The Trickle Down Economy: The View From The Other Side

By SuperSpy 

The economic recession is a trickle down system from brands, to agencies, to production companies to post-houses. Agency honchos are constantly in the press talking about their forecasts, feelings and strategies. Meanwhile,little attention has been paid to how the rest of the stops along the food chain plan on surviving the storm. We decided to talk to three shops, Click 3x, The Wilderness and FreeAssociation, about the changing nature of the production business.

In case you missed it, Omnicom has issued a tough sequential liability clause in contracts, which states that production companies will be paid when agencies are paid by marketers. Normally, production houses see half of the bill upfront. This allows them to begin the expensive process of either shooting (paying for locations, equipment rentals, crew) or kicking off the arduous process of say, animation work. No longer. Now, all that cash must come directly from the coffers of the production agency without any safety net.


In response to such practices, Michael R. Piliero, Creative Director at Brooklyn shop FreeAssociation told us that: “We do not agree with the policy of sequential liability from agency to vendor. And we do not employ that policy when dealing with payments to our team members and vendors.  It’s a seedy practice that is unfortunately employed quite often. We do, however, understand that no company is immune to hardship. Through honesty and communication we often are able to establish reasonable modifications to compensation amounts and schedules.”

Other folks have called for a seat at the table if this is going to be the future nature of the relationship. Jason Mayo, partner/managing director of Click 3x (pictured right) and a member of the AICP East Coast Board told us that: “As a business owner, I would expect to have contact with the agency’s client from the start in order to have a clear line of communication about payment schedule and expectations. I would even go as far as setting up payment directly with the client if possible. Otherwise it’s not fair. It’s standard to do credit checks on clients as a precaution. I can’t do a credit check on a client that isn’t paying me directly. The other thing that I think would help curb the risk a bit is to have agencies start adhering to the current AICP payment guidelines, which is 75% up front and 25% upon completion. It would help lower the risk and perhaps put production companies a bit more at ease.”

Whether Omnicom could agree to such terms? Highly doubtful. As Adweek noted, this Omnicom policy is sure to bring a bitter taste to the mouths of production company CEOs. However, animosity is nothing new between agencies and so-called production teams. One clear example would be the Cannes/BBDO/Big Spaceship debacle of last year. That situation revolved around who was responsible for the award winning HBO Voyeur campaign. Many firms are now focusing on their strategic, creative offerings, rather than ability to produce.

Michael Piliero said as much to us. “Regarding the BSS/ BBDO debacle, it really depends on the circumstances of the engagement. Occasionally digital agencies just execute polished creative; more often than not a good bit of collaboration is required to establish core-creative direction. That’s why we call ourselves a Digital Agency, and not a digital production shop. We are not merely a team of worker bees, we are creative thinkers, mavens and strategists who are in business to evolve and elevate, then execute.”

As well, Gelya Robb, executive producer of The Wilderness (pictured right) noted that change is afoot on both sides: “It’s no secret that agencies are only as good as their vendors and the climate is perfect for the “antiquated” system to naturally change. We are finding that agencies are more communicative at the beginning stages of production as they are needing more one-stop service and becoming more forth coming with credit at the end.”

Moving forward, how are production agencies going to survive this new economic climate? Just like agencies, production shops are becoming more focused on not only pushing their dollars further, but investigating new revenue streams.

Robb says her shop is just getting more creative. “We are finding that this time provides an excellent opportunity to become more efficient with our production process and therefore more creative with our production costs. For instance, considering whether we can attack a job doing more shooting versus CG in order to achieve the desired end result at a lesser expense. We are definitely working on building relationships with some new model boutique agencies as well. That is, those companies that have a more direct to brand approach and that require more from us and at at an earlier stage in the process through to the end. This includes concepting, direction and finishing. As the industry has been changing in the past few years, we’ve grown our design collective to a full-service shop and this type of project is actually what we ideally want to work on.”

Piliero shop is also looking at “-new billing models for certain entities. We are definitely not as lax with payments as we used to be having already seen a few entities go under while still owing us for completion of a project. In addition, we are diversifying our clients and clients’ sectors, going direct to brands whenever possible, and building up our rainy day fund!”

Jason, from Click 3x, threw in that: “For us it’s simply trying to create multiple streams of revenue from various different sources. Any business that puts all their eggs in one basket is asking for trouble. Our core business focuses on advertising but we have strong client relationships on the entertainment side as well as network broadcast design. We’ve put a lot of focus on the interactive side of the business.”

His shop is seeing 20% of their business come through the digital pipeline. “Personally, we’ve adapted not only the core talent and structure of our capabilities, but also the physical space to help better integrate the digital side with the traditional side. It’s an amazing time to push forward and execute across multiple platforms.”

The expectation is that digital will keep the advertising industry a float. Piliero sees this happening. At least for his shop. “Our working theory is that digital has been enjoying a significant upswing, and everything else (literally) is going down the tubes, so perhaps we balance out with a solid year, however without much growth. We are seeing some budgets getting cut, and competitors low balling bids to get work. But we’re still winning projects and keeping extremely busy, so we’re thankful for that.

All three shops are not desperate yet. FreeAssociation is working on sites for Stacy’s Pita Chips and Viacom. The Wilderness is going ahead with new work for McGarry Bowen shot with Henry Lu of Moxie Pictures and music videos, one with Columbia. And Jason’s Click 3x has added an in-house green screen shooting stage on the premises and are on the verge of announcing a major addition to their broadcast design capabilities as well.

As Jason told us: “I’m certainly scared shitless but totally pumped at the same time. Remember what Mickey said to Rock, “No Pain No Gain.”