It is alleged that agencies negotiate deals that give them free media space for which they charge clients (ka-ching!). It is alleged they knowingly place difficult-to-trace invisible programmatic inventory for clients (ka-ching!). Or they get additional volume discounts over the total of the volume placed with the media, which they funnel to agency holding accounts, possibly not even in the country where the discount is obtained (ka-ching!). It is also alleged that agencies apply similar tactics on production budgets, including TV commercials, print production and other creative executions (ka-ka-ka-ching!).
The allegations are not completely baseless. A few cases emerged in the open over the last few decades, but they all happened abroad (McCann in Greece in the 1990s for instance, or Carat in Germany in the 2000s). They all led to convictions, fines and repayments. In other words, they have been dealt with.
In the U.S., the only events of substance were the allegations former Mediacom CEO Jon Mandel made last year at the ANA conference, which led to the present investigation. There have been persistent rumors regarding the U.S. market for decades, but at the same time there were strong and unequivocal denials by the whole agency ecosystem.
One related argument in this whole debate is that agencies claim clients are consistently paying less and less for agency services. The conundrum is that clients want state-of-the-art everything at the speed of real time for a fraction of base income, typically 1% or less of total placed media volume. Clients also pressure agencies on payment terms, which means they demand agencies to, as Sir Martin Sorrell put it, “play bank” for substantial sums of money for anywhere between 65 to 150+ days.
Yes, the industry was outraged when a few advertisers started pushing for 120-day payment terms only a few years ago. In talking with some marketers now, I’ve found that 120-day discussions are so 2013. Some are already pushing for 180 days!
In the end, I think the whole interdependent race to the bottom can only hurt the industry as a whole.
It will drive agencies to be “creative” in how they fund the demands that advertisers push on them. Media companies are struggling as agencies force some of the wait time for payment back onto them. And the industry as a whole will struggle to find the means to offer the new kind of required talent (data wizards and analysts, system building engineers, etc.) an interesting and rewarding career opportunity.
We are educating millennials, our future workforce, away from marketing by annoying them, to the extent that they are deploying ad blockers and have stopped watching linear media altogether. On top of this, the industry that deploys the media tactics they hate offers them a starting salary of about a third of what Silicon Valley or Wall Street offers.
As an industry, we can’t have it both ways. It is simply unrealistic to squeeze and squeeze pay while expecting 100%+ performance delivered by top talent. Perhaps Ebiquity and K2 Intelligence should look into cause and effect as well!
Good post Maarten,
The problem is that the revenue from dark pools, inventory trading, ad-tech fees, and other "alleged" volume rebates does not end up with the operating agencies - hence it has no direct impact whatsoever on the starting salary (let alone the quality of the talent).
In fact, I think doing 2 things completely unrelated to media transparency would solve the talent crisis:
1/ Cut the obligatory 15%-18% holding group "services fee" that operating agencies pay to a flat 10% (i.e. leaving 5%-8% more $ for the client facing agencies to play with), and
2/ Distribute any performance related bonuses amongst the people that are working on the business (not to compensate for a salary increase, but pay it as a financial bonus). For sure, this represent only low single-digit revenue, but it should be sufficient to motivate future managers to stay in the business.
For those interested, Dominic Proctor very briefly touched upon the issue of attracting and retaining talent Festival of Media 2014 (see https://www.youtube.com/watch?v=EH6ZLUD0iCs 13:50 and onwards).