An Ad Agency Veteran’s “Inside Baseball” Views on Agency Fees

Trial by Fire or a Chance to Reinvent an Entire Industry?

 

 

Editor’s note: This article represents one perspective from an advertising agency veteran who examined commissions and cost structures of ad/media agencies. We welcome other perspectives from those in the industry to weigh in and participate in the ongoing debate.  

ANA (Association of National Advertisers) meetings tend to be, like other big ad industry conclaves where luminaries present papers, people get to network and vendors present the new new. So, when Jon Mandel, ex-CEO of Mediacom, dropped his “kickback” bomb, it was the proverbial “elephant in the room”. I can just imagine the collective “oh, sh-t” thought but unsaid by just about everyone in the room.

For those who have not been part of the media scene –or have been living in a monastery for the past few decades—media kickbacks (also known as AVB’s or Agency Volume Bonifications) are a way in which large media, first, buy market share and second, create their own versions of a Frequent Flyer program. AVB’s are extra commissions given to agencies for the total accumulated volume spent in that medium. There are countless ways in which agencies can account for that income in their ledgers (for example, doing work for XYZ company which is owned by medium ABC and which “pays” Agency DEF for its “services”) and which even experienced auditors may overlook.

This, however, is not about AVB’s, but about, first, what happened after the bomb was dropped and second, about using that cathartic moment to reinvent what everyone acknowledges is a dysfunctional industry.

So. What happened?

The bomb dropped in March.

In March, it seems that many agency (media and otherwise) chief categorically denied that they got AVB’s. It also seemed that every large advertiser’s ad boss reiterated his/her full trust in his/her agency’s total transparency, honesty and virginity.

By end of April, barely six weeks after, Irving Gotlieb, Chairman of the hugely powerful Group M, had some honest feedback into the whole affair. In an ANA meeting, he said “The relationship between media agencies and clients has gotten to the point that the term “agent” no longer fits”. Then basically went on to acknowledge that AVB’s exist and that clients were not only well aware, but often asked for them.

By mid-June, the fast-reacting ANA had finally figured out what to do. So, ANA President Bob Liodice said that an RFP for a consultant to investigate the matters would go out “within the week” but that the deadline for submissions “was still being finalized”. So, that was fast.

By June, also, 16 large advertisers had announced full or partial media pitches involving a potential $42 billion in advertising. So, that was a show of confidence.
 

Account

U.S. Measured Media Spending 2014 (in MM)

U.S. Measured Media Spending 2013 (in MM)

Worldwide Measured Media Spending 2013 (In MM)

Procter & Gamble

$        2,657.6

$        3,105.1

$      11,107.5

L’Oreal

$        1,429.4

$        1,562.2

$        5,890.8

Johnson & Johnson

$        1,043.6

$           981.5

$        2,012.0

General Mills

$           829.8

$           851.4

$           991.0

Unilever

$           804.2

$           769.7

$        7,859.6

21st Century Fox

$           767.5

$           682.6

$        1,069.9

Sony Corp.

$           620.2

$           559.8

$        2,725.7

Coca Cola

$           405.9

$           316.8

$        2,895.6

Volkswagen

$           604.9

$           526.4

$        3,226.8

Sears Holding Corp.

$           429.7

$           586.7

 

Daimler

$           338.2

$           331.8

$           908.2

Citigroup

$           332.4

$           361.7

$           434.9

Coty

$           211.7

$           221.0

$           506.9

BMW Group

$        1,985.0

$           167.4

$           716.4

Mondelez Intl.

$           179.1

$           181.4

$        1,766.2

Visa

$           113.0

$           128.6

 

Total

$   12,752.2

$   11,334.1

$   42,111.5

And, also, for the first time, some agencies are publicly saying that they will not participate in some of the media pitches.

Next- Reinvention after a cathartic event?