Uncooking the Books

Gone are media agencies' Brobdingnagian claims of marketplace "clout." Advertisers will not hear, "We place a gazillion dollars in network TV," or "We're the fastest-growing media agency in the nation." Why is this? Thanks to Sen. Paul Sarbanes and Rep. Michael Oxley, CFOs just won't allow it. Keeping tabs on a company's value is every CFO's fiduciary responsibility. Statements about media billings, about account wins and account losses, substantially affect an outsider's perception of a company's value. Although the billings-to-profit equation is not precise, it is indicative. Media billings are a barometer of an agency's financial health. The formula is straightforward: The greater the billings, (usually) the greater the agency's revenue; the greater the revenue, (probably) the greater the profits. Revenue, profits and profit margins impact financial value. So when a billings claim is made, in the context of account wins or growth from one year to the next, the casual observer and the stock-market investor alike will do the billings-to-profit math and draw conclusions—conclusions that might be dead wrong. The Sarbanes-Oxley Act of 2002 makes every CFO more "accountable" for their financial statements. Because the revenue and profits reported by CFOs tie back, directly or indirectly, to media billings, no CFO who wants to keep his or her job is going to allow the new-business pitch team to cite media billings. It's not about "public" announcements versus "in the conference room at the pitch" announcements. It's about possibly going to jail. This is more than a speed bump for new-business pitch teams. They must make quantitative claims. Advertisers want to know how "big" an agency is, and how much "clout" they have when it comes to negotiating for low media rates. Some advertisers believe the greater the billings placed in a medium, the lower will be the media costs. (Hogwash. But that's a subject of a separate article.) Getting over the speed bump is simple. Agencies need to publish their CFO-sanctioned actual media billings. What's the problem? There are two. The small one is that CFOs have not traditionally dabbled in billings. Billings don't pay the bills. Revenue does. Because the revenue-to-billings ratio is not the same for all accounts in an agency, CFOs will have to staff up and create systems for monitoring and reporting billings. Who wants to do more work? Who wants to increase operating costs just so new-business pitch teams can avoid making dangerously erroneous billing claims? The big problem is not a speed bump; it's a road hazard. Reporting actual billings will require a "come to Jesus" meeting. When agencies laid claim to gargantuan billings, it was the best of times, the age of wisdom, the epoch of belief. If they now have to report actual billings, it will be the worst of times, the age of foolishness, the epoch of incredulity. The truth is that agencies—many, if not all—inflated their billings. It was not an illegal practice. Perhaps they projected too aggressively. Perhaps they thought they could convince their clients to increase budgets. Perhaps they were just playing a game: Everyone wanted to be bigger than the next guy. Every agency thought that every other agency inflated billings to achieve advertiser perception goals, so most played the game. Game's over. Is there a better one? Yes. The better game is truth. Everyone is concerned about a wave of business scandals that trashed some people's faith in corporate America. That need not happen to the advertising business. Agencies need to fess up and make that one-time adjustment. There's no need for apologies, especially if every agency plays the new game. Agencies need to state what their billings really and truly are. The new numbers do not have to be compared to last year. Take that slide out of the PowerPoint deck. Wait until next year to claim growth. Won't it be refreshing? Won't it lift a burden? Won't it allow agencies to concentrate on more important things, if only truth be told? One of the great assets we have in America is our ability to recognize a problem and fix it quickly. The billings game is a problem and should be fixed. Quickly.

Brand Marketing

Uncooking the Books

Jim Surmane, Ceo Of Denver-based Mediaanalysisplus

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Jim Surmane, Ceo Of Denver-based Mediaanalysisplus