Magic, Logic and Money in Media Agencies
25 June 2014
A few years back (2006, gosh how time flies) a white paper was produced by a combination of the ad agencies (through the IPA), advertisers (through their trade body ISBA) and procurement professionals (via CIPS). The paper called ‘Magic and Logic’ was authored by the brilliant Marilyn Baxter and if you haven’t read it it’s an excellent summary of many of the issues that still cause tensions around agencies and their clients.
The paper’s thesis is that any ad agency uses a combination of ‘Magic’ (strategic thinking; creative work and the like) and ‘Logic’, (status reports, production processes etc) in its work. Although the original paper is largely about ad agencies, the same principles apply to media agencies; there’s the magical bit – the strategic thinking, the planning and the breakthrough ideas; and there’s the logical – the executional buying, the reporting and verification.
This is a useful distinction and could potentially help the media agencies through what is a particularly difficult time when it comes to remuneration conversations.
Media agencies are increasingly not trusted by their clients. Many clients feel that they’re somehow being cheated, even if many are not quite sure how. Whether it’s discounts negotiated by the agency and not rebated to the client, or a lack of transparency in the practices of the agencies’ trading desks, there is a fundamental lack of trust. The detail has been covered many times before in earlier Cog Blogs. The fact is that media agencies are not trusted, and that is not a comfortable position to be in.
On the other side of the fence, the agencies feel aggrieved that they’re not being properly remunerated for the work they do and the value they bring. They don’t think they should be used as banks by their clients, as the practice of payment terms being extended spreads. They believe that the metrics used to measure their performance are stuck in the 1970’s, despite the fact that the rest of the world has moved on. Again the details needn’t concern us here. The fact is that agencies feel hard done by, and that too is neither comfortable nor productive.
Media agencies are poor at ensuring that they are properly paid for their thinking. Market research agencies are the same: they’re fine at charging for the doing bit (the fieldwork in their case), but they’re generally not good at asking for money for the thinking bit (the analyses and interpretation).
In the case of the media agencies they’re very good (some would say far too good) at making money from the doing (the buying) but they have always struggled to justify being paid for the thinking (or what we can shorthand as ‘the planning’ bit).
The magic and logic division helps find a way through. I would contend that the magic bits are best paid for via a spend-based commission of some sort. A time-based fee doesn’t reward brilliant ideas that bring untold benefits for many years to the client and yet take comparatively little time to create. The logic bits are really a set of processes that take as long as they take and thus can be covered adequately by a time-based fee. Spending longer on process doesn’t necessarily improve the process.
At the moment agencies are generally remunerated by a one-size-covers-everything fee; most having moved away from commission several years ago. What if they reverted to commission for the planning; and a fee for the buying? For one thing this would force clients to place a value on the contribution made to their business by smart planning; for another it would commoditise the buying process by ensuring that clients paid less the more the process becomes automated, as is happening.
Bonuses, paid to reward outstanding performance could still exist within this model. Great planning could become the most rewarded element of the agency’s output as it has the potential to add the greatest value to the client’s business. Smart buying (using such techniques as content barter, or early commitment to certain types of airtime) could be encouraged and the extra time that these elements take reflected in the fees paid.
A dual-currency system like this needs to have transparency baked into it, with all rebates owing returned, which should not be impossible. It would swing the focus away from buying into the much more valuable (for the client) discipline of planning.
Furthermore, this approach should allow the agencies the opportunity to be paid for the true value they bring through their planning. It should appeal to both agencies and to their clients . It should bring back, and reward true objectivity in the provision of media services. Of course, unofficial income might go down but as that doesn’t actually exist anyway that shouldn’t matter much. After all, the agencies can’t complain if something that they say doesn’t exist disappears.