U.S. Advertisers Need To Take Action On Rebates
For many years I was an active participant in U.S. media trading, establishing and growing Billetts, one of the first media tracking and evaluation companies, working exclusively for advertisers.
We operated a service for advertisers, working alongside but independent of media agencies, benchmarking media qualities and prices paid versus those purchased from media owners by aggregate competitive sets of advertisers.
Since I sold the business -- still thriving under the new name Ebiquity -- I have provided consulting services to advertisers, agencies and media owners.
It's been fascinating to observe and monitor the U.S. media-trading scene from a detached but inquisitive perspective.
What I see are two key phenomena: One is an unchanging reluctance to measure value. The other is a failure to update methods and procedures in order to cope with the radical polarization of media-buying points.
The average U.S. advertiser continues to operate a strange oversight of the way their advertising media money is spent. On the one hand, many profess to care deeply and profoundly about their relations with the media and become very enthusiastic about the location and quality of the editorial material surrounding their advertisements.
On the other hand, when it comes to the more rigorous business of addressing, operating and evaluating the value for money delivered, many advertisers behave like ostriches with their heads in the sand.
Most advertisers profess to have an intimate knowledge of media trading, but despite fiscal pressures I estimate that no more than a third of U.S. advertisers undertake any media audit of their media trading finances.
That’s unfortunate because in recent years a sea change of enormous proportions has taken place on the agency side of media trading. In simple terms there are now no more than five media buyers. With the forthcoming merger of Publicis and Omnicom, that will reduce to four.
These media buyers are using their scale not only to demand larger discounts from media owners for the benefit of their advertiser clients, but are also using that scale to secure better trading conditions for their own benefit.
In principle, there is not too much wrong with that. But the evaluation processes fail to recognize that this opaque trading method is wide open to exploitation. Rebates, which had previously thought to be something that happened in markets like Brazil or Eastern Europe, have now become established in the U.S.
A recent Association of National Advertisers survey highlighted the many challenges that advertisers now face. To pick one figure from the results, only 28% of advertisers were aware of rebates being paid by media companies to media agencies but not given back to advertisers. A massive 72% seem blissfully unaware of this phenomenon.
The ANA response was to demand openness and transparency in media trading. Quite right too. Unfortunately, opacity in media trading is rampant.
Media agencies can now blur true media pricing through their increased focus on procuring programming and other editorial content.
We now understand that media-buying groups, in addition to purchasing space and time from a media owner, are now also purchasing and creating editorial content, which they then sell to media owners.
In that situation the media procurement rate is completely disguised. The agency could be charging the advertiser anywhere between 0% and 200% of the right price.
The fact is that media agencies are the new media owners. The agency holding companies know media trading is their most profitable business and enjoys the highest margins.
What the majority of U.S. advertisers fail to appreciate is that the aggregate of their spending is delivering savings and discounts, much of which are not being returned. And where the discounts do benefit the advertiser, it's the media agency that decides which of their advertisers enjoys these benefits.
With only a minority of advertisers using any media or financial audit system, the agencies are having a very profitable field day.
I suggest U.S. advertiser procurement managers adopt two new procedures to best protect their interests.
First, require a contract with both the media holding company as well as the media agency that specifies access to all media deals with key media suppliers.
Second, build direct trading contracts with your five major media partners and demand access on an ad hoc basis to invoices from other media suppliers.
U.S. advertisers who don't change the way they do business will come under increased pressure from competitors, who will be able to pay significantly less for media inventory.
The competitive advantage this delivers can be seen from the fact that the media spread of pricing for similar inventory in the U.S. is the widest anywhere in the developed world.
Right now, too many U.S. advertisers are paying too much for their advertising media. Too many media holding companies are enjoying the benefits.