Media proceed naturally that they reward media agencies

Big fragmentation of commercial media puts greater demands on all interested parties including advertisers. Pavol Macinga, Czech-Slovak independent media auditor, writes about media purchase options from the view of advertisers, about transparency and remuneration of media agencies and independent media auditors.

Media space expenditures account for a great part of marketing budgets. Marcom budget comprises many fixed non-media items. For example, the difference in the cost on a TV spot recorded at studios in Prague or directly on the beach by the sea is low. Once approved long-term sponsoring is a fixed cost as well. On the other hand, lots of media and excessive advertising offer considerable flexibility as well as possibilities of media budget optimization. And not only through the price of services of media agencies or media prices but also in more fit-for-purpose media planning. And last but not least also in the setting of transparent relationship with a media agency and direct active contact with the media. 

Where advertisers can buy media advertising?

Advertisers have different needs as well as possibilities and they can now use a number of lines to purchase media advertising. And if you are not a TV advertiser, you can do so fully without commitments. Yes, with the exception of TV Markiza and/or TV Joj, in Slovakia or TV Nova and/or TV Prima in the Czech Republic, there is no media where the amount needs to be guaranteed under the threat of a fine. Today’s world is too complicated and advertisers should remain primarily flexible. Local advertisers can purchase media advertising indirectly or directly, for example:

1. Advertising agency with its own media department – for example Tatra Banka (1997 - 2011)
2. Advertising agency with subcontracted media agency – for example COOP Jednota Slovensko
3. Media agency for several countries – for example Ceska Sporitelna / Slovenska Sporitelna
4. Media agency for the local market – for example CSOB Group
5. Media agency only for TV media – for example Tesco Financial Services
6. Directly media itself– for example Maspex (Relax, Kubik) at TV Markiza

Every advertiser has different preferences and it is important to consider pros and cons. On the other hand, I recommend maintaining certain consistency for at least two to three years. You should always have someone you can fully rely on in terms of expertise as well as transparency. Whether it is a representative or an advertising or media agency or some third party. The best case scenario is relying on one’s own media manager who is sufficiently rewarded so that you as their employer can be their sole source of income. 

Media bonuses have always been, still are and will be here

It has been ten years since I as a media manager of CSOB Group together with member of CSOB Board of Directors Philippe Moreels took the floor at the marketing conference in Bratislava and described in detail how media gave several-fold higher rewards to media agencies than clients did. Who works for whom? Does a media agency work in favor of those who award a contract (client) or those who pay higher part of agency’s profit (media)? It is not the existence of bonuses itself but their different amount what poses a problem. The stronger the media type, the lower the bonus and vice versa. And the weaker the media type, the higher the bonus and vice versa. With one exception, it is always a double-digit percentage. As for internet, it can even be a triple-digit percentage. 

Media proceed naturally, even textbook-like, that they reward wholesalers – media agencies. Such bonuses are everywhere. From groceries to fuel to arms industry. So it is no wonder they are also in the area of media buying. Existence of so-called turnover bonuses itself is all right. It is not my place to raise questions about media ethics with respect to bonuses. However, there is a fine line between a bonus as a bulk discount and a bonus as a kickback. Media bonuses have always been, still are and will be here. Regardless the strong declarations of media heads and media agencies. Globally as well as in Slovakia and the Czech Republic. 

In real life, media use a bonus to motivate a media agency to use their title(s) more frequently, for more clients, in greater volume and, at the same time, pay within reasonable deadline. The worse the quality/quantity of the media is, and the more competitors (substituents) it has, the higher the bonus (or “reward” or “kickback” if you want) is. Super simple rule. And that applies to the whole market as a whole, about whole media types as well as individual specific media.

What exactly is media bonus?

We have to include all financial and non-financial rewards that depend and/or are determined by the expense of client money by the media agency in the umbrella “media bonus”. And that be directly or indirectly.

