Back to results Television advertising : Pain before gain TVNZ has halved the commission it gives to advertising agencies. Is this the beginning of the end for some agencies or just the end of the beginning of a fairer remuneration model? By Graham Medcalf. By Graham Medcalf A reduction from 20% to 10%, with effect from 1 January 2011.” Well there it is. It only took a month for TVNZ to complete its review of the commission structure. Sceptics will say the decision was pre-determined, that ceo Rick Ellis had made his mind up ages ago and the line, “we are more focussed than ever on listening to and responding to the needs of our clients”, meant clients as in advertisers, not advertising agencies. It is certain that if by “clients” TVNZ meant ad agencies, then a different decision would have been made, as a poll of CAANZ members indicated that 80% of agencies feel they will be adversely affected by TVNZ’s decision to cut its agency commission rate. CAANZ president David Walden and ceo Rick Osborne must be feeling impotent and ignored and will probably be removing Rick Ellis from their Christmas card lists. But is this shake-up of the way agencies are remunerated such a bad thing? Commissions have been a red herring since the early 1990s when multinational clients like Unilever cottoned onto the fact that it is the advertiser not the agency that hold the purse strings and therefore the power, and demanded that media commissions be rebated to them. It was that decision that gave rise to the media agencies and forced creative agencies to rethink how they were to be remunerated. The latest move by TVNZ is but a halfway house to the ultimate abolition of commissions, so agencies better rethink the way they would like to be adequately remunerated for the value they create. It will only be a few foolhardy marketing clients who will be brave or foolish enough to believe they will be better at negotiating the very best rates from the TV companies. Ratecards have long been a joke and anyone who realised what the likes of Mike O’Sullivan and Bill Peake (now Brandworld) were able to negotiate over the years will realise that commissions mean nothing and discounts mean everything. The question should be, “Who is best at negotiating the best price?” Advertising agencies offer a valuable service of expertise in many areas, from creativity to media negotiation. For that they need to pay good staff, and (most of) their clients agree that they need to be adequately remunerated for those skills. Yes, there will be disagreements about what “adequately” means but by and large clients are fair and not begrudging of rewarding their agencies sufficiently to allow them to continue their good work. TV3 and Sky must be finding it difficult to contain their merriment, for they have nothing to lose. As far as agencies are concerned they are the friends who are standing by them in difficult times and so will find some short-term gains may be made before clients kick their agencies back in line. So it is no wonder that the response to AdMedia’s questions about the other big two’s attitudes to the current commissions debate gives rise only to statements made firmly with tongue in cheek: “Our position on the commission structure issue is simply that we are watching developments with interest,” says Roger Beaumont, director of marketing & communications for TV3, C4 & Mediaworks. “It is not our policy to comment on the activities of other broadcasters – our focus is on our own business,” says says Rawinia Newton, director of advertising at Sky Network Television. “Sky has no plans to review the agency commission structure.” Why would they? They have nothing to lose and everything to gain. Agencies would be well advised to keep an eye on the Marketing Association’s website where its sub-group, the Marketing Agencies Council, is polling views from members. Because that is where the money speaks, and client attitudes will dictate where this story ends. The problem for advertising agencies is that they will have to renegotiate every contract with every client. Currently, remuneration based on rebated commissions is in the minority, and clients will undoubtedly see the renegotiations as an opportunity for them to save money at the expense of their ad agencies. The problem is the greatest for the small independent agencies, whereas the multinational agencies have already been beaten up by their multinational clients and have alternate remuneration models in place. Lassoo Media & PR general manager Garry Jordan typifies the reaction of the indies when he says that the TVNZ move is just a fancy guise to realign their ratecard. And one can sympathise. For a lot of small agencies, the problems seem insurmountable, with business models and expensive software having to be adapted or even discarded. Media strategist and commentator Martin Gillman confirms that agencies clearly see the review of commission to be a serious threat. Although he says that it is interesting that it appears that those making the most noise are not directly earning commission at all and little has been heard from the major accredited buying agencies. Gillman points out that the value provided by both media and creative agencies is not proportionate to the media spend, and with the growth in digital where workloads can be high for low spend levels, commissions actually need to be much higher. Most media agencies have been gradually moving away from commission as the main source of income but it’s not always easy to do with existing clients who have been used to paying nothing or receiving a discount from part of the commission. “The review is an opportunity to address placing a real value on work rather than clipping [reducing] the ticket,” says Gillman. “Some clients may not be happy with this as it might mean they have to pay a higher percentage of their media spend.” All other media will be watching closely and perhaps some will try to capitalise on TVNZ’s predicament. The hard part for agencies will be in renegotiating remuneration with their clients. But now is as good a time as any to begin the process. A change to the commission system for newspapers is also on the cards and should be welcomed by agencies. “The newspaper system now, where a direct rate and an agency rate is published, defies common sense and agencies should resent every cent they pay for newspaper accreditation,” Gillman says. Many agencies are reluctant to be quoted, preferring to use association channels to express their discontent. By the time 2011 comes around this so-called debacle will be seen for what it really is, a storm in a teacup. Fifteen months is plenty of time for agencies and clients to agree on a fair remuneration for advertising services, and as a result we are likely to see a greater degree of transparency and fairness in the sector. The current commision structure in media is archaic and outdated and rather than being seen as the villain of the piece, Rick Ellis should be seen as a realist and a visionary, in being, if not the first to see the flaws in the current system, then at least the one with the balls to break it. Ellis is fortunate in that through powerful programming he holds the largest TV audience. And there lies the rub. Despite what is being said about the decline in television and the rise of online options, big brand marketers know the truth. If you want to get to a large audience to gain brand share and strong sales, TV is still the place to advertise. If TVNZ has properties that deliver the target audience, then marketers will ensure that agencies buy from TVNZ regardless of any issues surrounding commission rates. On the other hand if TVNZ believes that advertisers will bypass advertising agencies and buy direct then it will be sadly mistaken. This is not the airline industry. Marketers appreciate the value advertising agencies provide, and they will pay fair market rate. It’s just that getting to that “fair market rate” may be a little painful. – graham.medcalf@ihug.co.nz Carnival spirit Like most media, NZ’s Asian TV network, World Television (www.wtv.co.nz), is getting creative to secure its share of ad revenue. “Our strategy is to provide added-value bundled packages to our clients,” says WTV’s Samson Yau. “Our combo packages combine TV (CTV8 on the Freeview/HD platform and the Pay channels on the Sky platform) with radio and magazine exposure – at an attractive discount for clients who use more than one media.” WTV’s network includes WTV (Sky pay channel), Chinese TV, Chinese Voice radio (in greater Auckland at AM936 & FM95.8), and WTV magazine. WTV also offers its Total Marketing Solution, a plan that brings together above-the-line, below-the-line and direct selling opportunities – like the three annual events the network offered this year (LunarFest in January, Summer Carnival in April, and Moon Festival in September). These events return in 2010. “For each of these, we have a cost-effective package, including pre-event promos, editorial and ad-libbing opportunities, product ads on our TV and radio channels, and a client stall at the venue,” says Samson Yau. “These events attracted 30,000-40,000 people, and clients like ASB, CMC Markets, Osim Massage Chair, NZ Fire Service, Kings Plant Barn, ACC, Flight Centre, and HRV.” © Copyright AdMedia magazine October 2009 All material appearing is copyright and cannot be reproduced without prior permission of the publisher. Please contact the copyright officer: Ph 0-9-845 5114, Email copyright@mediaweb.co.nz.	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Television advertising : Pain before gain

