As originally published in Synergyzer Annual 2019
Being a media auditor, what is your opinion on the current state of the media industry?
In the words of Mark Pritchard, Chief Brand Officer – P&G Worldwide, “Media is murky at best and fraudulent at worst”, and I would not go on to suggest exactly that, but I would say it definitely is a lot of ‘grey’. And he – Marc Pritchard – was commenting about the global digital media scene where we have many, if not all, multinational agency networks working with the global digital giants. Compare it to the Pakistani industry and we only find one multinational agency network in the country and the rest are owned by a local individual. Although one may argue that Pakistan has the presence of some major global media agency networks, however we need to understand that they are affiliates, and that does not impact how the agency owners manage their business and financial dealings in any way. Since the agency owners are in the business to make money hence they make money either by informing their clients or otherwise. This phenomenon is a global issue which got highlighted by the Association of National Advertiser USA through K2 Intelligence Study and the Transparency Report which advised that “non-transparent business practices were found to be pervasive in media which were not limited to one agency or type of media”. Put this scenario in the context of the Pakistani media industry and you may have a Pandora’s Box waiting to get opened.
A counter argument that I have read many times in industry publications given by media agency heads and owners, is that we get audited by our clients and their independent auditors on a regular basis hence we are transparent. Media agencies came into existence taking over the business from traditional advertising agencies by suggesting that they were the experts in media planning and buying, hence the function should be separate from the existing advertising agencies. Similarly, media audit can only be conducted by a firm which has expertise in media planning and buying and not any financial audit firm. The idea of conducting media audits is to bring transparency to media transactions, not to ensure that they have been reported correctly in the financial statements according to IFRS (International Financial Reporting Standards). Hence, you can imagine the extent of grey there is.
Being as price-centric as it is right now, in what direction do you think our media market is going?
It’s not surprising that ours is a price-centric market. The media agencies came into existence suggesting that they can give better pricing than traditional advertising agencies. Their first step was to reduce commission percentage from 15% to 3% and in some cases, even to 1%. Hence the price war has always worked in favor of media agencies, specifically a few.
Unfortunately, this has overshadowed the planning side of media agencies. On the other hand, advertisers have benefitted from the reduced media pricing and commission fee as their apparent media investments have reduced. However, in the process, the emphasis on evaluation of reaching the right audience has taken a back seat. In some recent experiences with advertisers it perplexed me to see that media agencies, in order to meet the set KPI’s of CPRP and Reach included GRP’s from all other ad types. Imagine a post-buy suggesting 1500 out of 2000 GRP’s being accumulated through promo tails and product logos aired on television media, which in 99% cases are FOC (free of cost) whereas the actual advertisement which was developed to communicate the message, accumulated 500 GRP’s only. Advertisers have been looking for the agency which provided the highest number of spots in a given budget. Yet, it is high time they start looking for an agency which can provide the highest number of GRP’s from the given budget.
Who are the contributors to the scenario?
Media has always treated agencies as their wholesalers, allowing agencies to earn commission on sales, which has always been shown as 15% agency commission on their invoices. This is further established by an example where the PTV tariff card shows separate slabs for Annual Value Bonus (Bulk Discount) for advertisers and agencies. Similar is the case in digital where Google has separate incentive plans for agencies which place certain amount of business on their network. Further, the television media in Pakistan devises its tariffs on spot per minute rate, irrespective of the audience it delivers. The rates are set based on spending level or on the agency’s relationship with the media sales head and media owner. Hence, this scenario on media rates and the growth in television media put the agencies in the driving seat allowing them to maneuver the media industry as they deemed fit. The question is, how did they become this big? Like I just said, by collaborating with the media and getting them major advertisers. There was a time when it used to be a prestige for the media to have brands like P&G, Unilever or Mobilink being advertised on it, and it would make a bigger case for the industry to follow that particular media outlet; be it a TV or radio channel or newspaper, because they felt that this is where the audience is. Today we see these advertisers spending everywhere. So, what has changed over time? The media as well as the agencies have grown so much that wherever you advertise, it will give a reach number, albeit a small one. This is one of the reasons for the low priced number of spots.
TV channels have always incentivized agencies to spend more on their airtime, either through higher bulk discounts or lower spot rates. Yet, it is the advertisers’ money that both parties are dealing with hence the incentive that the media passes on to the agency should be routed to the advertiser. Also certain agencies have moved on to the fixed fee structure, according to which, the client is covering all the costs that the agency is incurring, as well as giving them the profit. This makes the agency the custodian of the advertisers’ money, and the agency should revert everything back to the advertiser. But is this something that is happening in our industry? No. Is it happening globally? No, but the global media is looking into it.
So at the end of the day all are contributing to the scenario: The clients are demanding the price reduction; the channels are giving the price reduction since they get volumes from these agencies. But the question is what are they achieving? The media is achieving what they want, i.e. volumes; and the agency is getting the incentives, but it’s the advertisers who are at the losing end.