Direct media bonuses may include for example:

1. free performance (spots, pages, impressions, GRPs, space, locations, placement…)
2. financial volume bonuses 
3. campaigns that were not run
4. forgotten complaints
5. unacknowledged credit notes
6. uncharged performance

Indirect media bonuses may include for example:

1. commitments of media to take paid services from a media agency in access of actual needs (it is a different form than obtaining money from media to agencies off the records directly concerning clients)
2. possibility of reinvoicing from a shopping house of a cluster of several media agencies to individual media agencies from this house in different than the original amount from the media itself
3. payment between a shopping house and the third subject, i.e. still off the record of the media agency that a client concluded a contract with

And many other options according to creative accounting and reporting. When I sum it up, there is everything a client could receive as an added value but…It is not always the case.

And watch put, not even having an international contract can shield you from problems arising from the conflict of interests on part of the agency. Quite the contrary. It is because a global contract does not have a chance to register and solve all small differences in individual countries. Or worse, the contract is too benevolent in terms of cooperation terms but needlessly strict when it comes to the possibility to change the media agency locally.

Negative top of it all is denial of existence of media bonuses on part of some media agencies and media.

There is publically available evidence of existence and calculation of bonuses such as media representative annual report for TV Prima for 2013 when KPMG’s accounting auditor evaluates not invoiced credit notes to media agencies in the amount of CZK 589,906 as a medial bonus, or turnover bonus as an accounting auditor calls it. The amount accounts for 16 percent of net sales of CZK 3.07 billion euros. CSOB Group admitted to 12.5 percent ten years ago. Former head of the U.S media agency network MediaCom which is part of WPP admitted in 2015 that a standard for a bonus as a reward for media was 9 percent and more. But we are still talking only about financial bonuses.

The problem is transparency with handling additional benefits and their subsequent redistribution among individual clients, daughter companies and parent holding companies. And from that arising financial losses for advertisers, let alone communication losses and possible damage to the brand name by a wrong choice of the media.

Example – remuneration of media agencies – CSOB Group (KBC)

CSOB Group gave the most detailed account…It was even more precious as it applied to both Slovak and Czech market. CSOB paid an above-standard reward for planning and purchase of media in the amount of 7.5 percent by then applied as well as today’s standards and despite that, the media agency kept 39 percent of the amount that ended up in media together with the reward. It comprised agency’s commission of 15 percent, agency’s bonus of 12.5 percent and agency’s reward of 7.5 percent. All three items are calculated from different bases so that it was not such a mathematically simple formula. 

CSOB Group had been until certain time among TOP 5 biggest local advertisers in the Czech Republic and Slovakia. If the group used a lower share of TV media, resulting weighted share of the bonus would be higher. It was in 2003/2004. Eight years later (2012/13), my own benchmark of the financial media bonus was 16.6 percent. We are in 2018 today and thanks to digital technology tools, it can exceed absurd 100 percent which is one of the main motivators why the biggest holdings WPP, Omnicom, Publicis Groupe, Interpublic Group and Dentsu Aegis Network made massive investments in development of digital technology tools both globally and locally and acquired independent digital agencies. 

Only few matters are brought before a court due to a conflict about media bonuses between an advertiser and media agency. But for example CSOB in the Czech Republic and Danone in Germany have one thing in common. The media group Aegis/Carat/Vizeum (Dentsu Aegis Network Group) was their counterparty in the lawsuit. The outcome of the lawsuit in Germany was that Aegis agency paid 30 million euros to Danone in 2008. The lawsuit in the Czech Republic ended with an out-of-court settlement, Vizeum agency from Aegis group concluded settlement agreement with CSOB in 2007 after CSOB filed a lawsuit against Vizeum.

Example – the role of parent holding companies of media agencies – WPP Group

Watch out, bonuses, both financial and non-financial, can flow on the level of the holding and also in another country where it is almost impossible to track them down and identify to levels of individual advertisers. It is important to make sure that all aspects of the process in planning and buying media as well as contractual framework also consider the so-called group service companies. And not about financial rewards. Here is an example of local WPP.

