Integration Fees Are on the Way Out at Nets

NEW YORK For decades, network integration fees have been an irritant to advertisers and agencies that argued they were a relic of the past. But after years of insisting the fees were necessary, the three broadcast networks that impose them — ABC, CBS and NBC — have agreed to phase them out.

While talks between media agencies and the networks began over the summer, deals were wrapped up just two weeks ago, when contracts for this season’s upfront ad buys were formalized.

So far, GroupM has made the most progress, negotiating with all three networks to eliminate fees for clients at all four of its media shops, including MindShare, Mediaedge:cia, MediaCom and Maxus. Rino Scanzoni, chief investment officer, led GroupM’s negotiations with the networks. He declined to discuss details of the talks. A GroupM representative confirmed the agreements, commenting, “We have resolved the integration issue for our clients.” But the rep, like Scanzoni, would not divulge details.

MediaVest cut deals to eliminate ABC’s fees for a majority of its clients, while it continues talks with CBS and NBC. “We decided that this was the year we wanted to push the issue of eliminating integration fees during the upfront,” said Donna Speciale, president, investment and activation at MediaVest. “All three networks were willing to listen and discuss ways in which we could eliminate the integration fees. ABC gave us some options and we were able to reach an agreement.”

Speciale said the agency had to get each client to sign off on the agreement, and some decided not to. The agency discussed eliminating integration fees with CBS and NBC during the upfront, she added, but did not finalize deals. Speciale declined to discuss terms of the ABC deal. She said she was optimistic about ongoing negotiations with the other networks.

Agencies and advertisers have for years complained about the fees, which totaled $125 million in 2007, per an estimate by TargetCast: TCM. They were originally imposed back in the early days of television, when commercials had to be inserted into programs manually.

Critics note the insertion process has been automated since the ’80s, costing the networks little if any time or effort to integrate spots into programs. The younger networks, Fox and The CW, do not charge integration fees. In February, the Association of National Advertisers and the American Association of Advertising Agencies tried to put together a task force that would include reps from the trade groups, clients, agencies and the three networks to discuss reducing or doing away with the fees. ABC and NBC declined to participate, arguing that discussions should be in private and be limited to the networks and their clients.

CBS agreed to a meeting, where it justified the fees
, arguing that spots are often delivered to the network in need of adjustments and that there was a logistical cost to getting them broadcast ready.

Why the change of heart? ABC declined to comment; CBS and NBC would only confirm that talks were ongoing. But a senior media agency executive said, “Clients are becoming more partners with the networks, as opposed to just being a vendor or seller of ad time. The network sales executives realize there is no justification for integration fees today…So little by little, behind the scenes, they have been trying to come up with ways within their revenue models to phase it out.”

It was unclear how many other clients or agencies were negotiating with the networks. But, said another agency executive, “You can assume those talks are going to multiply pretty fast once word of these deals gets out.”