Media Blogged

Advertisers should deal with holding companies as well as agencies

If in the last two years, an advertiser, having sorted out the media agency terms of business, thought it was safe to get back in the water, it's time for a re-think.

A new type of agency relationship is being created that demands a change in the rules of the game for advertisers.

Most of the advertiser-media agency contracts that I see certainly get the basics right. The nature of the service required is adequately specified. The level of media owner commission rebate negotiated is adequately articulated. Elements of PRF (Performance Related Fees) are now the norm rather than the exception. Dates of service reviews are invariably set out. In the majority of cases the advertiser requires an independent audit and there is an agreement that discounts earned by the agency from media owners are remitted and the advertiser charged at net not gross rates.

All that was wholly satisfactory but not now.

Not so long ago the media agency was its own trading entity with media owners, but no longer. There are now two media agency entities - the media planning and buying agency, looking after the advertisers' best interests, working alongside but separate from the media agency holding company, responsible for maximising the group's, not the advertiser best interests.

So whilst the advertiser may enjoy a confirmed relationship with mutually agreed terms of business with the chosen media buying agency, very few advertisers have terms of business agreed, let alone signed off, with their media agency's media holding company.

At one, this was time not a problem for the advertiser. But today, and depending on market and country, the five media holding agencies have grown to own between 60% and 75% of the media traded and have in effect become the "new media owners". These market dominant media holding agencies negotiate over rider deals with media owners. They in total, are paid more money by media owners than the media buying agencies get paid by the advertiser. And it's the media holding company that controls the allocation of the over rider deals. So the terms of business ensure discounts earned by the media buying agency are rebated, but this takes no account of what happens to, and who gets, the additional discounts earned by the media holding agency

An advertiser enjoying terms of business just with the media buying agency is unknowingly at the wrong end of the media negotiation argument, until and unless the advertiser specifies additional terms of business with that media holding company. In the absence of this feature the media holding company is responsible only to its shareholders and never to the advertiser.

Today the astute advertiser recognises the sea change taking place in media transacting and demands terms of business with the appointed media buying agency and that agency's media holding company.

John Billett has an extensive and established career in business, commercial communication effectiveness, marketing evaluation, advertising and media. An entrepreneur and former leader agency leader, he now runs his own consultancy.

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