Bring back 15% agency commission, Redux

February 26, 2010 § 1 Comment

Of all the posts made in this space over the past year none has garnered more interest – leastwise, page views – than the one that proposed a return to 15% ad agency commissions on media spending. It has had many companion pieces over the year (this one, this one, or this one, for instance), but there it was again today, as it was yesterday, as it was the day before, the second most viewed post in the catalogue of Top Posts & Pages on the Burst Blog.

The American Association of Advertising Agencies (AAAA) will convene its “Transformation 2010″ conference in San Francisco this Sunday, combining their annual Media and Leadership conferences into a single event attracting agency Heads-of-State from across the country. In anticipation, as an open letter of sorts, here again (below, with minor edits) is the entreaty that was made nearly one year ago, exactly, to fix agency compensation.

* * * * *

March 16, 2009

Bring Back 15% Agency Compensation

Another conversation over lunch today with a long-time media industry executive who was full of enthusiasm for a  media planning spin-out currently incubating inside his ad agency. He brought with him more data supporting the fact that TV and newspapers get a disproportionate amount of the ad dollars relative to audience penetration. He hopes that his company’s solution will offer more media planning neutrality to repair some of that dis-proportionality and help truly engage consumers. A great idea.

So, I launched into my current riff that media planning, as it stands, can’t afford to be neutral. Fees currently paid to media planning and buying companies cannot sustain deep dives into new media – notably the Internet –  even though it is well-known and documented that that’s where the people are. My friend acknowledges that the costs of buying online are 3x – 5x the costs of buying TV or print. “A page in the Wall Street Journal!” he exclaims, “Cheap to buy. Very profitable.” Is it any wonder to us that newspapers still enjoy a greater share of overall ad dollars than the Internet?

I was impolite enough to ask how his new media enterprise will get paid for its work. “Well,” he said, “Agency commission, of course, is dead. We work on hourly rates.”

Rats. This is our problem. Fees and hourly rates. It means new media is not cost-effective to plan and buy. There’s too much of it. The consequence is that traditional media forms such as TV and newspapers continue to enjoy allocations that exceed their value in today’s multi-layered information marketplace. The consequence is also that online display advertising continues to huddle around a handful of larger, branded properties – something like 70% of ad dollars on the top 10 web properties is still the reported norm. There is not the financial incentive or capacity to venture deeper: We know the oil is there, but we can’t afford to drill for it.

We can fix the problem by spending more online and leveraging existing cost structures. This should be our first choice. But while I, personally, don’t think it’s fraught with too much peril, clients may disagree who want POVs and appropriate metrics assigned to every new possibility. Alternatively, we can fix agency comp.

“What do you suggest,” my friend asked?

“A return to 15% agency commission,” I answered. Let’s face it, the oil-drillers online are getting paid substantially higher rates than 15% arbitraging – i.e. planning and buying – media budgets. And, it’s not transparent. Restoring agency commission in a new media world restores an important degree of accountability in a process that is currently rewarding older, shrinking media platforms, and undermining growing media platforms.

“Good luck,” said my friend, in a tone that meant, “That’ll be the day.”

Yes, well, but the alternative is to side with those who say the days of ad agencies are over – that they are relics of an old media age along with old media. 

Is that why media continues to be allocated disproportionately to traditional media? Because agencies see newspapers and TV as extensions of themselves and feel duty-bound to save them? Do we think twenty-five year-old media planners who don’t know much of life before Yahoo!, and grew-up on Facebook and MySpace are determined to save newspapers and television? Do we?

No. I don’t think so. We need to fix ad agency compensation.

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