Media agencies of WPP holding in Slovakia reported cumulatively turnover of 71.9 million euros and profit of 1.4 million euros in 2016. But the Slovak parent holding company WPP, so-called group service organization GroupM, has with a 15-percent share in group’s revenues (10.8 million euros) a 63-percent share in group’s profit (889,000 euros). That is utterly textbook example of internal optimizing. Proportionally, more than quadruple of the profit ends in the group service organization.

Initiatives of advertiser associations WFA, ANA, ISBA

The biggest advertiser associations have focused with great drive on the issue of transparency in remuneration of agencies in past two or three years. ANA association has the most extensive publically available sources also for non-members.

ANA is an advertiser association in the USA, Association of National Advertisers - ana.net

ISBA is an advertiser association in the UK, Incorporated Society of British Advertisers -isba.org.uk

WFA is the association of world’s biggest advertisers, World Federation of Advertisers - wfanet.org

Independent media auditor – advertisers’ assistant – media agencies’ enemy 

WPP group is the loudest global as well as local enemy of independent media auditors. The group represents media agencies Wavemaker (ex Mediaedge:cia), Mediacom, Mindshare, GroupM and METs in Slovakia. It gladly uses attorneys with pre-litigation calls in communication with auditors both globally and locally.

The biggest, currently already ex-boss, Martin Sorrell (he resigned on Saturday, April 4, 2018) said about independent media auditors that they were in conflict of interests and advertisers should use the Big Four, four largest accounting firms in the world. WPP holding may have not noticed that the Big Four has been offering mainly consulting and advisory services in past years rather than audit. Group’s revenues from consulting and advisory services have grown 9 percent annually in past five years compared with stagnation of revenues from accounting services. The group reported almost 20 percent higher revenues for consulting and advisory services than from audit in 2017. The Big Four are Deloitte, Ernst & Young, KPMG and PwC.

9 out of 10 global advertisers use services of media audit and price benchmarks

WFA (World Federation of Advertisers) clustering global advertisers with cumulative turnover of USD 90 billion annually in advertising and media published outcomes of its own survey among its members regarding media auditors a few weeks ago. Together 56 advertisers representing USD 90 billion annually in advertising and media actively participated in the survey.

Key findings from answers of global advertisers:

1.  81 percent advertiser respondents use auditing services routinely or permanently
2. 75 percent use independent advisors for contract compliance auditing and verification
3. 70 percent use assistance with selection and setting of the process with the media agency 
4. 68 percent agree that auditing has been instrumental in reducing prices and extracting greater value from media

We have had enough of local media auditor Macinga, We want to see and hear the large global advertiser!

I understand that my open undiplomatic choice of words is not to everyone’s liking. And even my 24 years of experience in the Czech Republic and Slovakia in the issue I have brought up may seem not enough for some. But it has fulfilled its purpose if it has inspired you to start dealing with the issues I have brought up and search further. So yes, go and look for more independent information sources.

I present you one of the TOP credible global sources in the Slovak language. The keynote speech on the issue of transparency of media agencies delivered by an advertiser. It is speech of Marc Pritchard, chief brand officer of Procter & Gamble, the biggest global advertiser with advertising costs on TV, press, radio, internet and in-store exceeding USD 7 billion annually. Slovak translation is available under bit.ly/MarcPritchardSK

What’s next? What can be done?

The best will be if you approach the issue of transparency of media agencies through the views of global advertisers, for example through their associations such as WFA, ANA and ISBA. Don’t worry, it is fortunately much easier to apply local solutions than on the global basis. Subsequently discuss opened topics in person with two or three local Czech or Slovak independent auditors – for example Cimoradsky, Kovarik, Macinga in order to get several views, different approaches and with a bit of luck, you will chance on someone speaking your language. Alternatively, follow my blog macinga.com/blog

In the summer, I will add key recommendations. I have a surprise for you, advertisers, at the beginning of June in form of tvpricepool.com, public comparison of price benchmark CPP on TV Nova & Prima and TV Markiza & JOJ.