While advertisers may be suffering the most in this scenario, TV channels are also unable to meet their expenses, as their revenues have reduced drastically. One of the factors is the stoppage of government advertising. What are the others?
If we look at the growth of the media, it has been exponential since independent channels came into existence. However, the TV channels have excessively raised their operational costs and expenses. Every new channel hired experienced people from existing channels at increasingly higher salaries, as well as famous anchors at salaries of over Rs. 2.5 million for doing 20 shows. This practice had a negative impact on the whole industry.
Among other challenges is the changing ratios of who is getting what share. There has been a declining focus on delivering to the right audience, accurately, a promise TV channels could never actually fulfill. For example, if a baby care ad is placed on a sports channel, it does add to the brand’s visibility, but primarily among the wrong segments of consumers. So, in such cases, advertising expenses cannot be justified and be made viable, as the campaign will not bring the desired results. In this scenario, clients consider media planning and buying agencies as the driving force, whichever agency gave them more incentive and negotiated more airtime at lower cost, was granted more budgets, without considering the accuracy of the target audience.
Hence, television channels got hit by two things: Inefficient business practices and putting media agencies in the driving seat, while the clients’ primary focus remained on spot rates only.
Globally, television channels talk only in terms of audience and brands spend their budgets only when they know ‘who’ is getting these expensive messages. The cost is determined on the basis of the audience that watches a certain channel. In Pakistan, so far, we have not achieved that level of accuracy.
Where there are two major agencies controlling a major share of the market, how is it constructive or disruptive for brands?
In my opinion in order to have constructive development in the media industry there should be healthy competition as we see in the digital scenario. It was very heartening to see some candid comments by a client on a recent digital media pitch where it suggested that bigger agencies presented run of the mill ideas without understanding the pitch document. Brands using other traditional media should also demand audience engagement solutions and not just bank on the lowest rates from bigger agencies.
On the other hand it is surprising to see competitive brands working under the same agency umbrella. As a brand how can I be sure that I have been given the best possible media solution? How can I differentiate the quality of media from the competitor if both are working with the same media agency? Many more such questions and a lot of grey when there is no check and balance as to the management and deliverable of an advertiser’s media investment especially when competitive brands work under the same agency umbrella with the sole objective of making money, instead of improving services for growth.
Whereas internationally, there is a clear demarcation of responsibilities and scope of agencies. Global networks have a totally different management structure for advertising agencies and media-buying houses even though the holding company may be the same with very few competing brands working under the same umbrella. This is how global brands have built and maintained their competitive edge.
The question is should not the brands be more vigilant about demanding more value for their money?
Right now the television broadcasting industry stands at over Rs. 44 billion, which is a very huge volume of business. Simultaneously, the digital industry’s growth is also gaining speed. No one questions the progress till the figures are on the rise. The stakeholders become concerned only when the business volumes begin to decline. In Pakistan, advertisers only choose to advertise when their bottom line is already strong. On the other hand, marketing teams of MNC’s have to report certain spending to the region. They are also afraid that if they show savings in their marketing budget, next year they will not get the same amount. In either case, advertising on media is not considered a major factor in increasing sales so that the need for vigilance is diluted. Yet, we should remain cautious, because these inefficiencies and complacent attitudes will surely impact the industry’s performance eventually.
It is time to analyze the weaknesses of this industry and ensure transparency, by making media audit a regular practice for advertising campaigns. It is a global phenomenon that has evolved since the emergence of media agencies in 1996. Advertising agencies in that era did not agree to the rationale behind the need for separate media agencies and negated the need for any such specialized function. However, the demand did exist and today the media agencies have grown phenomenally despite working on only 3% commission. If you compare the media agencies’ high salary structures, and luxuries with other businesses, it is hard to believe that such a tiny commission is their only source of income.
What is the future of the industry if the price wars continue?
There will always be smart advertisers and brands which demand more than just the best price in the market. For example, RB Pakistan, which probably has the most efficient media investment model in the industry predominantly because that is what they demand from the participating agencies. In order for the Pakistan media industry to grow beyond price wars, brands will have to step up the game as the agencies have become complacent.
What can be the corrective measures?
Specialization is the answer. The media agencies came into existence based on specialization, digital agencies today have their capabilities to manage digital spends, procurement departments on the advertiser end ensure that they obtain media on best possible pricing. Also, the real idea is to bring transparency in the process, so that pricing can be turned towards taking a back seat and more mutual benefits can be created. This way, the advertisers will start questioning the agency about the results, whether they match the brief given to the agency, or not. The agency’s capability to plan and deliver audience will be evaluated instead of just the prices they quote. In case the agency has a conflicting client or their market reputation is not good, it can be rejected.