How to come out on top in media trading

Media remains the largest component of marketing spend for most of you, and the annual media trading season, in which media prices are hammered out for the year ahead, is now in full swing.

Agency – and, more importantly, holding group – trading heads return from their nice summers (typically comprising lots of expensed golf with industry mates and a family holiday) and, thus refreshed, enter the quarter where most of their year’s real work is done.

Despite recently losing its crown to online as the biggest media channel this year, the key focus is still TV. It’s the biggest game in town for big-spending branded goods and services, so the stakes are high – but even the transaction of a media buy still hasn’t been comprehensively automated, let alone the trading, and media agencies often win (or lose) business on the basis of their TV price promises.

The clients that pay the most attention and pitch their business regularly tend to do best.

Put very simply, they aggregate their clients’ media plans to assess how much they will be spending with each major media owner and then negotiate in bulk. The underlying dimensions of these negotiations haven’t changed much in years – volumes and shares of money are traded with the media owners in return for advantageous prices and, in some cases, access to prime ad slots.

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TV is priced relative to a market rate derived from dividing supply of audience by total advertiser demand. Known as station average price or SAP, it’s a blunt old tool nowadays but an enduring one. The focus is on discount against this notional average, not absolute price.

Having traded in bulk, most major agencies then divvy it out to their clients in line with the price promises they have made to each – a form of arbitrage. The clients that pay the most attention and pitch their business regularly tend to do best.

Don’t let media trading distort your plans

As negotiations proceed, the first of many ‘adjustments’ are made to media plans so that they both fit into but also support overall traded positions. These continue and can get quite extreme towards the end of the trading year, as traders work to meet the commitments they made many months previously – and before many changes in clients’ marketing activities. This is a big source of agency risk.

Brinkmanship prevails and agencies can sometimes enter a new year with no agreement with some media owners. In some instances, especially in the case of serious impasses, no media are placed until a deal is struck. This is another high-risk area for an agency (think about brands selling cold remedies or holidays, neither of whose markets will wait around post-Christmas simply for a media deal to be struck). To avoid such ‘sieges’, interim media buys can be made without an overarching deal, on the understanding that prices will be reconciled later.

While the overall feel and shape of these negotiations hasn’t changed, much of the detail has. There are many more TV channels, including spin-offs and time-shifted versions of the main ones, catch up and on-demand, and the new and perhaps most exciting addition, addressable TV.

Pioneered by Sky, Adsmart downloads targeted ads to subscribers’ set-top boxes for seamless, undetectable, real-time insertion into their viewing. Targetable segments currently include the UK’s 124 postcode areas (the first two letters), possibly extending to the 11,192 sectors (the first three); as well as many consumption, lifestyle or life-stage descriptors. It’s now also available on Virgin Media channels and constructive discussions are ongoing with both Channel Four and ITV too. No news of BT yet.

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Given the dominance of the procurement discipline in many marketing companies and procurement’s strong patronage of media auditing as a measure, media traders optimise their media buys to pass audits first and deliver the nuances of clients’ briefs second. (They’re not always as congruent as you might imagine, so be careful.)

Despite some bluster, most media owners are not forecasting much growth in 2018. Ongoing political and economic uncertainty at global, regional and local level is not contributing to client confidence.

When there’s lots of money sloshing around, media trading is easier because everybody can somehow be a winner. Therefore expect this year’s trading season to be particularly hard-fought.

Here are some tips for coming out on top:

1. Pay keen attention to your media planning – is it zero-based, does it embrace all relevant data, consider all options and is it optimal?
2. Keep very close to your media agency and your media auditor as your media is traded for the coming year – ask yourself if it is being traded to pass audit or benefit the brand first and foremost?
3. Seek solid reassurances that, as the year progresses, your agency will not distort your media plans (beyond tight but reasonable tolerances) in order to restore their own trading positions.

Never be afraid to ask as many apparently naïve questions as you wish – it’s your company’s money at risk.

Bob Wootton was director of media and advertising at ISBA and is now principal of Deconstruction Consulting.