Once upon a time, there was a standard 15% commission which media owners gave to ad and media specialist agencies for advertisements placed. To this day, media owners presumably pay this without fail to agencies who run ads with them. Trouble is, these valuable media commissions are being given away to clients (advertisers), as bargaining chips just to hang on to business. Agencies shortchanged themselves to clients who squeezed (industry speak for bullied) them into pitiful margins.
Over the years, as margins at media agencies got compromised with rampant undercutting and financially suicidal pitches, the commissions all but disappeared as a source of revenue. Ad agencies got zilch and media agencies bent over backwards to see their profits go belly up. There is obviously no money in playing with other people's money!
Former industry-awarded boss of media specialist Mindshare, Manpreet Singh, shares, “For media agencies, the challenge still remains to come out of the stigma of discount houses as they provide far more than just vanilla buying. Their learning curves are deeper on larger media owners, but they need to invest in learning specialist media, smaller media and mobile. They need to bring new insights and not just numbers to add value to their thinking if they want stronger relationships with clients.”
Lamenting about earning a 1% commission from a large advertiser who spends about RM10 million on media is not unusual. As the desperate but self-destructive art of slicing commissions painted media agencies into a corner, it became more difficult to stay profitable.
“Media agencies are there to do good work for clients but at a profit. We don't do work for the 1 or 2%; we do work for the entire media budget. And that takes not only resources but also an understanding on running a profitable business. At the end of the day, media, creative or media owners are in it for the business and together with clients can co-exist happily. I think the biggest issue hampering all of us is respect for each other and due honour for the work that each of us do,” clarifies Sivanathan Krishnan, CEO of Trapper Havas Media.
“Undercutting prices, and promising value delivery at a rate that does not sustain the business is a zero sum game. Six years ago, I wrote that a cheap pair of shoes never lasts. And here we are. This situation benefits no one, certainly not the clients, who eventually see quality diminishing. At the same time, talent becomes scarce and happiness levels dwindle. Clearly, undercutting prices is the source of all evils. But this is a reality that needs courage to attack head on and resolve. It also demands solidarity and commitment from all parties involved, if we truly care to preserve this ecosystem and allow our industry to flourish for the benefit of our clients. The golden triangle, agencies-media owners-clients, all need to align and agree the way forward,” declares Andreas Vogiatzakis, CEO of Omnicom Media Group (OMG) Malaysia.
So how do media agencies get duly paid? Are media owners paying them indirectly; separate from the game of commissions?
Or to put it more delicately, media owners work with media agencies to ensure they get amply compensated through win-win projects or package deals outside the gambit of paying-clients (who inadvertently screwed themselves out of the picture in the first place).
After years of wheeling and dealing, the buck has finally stopped at the feet of media owners.
An advertising veteran suggested that media owners pay a fixed 1% for booking services and everybody abides by this. This certainly ends up cheaper for media owners who now privately claim they are underwriting the bottom line of media agencies. Don't blame them; they kept their end of the deal by giving out 15% commissions loyally to the industry.
Manpreet who is now Head of Brand & Marketing at Novosol disagrees, “I don’t think in a competitive world the industry will come together and have a clear engagement standard driven by standard commission/rate card…and it should not be the case. The smart ones will always be at the forefront.”
He continues, “Advertisers need to understand and realise if their agency is taking the business at a loss, they will find other ways to compensate themselves either by committing less resources or providing mediocre talent or giving them run-of-the-mill media solutions or moving their money in media where they get to make an extra buck from media owners. If the clients don’t understand the transparent value of delivery on their investments, agencies are going to take them for a ride to survive. The smart clients have found the solution by paying for bright talent and smart thinking from media agencies.”
A leading strategic planner berated me that this whole argument is a tired and pointless one. Data and tools rule, and it is absolutely essential for the development of brands and businesses. We also know inventive media agencies have long resorted to other revenue streams; from social media initiatives, business consulting to events, sponsorship, research, creative and more...
I agree. The input a media agency brings to the table is simply different; clients expect value from the best management of their substantial media budgets. Media agencies also have a critical role with the increasingly sophisticated media landscape. So labeling them as discount houses (particularly by advertisers) is questionable.
But if the financial health of media owners and media agencies is inseparable, why are media owners treated as poor intellectual cousins in the equation?
My argument is also if media agencies and big media owners are playing ‘I help you and you help me’, then what about the smaller media players like magazines, who experienced a painful 12% drop in revenues recently. While the big boys are sorting out their own share of the pie with ‘creative' options’, the smaller players suffer because deals are only possible through large inventory buying. Smaller media players lose, on scale alone.
The democratisation of Malaysian media is dead. Big power decides the future for all of us. If you are not in, you are out. The big get bigger and the small get smaller. Money is managed through the pockets of the big players and this pipeline is kept flowing by power brokers with vested interests to keep the status quo. This also conveniences political expediency on content and we all know how that works. A wise brand planner once reminded me, ‘For every bully, there's a bigger bully’.
Even though it doesn't matter who is paying who and how; inherently this is a dangerous game.
In fact, there is a parallel analogy….
It's the story of American manufacturing bases relocating to China and thanks to currency manipulation plus cheap labour could sell ‘Made in China’ products at cost. Manufacturers (namely stakeholders) got compensated through illegal export subsidies which guaranteed a net profit of up to 17% of exports, paid directly by the Chinese government to US corporations. Which shows it doesn't matter how you get compensated, so long as it came in the course of business.
Back in Malaysia, media owners are not very happy people these days. Their margins are down too. They do not get the respect they deserve. Their lives are boring as they have to peddle sterilised content and it's not fair because their digital counterparts get to play and write history before their eyes. They are stuck in an investment-heavy industry involving millions, unlike agencies, and they are constantly exposed to the frailties of media indecisions where Nielsen's metrics are the only game all wish to swear by, and conveniently so.
In a world starved of critical thinking, the destitute planner unwittingly foretells the fate of media owners in isolation. Especially smaller media, who only appear on the radar in some bottom drawer somewhere. While the Audit Bureau of Circulations is just another blip in the glorious voyage across the Malaysian media universe.
Manpreet adds, “Media owners in most cases are at a receiving end from media agencies, they are preached by media agencies on how to run their business without a clear understanding of their business model and challenges. Hence, the small and smarter owners have started bypassing agencies and are developing stronger relationships and offering integrated solutions (ATL & BTL) directly to clients. That is their creative route to survive by selling engagement and not reach.”
Are we seeing a perfect storm looming on the horizon? A digital vengeance that'll witness a dystopian meltdown of this big brother culture?
To paraphrase a famous Apple TVC, inspired by George Orwell's novel: ‘You'll see why 2014 will not be like 2014!’