If media agencies really are serious about reinventing their offering, then remuneration is going to need a major overhaul.
As agencies seek to provide strategy and creativity rather than simply a trading service - the commission model is expected to become redundant.
John Billett, chairman of media and marketing consulting group Billetts has said: “Clients want ideas, but measurement and remuneration is based on buying performance... there’s a real tension between the model where we make money from the more cost we add, and clients who make more money the more cost we take out.” The question is: What’s the alternative?
1 Agencies are looking harder than clients for alternatives to commissions and timesheets, says R3 principal Greg Paull.
“Often, the clients would rather fix a fee and be done with it.” Results-based incentives are, Paull says, being increased from a token five per cent of total payment to something more meaningful, like 30 per cent, though in China, for instance, only about 20 per cent of marketers pay any incentive-based sum. In the US, it’s close to 50 per cent.
2 Adidas Asia-Pacific CEO Christophe Bezu thinks that sharing intellectual property is a likely way forward. Reducing the agency’s fee but sharing these rights to content created for the client, or indeed having the rights rest entirely with the agency, can help an agency diversify its revenue streams. At the same time, clients reduce their exposure to risk. But for many agencies, of course, introducing an element of risk into its monthly financial reports is not always welcome.
3 When Seattle-based WPP agency Cole & Weber United created a TV sitcom for Rainier beer, it owned all the rights. Another approach is that of GroupM Entertainment, which co-developed the drama series October Road, co-produced with Touchstone Television for the ABC group, again in the US. The IP is shared, and GroupM took a share of the ad inventory on ABC, which it could then sell on to its clients.
Another agency has made a more radical departure from the old payment system. Anomaly, based in the US and expanding this year into Europe, charges clients based on what it calls “entrepreneurial and value-based systems, and we never charge for time”.
Anomaly is co-launching a new range of skin-care products called Eu; ownership is split between the agency, a chemist and investors.
4 In Asia, this kind of thinking is starting to happen, though the idea of a royalty for media agencies is “still the holy grail”, Paull says, adding that a direct line to the CEO helps immeasurably. In one case in China, a media agency tasked with increasing sales of a drink brand by 10 per cent was paid by getting one per cent of the extra revenue.
5 One big hurdle in the way of more creative payment schemes is the rising prominence of procurement, which may struggle to put a value on a creative idea and believe they’re being asked to pay over the odds for a service by building in new, long-term elements to a contract.
Another challenge comes from client-side marketers, who have traditionally had sign-off at every stage of a campaign; if they start sharing rights and potential profits with agencies, they have to loosen their grip on the reins, something that’s difficult for many to do.
6 Sharing rights ownership can also, potentially, spell trouble if there are different views on how to take a brand or project forward, and if the client and agency decide to split.
Getting the fine print sorted out in contracts is therefore essential. Stephen White at UK-based media consultancy EMM says smart clients should retain the rights to all work done for them by agencies, and pay a one-off creative fee for the agency’s contribution to it.
But how do you put a price on an idea, before you see whether or not it works?
7 The new payment model is still a work in progress. Says Janet Fitzpatrick, global communications planning director with Initiative Worldwide: “There will be no one model. We have to learn to be comfortable with ambiguity.” Adds Paull: “The future is when you’re rewarded for the value of your contribution, not just with a bonus for the sake of it.”
What it means for…
Media agencies
- If you’re good at what you do and deliver great results for your clients, rewriting the rules means sharing in the spoils. Of course, if you’re mediocre and don’t deserve anything, you risk going home empty-handed, no matter how many hours you have put in.
- Given the fragmentation of media, agency verticals need to be incentivised for encouraging collaboration, without - significantly - losing intensity in the vertical business line.
Clients
- If you have ever been disappointed with your agency’s work or felt the fee wasn’t justified by the results, you can now change all that. Pay them well when they do well, and not just in fees but in more creative ways.
- Convincing your procurement team this is the way forward can be tricky, though, as is finding a way to enter this kind of arrangement on your monthly expenses spreadsheet.