analogy has sometimes been used that people entering grocery stores don’t know what the store paid wholesale for its goods, but people buy a price they find acceptable, so why should clients know what the agencies bought media for at wholesale cost if they’re happy with the prices? The major difference here is that the client has committed themselves to using an agency to buy their media, usually exclusively, so they can’t shop around.

Another frequently quoted reason for lack of disclosure in online is the assertion that the agencies’ trading desks enrich data to make programmatic better targeted and therefore effective, and the client pays a bundled price for the inventory and the data. However, there is no way that the client can verify this, and evidence shows that this doesn’t regularly happen. Real transparency would provide tangible evidence of improved performance, with all relevant data apparent to the client.

In summary, it is hard to see the media agencies attaining C-Suite access so long as there is a lack of trust in the relationship. The problem lies within the agency group business model and the incentivization programmes that drive behavior. To achieve real C-suite access, agencies must guarantee full transparency, negotiate a fee structure with a transparent and measurable margin, and ensure contract compliance.

Further reading…

Part One: Becoming technology and data partners
Part Two: Becoming effectiveness and ROI partners
Part Four: Towards a different model and a new name

 

About Author

Chief Strategy Officer

Nick has spent 30 years in the media industry, principally having co-founded Manning Gottlieb Media (MGM) in 1990. MGM became one of the most highly respected and fastest-growing Media Specialist agencies before becoming part of Omnicom in 1997. His most recent position was CEO of OMD’s operations in the UK. Nick also co-founded OPera, the media negotiation arm for OMD and PHD, with billings of £1 billion. He joined Ebiquity in October 2007 as Chief Operating Officer with special responsibility for the Analytics division before becoming President, International, in overall charge of Ebiquity’s non-UK based operations. Nick is now Chief Strategy Officer, with responsibility for developing and implementing Ebiquity’s strategy across its three business segments.

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