There’s constant internal pressure in all well-run businesses to contain costs. One way for advertisers to surface sub-optimal practices, as well as pools of financial ‘fat’ that can emerge and accumulate over time, is a media review. It forces recalibration, it’s good practice and some companies even require one periodically as part of their governance routines.
However, advertising can be expensive when it’s done well, and the market’s blanket expectation that media reviews will lead to lower prices evidences a misunderstanding of business and the industry’s value chain.
Let’s say you’re an advertiser – perhaps a largeish one with a chunky media spend. If you’ve been doing your job properly, you will already have negotiated keen price positions with the major media you use most. If you haven’t – well, let’s not talk about that, as you might not be employed for much longer.
These positions, as in any trade, will be linked to the volume of business you place. They will also be sweetened by the share of money you spend with each competitor in a vertical over another (eg ITV vs Sky, The Times vs The Telegraph, etc).
The media owners obviously track the business they do with you and syndicated industry sources give them a pretty good idea of your spend history with their competitors too. If your spend and/or the share of business you put with them declines, they are less likely to offer you such favourable terms, and vice-versa.
Why would a media owner (or any other supplier) change their pricing without a commensurate change in the terms offered?
So unless your spend or behaviour changes positively at review, there’s nothing in it for the ‘suppliers’ – the media owners. Bar excommunication, the threat of a review is marginal and only rattles the weaker ones.
However, that’s not what you see as a client because you typically use a media agency to negotiate and buy media on your behalf. For the last 20 years or more, and in response to their clients’ procurement demands, media agencies’ business has largely been built on winning and keeping enough spend to give them leverage in what their clients have come to see as their core function: media buying.
This leverage enables them to negotiate keen prices from the media, which they can then pass back to their clients in return for incremental rewards.
The media agencies have evolved to buy in bulk but then price according to each client, so those brands that leverage their positions better (via knowledge, scale and frequent performance audit) tend to see the better end.
This price juggling is an art form in itself. Suffice to say that, to get the best prices, the way all-important TV has come to be traded requires an agency to have a balanced spread of clients targeting different audiences (housewives, men/women, younger/older, up- vs downmarket). A particular agency may be able to pitch a particularly good price to you if your business restores the balance of their trading book.
The dark arts of media reviews
Despite what’s going on behind the scenes, what you as an advertiser see is a bunch of agencies hungry for your business, each promising cheaper media prices. What’s not to like?
Well, let’s go back to the media owners whose airtime assets are under discussion.
They’re often unaware of what agencies are charging for their media. They tend to become aware either when they can forge a direct relationship with the advertiser in question – wherein it becomes apparent that each is talking about a different price for the same thing – or when media agencies call and ask them to drop their rates for a pitch.
Why would the media owner (or any other supplier) change their pricing to without a commensurate change in the terms offered to them? Like you, they tend to be publicly-quoted or private equity-backed. You wouldn’t do business with your customers like that, so why should you expect them to?
Media agencies buy in bulk but then price according to each client, so brands that leverage their positions better see the better end.
In truth, there are only three ways you as a client are going to get the better pricing you’ve been led to believe you’re entitled to. The first is by being persuaded by the agency to change your spend profile with the media quite significantly, which happens sometimes.
The second, more common, way is allowing the agency to withdraw media spend from the media owners that you most want to do business with, and instead letting it bully the ones you don’t. It has always been possible for any media agency to deliver a ‘better’ media price thus, and the superabundant supply of online ad impressions has greatly accelerated this.
But there’s a significant downside. Reach tends to suffer, though frequency increases; viewability is not subject to the same rigours; brand safety is less assured; and ad fraud is a serious concern. Cheaper is all too often nastier, after all.
The third way is actively allowing yourself to be subsidised by the agency’s other clients. Fair enough, business is business, etc, but I’d love to see you come clean on that in your annual report.
Paradoxically, it could be argued that the weaker players have driven the behaviour of the market because clients can’t (or won’t) tell the difference between how they achieve their prices. Fortunately, this absurdity looks like it’s finally coming to an end as new businesses and tools are coming to market to prevent it.
Many industry leaders now believe that the industry is due for a ‘reset’, though huge vested interests, particularly in media buying, have been built up. It will take time for them to either evolve or face deserved extinction.
Bob Wootton was director of media and advertising at ISBA and is now principal of Deconstruction Consulting.