When Will the Mainstream Media Adopt Sequential Liability?

I received a form letter last week from Time Inc. The purpose of the letter was to “remind” us of a “long-standing” policy of theirs regarding sequential liability. They don’t honor it. Instead they apply what they call “the joint and several liability of advertiser and agency for payment of invoices for advertising published in our Magazines and place on our websites.”

Interesting on many levels.

But to the uninitiated in the fun world of media finance, let me explain the difference between the two:

  • Joint and several liability: Adopted by the agencies over a century ago and subsequently hard fought for by the AAAA. This tenant says that the agency is equally responsible for media bills with the client.
  • Sequential liability: Adopted by some agencies, especially the major media agencies some twenty years ago. Adopted by many Interactive agencies in the mid-90’s and included in Interactive Insertion Order Terms and Conditions as signed by major sites and agencies.

    So, what’s wrong with this picture? As I indicated, many things.



    First, the only place in American business that an agent is responsible for client bills is advertising. Can you imagine if you or the seller of a house to you asked your real estate agent to accept liability if you did not pay the bills? What about your travel agent? You get the picture.

    When sequential liability was first used in the early 80’s (it was called “bill and remit” or “c/o” back then), the logic was simple. Who has the assets? Who should be the credit responsible party for the advertising media commitments? As Interactive Ts & Cs were adopted by the industry, some discussions with the industry centered on financial liability. The Interactive, and eventually the AAAA agencies, argued that if they had a firm written commitment from the client for the media that they accepted financial liability, AND the client’s credit app was approved, the agency should not be on the hook. The final wording that was adopted decreed that the agency should only be on the hook to the degree that it held the funds. Otherwise, if the client had not paid the agency, the client was responsible for all media bills.

    The process became a simple one. Include the sequential liability statement in client contracts, provide the client with a simple letter to issue on their letterhead, signed by a senior marketing official verifying the appointment of the agency and their authority to make financial commitments on behalf of the client and have the client finance folks fill out a standard credit app. If the credit app was approved, the client was granted credit. If not, it was cash with order.

    Over a period of years since Mediasmith first began using this process, only one national media company, Dow Jones, did not accept sequential liability. Some key newspapers also did not accept it. There have generally been no issues with broadcast, cable or other media. That’s why the “reiteration” on the part of Time Inc. is news. Because their publications have accepted sequential liability on our orders for over ten years and still do. Just because someone says that their policy is such and so and this represents no change does not make it so. Maybe the Controller of Time Inc. should send the letter to its operating divisions. And then find out how much money will be sacrificed by this old fashioned policy with no legal precedent.

    Acceptance of sequential liability is a no-brainer. The media should be more than happy to have the client sign in writing that they accept responsibility for the bills. This is more than they have ever have had. Why put an agency on the line or even out of business over this issue, when the agency is the most profitable and largest volume channel for the media?

    We hope that the Time Inc. letter is simply saber rattling and does not represent a regressive trend. Interestingly, both AOL, Time’s sister organization and, Dow Jones most successful Interactive arm are more than willing to sign Ts & Cs for Interactive activity that specify sequential liability.

    It is time for the traditional media to learn something from their Interactive brethren. Contrary to public opinion among the media elite, there are some solid business practices on the Interactive side. Hopefully, egos won’t get in the way so much as to not learn from the younger divisions.

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