And what a beneficial game it is for agency holding companies, all of which have increased their share price over the last five years. Sir Martin Sorrell has delivered such enormous growth for WPP that he has earned himself just over 70 million pounds in income and bonuses during 2015 alone. Only one third of his shareholders voted against that package; two thirds are clearly very happy with the finances of the company. As Jon Mandel, former MediaCom CEO, famously said in 2015: “Have you ever wondered why fees to agencies have gone down, and yet the declared profits to these agencies are up?”
The K2 report, delivered on behalf of the ANA, has a whole chapter devoted to what is probably the root cause of the whole problem. And that is: as much as agencies have become clever “obscurers,” marketers at the same time have let themselves become “ignoramuses.” In the report, many advertisers expressed the belief that their agencies are their partners. The reality is, of course, that agencies are in the advertising business for their shareholders and themselves. Their clients’ budgets are a means to that end.
The investigation cites all manner of clever contract clauses and deal structures that basically obscure the flow of money and make it hard to audit an advertiser’s share in the benefits an agency receives. There are “opt-in” clauses that, if left unaddressed, give the agency the right to become a media seller to its subsidiaries and its clients. There are addendums tucked into contracts about mark-ups, especially digital mark-ups that apply as a digital ad makes its way through the myriad of middlemen and tech, many owned and operated by agencies.
Marketers could have negotiated different and better terms, but clearly did not. You could say that, apparently, marketers have treated the signing of their media agency contracts with the same degree of scrutiny given to the conditions we approve when we download apps or join social media platforms. That is to say: zero.
Which is terrible. It is literally in marketers’ interest to own the contract development process from negotiations to, ultimately, signing. Ensure that your procurement partners know and understand at least the basics of marketing, agencies, media and digital, so you can truly operate as complementary partners. Marketers must know what they are signing up for, and that includes the small print, the addendums and the implications of the contract terms.
If all you want is “cheap,” you might have to allow less transparency. If you want quality, you may have to pay more.
One thing is certain: The days of the frequently mentioned noble advertising partnership between marketers and agencies are officially history. We’re in business now.