Poster specialists resist income cuts

Poster specialists are fuming over contractors’ proposals to slash volume discounts. But do they really need the extra money?

Poster buying specialists could be forgiven for feeling persecuted this year. Not only are two of their biggest sales points – Maiden Outdoor and Mills & Allen – cosying up with a new joint marketing initiative, but the managing director of Maiden Roadside, Francis Goodwin, has publicly committed himself to cutting specialists’ income by capping their commissions to a flat five per cent.

The move will force specialists to confront the advertising agencies (often the specialists’ owners). It is not unusual for agencies to negotiate two per cent out of the poster companies’ five per cent commission, in return for awarding them business. If specialists lose out on the contractor side of the equation, they argue, they will be forced to claw it back from the agencies, which in turn will charge advertisers more and discourage investment in outdoor.

Goodwin says he wants to cut these additional revenue streams to make the outdoor industry more transparent for advertisers which don’t have enough time or specialist knowledge to police what is sometimes a very small part of their marketing spend. He says the whole issue of transparency will become increasingly pressing across all media in the next three to five years.

His stance has prompted a mixed response from the specialists, with some reacting angrily to what they see as a slur on their industry from a company more suited to making profits than adjudicating on matters of principle.

This issue was raised most forcibly by Chris Morley, chief executive of Interpublic-owned IPM, at a Marketing Week conference. He accused the contractors Maiden and Mills & Allen of hypocrisy in describing volume discounts as a potential embarrassment (MW February 28).

His views were echoed by other specialists. “It smacks a bit of greed,” says one, who refused to be named.

Yet others see Goodwin’s proposal as a complete non-starter, which will rear its head then sink without trace as market forces continue to dictate.

“Realistically, I don’t see volume discounts disappearing,” says another specialist. “In any walk of life if you buy in bulk you expect to get a discount. It’s a basic market force.”

A five per cent commission has always been the accepted industry figure although none of the specialists Marketing Week contacted were willing or able to give a minimum level of commission at which they could operate if sur-commissions and volume discounts were no longer available.

In his speech, Morley quoted the Incorporated Society of British Advertisers as acknowledging “a satisfactory level of resource – including a field force – requires closer to seven per cent than five per cent”.

And he cited a speech made at an ISBA conference by Goodwin, who accepted that it probably cost six to seven per cent commission to run a “sizeable, profitable, properly resourced specialist”.

Yet Goodwin made this speech nearly three years ago, in April 1994. Since then, the industry has experienced a mini-boom thanks to better accountability, consolidation of ownership which has prompted large companies to offer better products and services and, most important of all, continuing the fragmentation of TV audiences.

Specialists’ business has increased. They no longer have to deal with as many contractors as the industry consolidates. There are more packages, and more quality products selling for higher prices. With more revenue, but no corresponding increases in costs, it could be argued that the accepted benchmark for the specialists’ commission is out of date.

One insider says: “It would need reinvestigating to see whether, instead of being six to seven per cent, it might be five to six per cent.”

Goodwin wants to ease recent industry friction by stressing his proposals to cut sur-commissions would be phased in over five years, with the first moves being negotiated during the next one-to-two years. He says: “If we were announcing war on the specialists we would do it overnight, not over five years.”

But he says it is time the specialists who don’t like him rocking the industry boat stopped living in the past.

“We are not the shabby little medium we were ten years ago. There is a sense of confidence in the industry,” he says.

Yet suspicions about Maiden’s motives have not been allayed. The company’s decision to link up with Mills & Allen in a joint marketing initiative has prompted further unease from specialists who would prefer to see any cross-industry issues handled by the Outdoor Advertising Association.

There is a cynical view that co-operation could become a cartel, and that Maiden and Mills & Allen will use their new-found friendship as a means to attract business for both companies.

Some even suggest that one day, given the right regulatory environment, Mills & Allen and Maiden could merge.

But the most significant reservation surrounding the Maiden plan, is that although it may indeed streamline current trading practice, it will end up throwing the baby out with the bath water.

As one specialist says: “If the last drop of blood is squeezed out of us by the contractors, advertisers will end up with a poorer service. We will just do a straight buying service without any added value.

“This is the wrong way of changing things in the buying chain – from the media owner side upwards. If change is needed it has to come from the advertiser downwards.”

What is inescapable in the debate is the unerring ability of the poster industry to appear divided. For the past two years, as billings have boomed and contractors have consolidated, it had seemed that the previously endless debates about specialists and their commissions had ended.

It is almost comforting to know the industry has not changed beyond all recognition.

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