P&G Rethinks Production Houses

Creative agencies generally have free rein and a wide field to choose from when hiring production companies. But in the current era of compulsive cost control, this is changing. One large global marketer is rewriting the rules for the hiring of production houses with an eye towards exerting more control and reducing costs, with another said by sources to be making a similar move.

The companies, Procter & Gamble and Reckitt Benckiser, are in the process of pre-selecting production houses that its agencies will be expected to use. P&G confirmed its new process; London-based Reckitt, whose lead global creative agency is Havas’ Euro RSCG, could not be reached for comment, but sources said the company was heading down a similar path.

Each marketer is conducting its search in stages, with P&G, for example, looking at pre-production firms first, followed by production companies and then post-production facilities, said sources.

Essentially, these advertisers are seeking to reduce the number of production companies they employ overall.

“Yes, we do want to reduce the number [of production companies], but it’s really about getting the best quality and the most efficiency,” said a representative for Cincinnati-based P&G, whose creative agencies include Publicis Groupe’s Saatchi & Saatchi, WPP Group’s Grey and Omnicom Group’s BBDO.

The rep further described the shift to establishing a roster of production companies as an “evolution” in how P&G operates, adding, “We’re always looking at how can we do business better, how can we be more effective and efficient.”

P&G, which last year spent $8.6 billion on global advertising, would like to slash its total from an estimated 125 last year to 30, said sources. Also, the packaged-goods giant wants to lock in the prices it pays for everything from lighting and labor to stage expenses and the mechanics of a shoot. Sources said that such prices would be set for two years.

In return for agreeing to these pricing arrangements, the selected production companies would achieve “preferred vendor” status. Agencies working for these brands would then have to choose from among those production shops.

The companies chosen are not likely to be guaranteed a specific quantity of work, leading some to liken such pre-selection to getting a union card rather than achieving meaningful business security. (That’s not to say they’re not interested.) Some 70 production houses are believed to have received an RFP from P&G last month.

P&G and Reckitt, whose global ad spend last year is estimated at $1.3 billion, still expect their creative shops to manage the production partners, including the processing of their bills, according to sources.

P&G previously set limits on the types of production houses that agencies could use. For example, it has deemed firms that shoot in 35mm film as too expensive, according to a source.

But this move goes further to reduce choice.

As one source put it, “The agencies are on board with these plans because they have to be. But they hate it.”

The P&G representative said the company hoped to set its roster in the fall. P&G’s procurement department is leading the selection process.

P&G’s creative agencies recommended production companies at the start of the search, but will not be involved in the final selections, according to the rep.

Reckitt is said to be working with London-based MurphyCobb & Associates, a production-cost consultancy, which did not respond to requests to comment.

Sources expect both clients’ new roster approach to hiring production companies to take effect next year, after the rosters have been set.

Production-cost consultancies, which also include Ernst-Van Praag in New York, Bird Bonette Stauderman of Westport, Conn., and Admaniax Consulting Group in Los Angeles, have spurred clients in recent years to question what production companies charge for their various services, said Arthur Anderson of Morgan Anderson Consulting, who expects the trend to continue.

Matt Miller, the president and CEO of the Association of Independent Commercial Producers, thinks a focus on commodity costs misses the essence of what production companies provide.

“It’s not about what a light costs. It’s about how you’re going to use a light in a production,” said Miller. “The ingenuity of production isn’t the cost of the lumber, the nails and the lights. It’s about how you approach it and what you do with it. So, the idea of looking at the cost of items and saying, ‘All right, we’re going to pick people based on that’ is [misguided].”

Furthermore, Miller questioned the practicality of setting prices on goods and services whose costs may fluctuate depending on the vicissitudes of the marketplace. “They’re asking companies to agree to a cost structure that is not real,” Miller said. For example, labor costs may change because of the terms of collective bargaining agreements, he noted.

Some sources also wondered if a shift toward pre-selection by major clients will create rifts within the historically tight-knit production community.

Competitors, for example, regularly recommend each other for jobs if they’re unable to take them on. Now, with some companies making client rosters and others not, “it’s going to become far more cutthroat,” predicted one source.

Miller does not expect that communal dynamic to change. However, given the global influence of a marketer the size of P&G, many sources expect other clients to follow suit.

The heads of production at agencies, said one source, are “just going to have to deal with it.”


Nielsen Business Media