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Media agencies usually pay publishers on behalf of their clients, but not at the independent shop, Acadia. Its leader, Jared Belsky, has convinced 98% of the marketers he works with to pay suppliers directly, instead of entrusting that to his agency.
Belsky, who once led Dentsu’s 360i (now part of Dentsu Creative), told ADWEEK that opaque media transactions leave many clients wondering where their money goes, what discount they get relative to other clients or which media suppliers their agency’s committed to buying inventory from. Belsky suggests clients transact directly so that their media supply chain is more transparent.
Sometimes transparency issues arise because of large agencies’ buying clout—a term that references how agency groups pre-negotiate with media suppliers and trade bulk buys for inventory discounts. Like buying wholesale products, marketers who spend more money with a publisher snag discounted rates. Those who spend less, or don’t have a rate locked in, can get worse deals.
When this happens, smaller clients wind up paying a higher rate to balance the ledger. Essentially they foot the bill, allowing clients who spend more to enjoy bigger savings.
Another former holding company executive who spoke with ADWEEK anonymously confirmed this.
“You can’t have every client be your ‘lowest cost,’ because then you can’t get the savings,” The source said. “You have to decide where the savings is going to go. You can either spread it evenly across all clients or bring more savings to a smaller group of clients.”
Even smaller clients might secure below-market rates, but some marketers benefit more than others. According to Belsky, clients spending $50 million or less on media are more likely to pay higher rates than marketers with larger budgets.
All clients aren’t equal
During media reviews, some clients negotiate competitive rates with prospective agencies. According to current and former agency leaders, it can be common for agencies to promise clients lower rates than their media suppliers are willing to sell for. That creates a budget imbalance that agency leaders must address. It doesn’t always come at other clients’ expense. Sometimes an agency will even temporarily slash its fees to land the client, a source told ADWEEK.
“If you’re an agency or a fiduciary you are conflicted between giving advisory services, which is what an agency should be doing, and providing a financial benefit—back to your client and yourself. What we always say is that you can’t be both the doctor and the pharmacist,” Kamran Asghar, CEO of the independent media agency, Crossmedia told ADWEEK. “When you’re an agent and a principal, there’s a conflict of interest.”
But regardless of how, agencies must fulfill their financial commitments to publishers. This indirectly incentivizes agencies to allocate a predetermined amount of spend to specific media properties.
“Often those able to give something back to the agency,” said Bill Duggan, group evp at the ANA. Theoretically, these guarantees cut into the budget buyers could direct to niche or special interest publishers.
“There could be some media properties that say, [if you spend X with me], I’m going to give you free ad space for you to do whatever you want with,” said Duggan. Whether or not agencies accept the perks comes down to what the client’s contract says. “The client needs to make sure that they have contractual language that allows any free [ad] space to go to them, rather than to the agency to do with as they please,” Duggan added.
Clout’s benefits and downsides
Media inventory discounts are not inherently bad, since they still benefit clients—especially big ones. If those enterprises managed publisher relationships directly, they would be, as Belsky put it, “awash in paperwork.”
Forrester Research principal analyst Jay Pattisall echoed that sentiment, noting large brands must delegate more to their agencies, and that a marketing department spending as much as a billion dollars on media could find managing publisher relationships at such a scale both cumbersome and complex.
Belsky’s client, Yogi Jashnani, is the chief revenue officer of trampoline park and indoor entertainment company, Sky Zone, and also oversees its marketing. Before Sky Zone, Jashnani led digital marketing for Capital One’s approximately $1 billion U.S.-based credit card business. Now that he’s working with Acadia, he’s taken Belsky up on the option to pay publishers directly.
“Wherever there’s billions of dollars at stake like in [the] media [business], there’ll be incentives to justify the means conceptually,” he told ADWEEK.
In the 2010s, in his role at Capital One, Jashnani set up direct deals with publishers like Google, Yahoo and AOL. It was especially uncommon then.
“We were going direct because we learned pretty painfully that the opacity in the system meant that when we tried to measure the impact of our dollars, there was always smoke and mirrors,” Jashnani said.
Sometimes, when his agency team negotiated a deal with a publisher, Jashnani knew the agency would “ride on the back” of that deal, to provide better rates to its other clients.
That never bothered him, since he knew that the smaller brands piggybacking off his deal also received a discount they may not have otherwise. The CMO also understood how such deals could become harmful to smaller accounts.
“It’s obvious that [agencies] are committing to a block. Then to meet that block, [agencies] are going to force clients to buy that inventory. When I say it that way it seems obvious. The agency world knows this, but fewer marketers know this than they’re supposed to,” he said.
What marketers should ask their agencies
Brand marketers should ask their agencies for more information, including how competitive their rates are relative to other brands on the agency’s roster, Belsky said. Requesting a list of the agency’s pre-negotiated deals with publishers can also shed light on potential biases, he said.
“What clients seem to be tired of is not being given options, not being [shown] how it works and—especially for some of the midsized advertisers—not having more choice,” he said.
Since obtaining information about other clients’ rates is unlikely, Duggan encourages brands to draft airtight contracts that protect their interests.
Despite its benefits, the current media buying workflow raises questions like whether the system functions in all marketers’ best interest and if agencies can ethically pre-negotiate deals with publishers before knowing what clients truly need.
The ANA plans to release new transparency research as soon as next month. In 2016, the ANA published another report that showed agencies received cash rebates from publishers, from as little as 1.67% to a whopping 20% of the agency’s collective media spend with the publisher. The more the agency spent, the better the incentive.