TVNZ has halved the commission it gives to advertising agencies. Is this the beginning of the end for some agencies or just the end of the beginning of a fairer remuneration model? By Graham Medcalf.

By Graham Medcalf

A reduction from 20% to 10%, with effect from 1 January 2011.” Well there it is. It only took a month for TVNZ to complete its review of the commission structure. Sceptics will say the decision was pre-determined, that ceo Rick Ellis had made his mind up ages ago and the line, “we are more focussed than ever on listening to and responding to the needs of our clients”, meant clients as in advertisers, not advertising agencies.
It is certain that if by “clients” TVNZ meant ad agencies, then a different decision would have been made, as a poll of CAANZ members indicated that 80% of agencies feel they will be adversely affected by TVNZ’s decision to cut its agency commission rate.
CAANZ president David Walden and ceo Rick Osborne must be feeling impotent and ignored and will probably be removing Rick Ellis from their Christmas card lists.
But is this shake-up of the way agencies are remunerated such a bad thing? Commissions have been a red herring since the early 1990s when multinational clients like Unilever cottoned onto the fact that it is the advertiser not the agency that hold the purse strings and therefore the power, and demanded that media commissions be rebated to them.
It was that decision that gave rise to the media agencies and forced creative agencies to rethink how they were to be remunerated.
The latest move by TVNZ is but a halfway house to the ultimate abolition of commissions, so agencies better rethink the way they would like to be adequately remunerated for the value they create.
It will only be a few foolhardy marketing clients who will be brave or foolish enough to believe they will be better at negotiating the very best rates from the TV companies.
Ratecards have long been a joke and anyone who realised what the likes of Mike O’Sullivan and Bill Peake (now Brandworld) were able to negotiate over the years will realise that commissions mean nothing and discounts mean everything.
The question should be, “Who is best at negotiating the best price?”
Advertising agencies offer a valuable service of expertise in many areas, from creativity to media negotiation. For that they need to pay good staff, and (most of) their clients agree that they need to be adequately remunerated for those skills. Yes, there will be disagreements about what “adequately” means but by and large clients are fair and not begrudging of rewarding their agencies sufficiently to allow them to continue their good work.
TV3 and Sky must be finding it difficult to contain their merriment, for they have nothing to lose. As far as agencies are concerned they are the friends who are standing by them in difficult times and so will find some short-term gains may be made before clients kick their agencies back in line.
So it is no wonder that the response to AdMedia’s questions about the other big two’s attitudes to the current commissions debate gives rise only to statements made firmly with tongue in cheek:
“Our position on the commission structure issue is simply that we are watching developments with interest,” says Roger Beaumont, director of marketing & communications for TV3, C4 & Mediaworks.
“It is not our policy to comment on the activities of other broadcasters – our focus is on our own business,” says says Rawinia Newton, director of advertising at Sky Network Television. “Sky has no plans to review the agency commission structure.”
Why would they? They have nothing to lose and everything to gain.
Agencies would be well advised to keep an eye on the Marketing Association’s website where its sub-group, the Marketing Agencies Council, is polling views from members. Because that is where the money speaks, and client attitudes will dictate where this story ends.
The problem for advertising agencies is that they will have to renegotiate every contract with every client. Currently, remuneration based on rebated commissions is in the minority, and clients will undoubtedly see the renegotiations as an opportunity for them to save money at the expense of their ad agencies.
The problem is the greatest for the small independent agencies, whereas the multinational agencies have already been beaten up by their multinational clients and have alternate remuneration models in place.
Lassoo Media & PR general manager Garry Jordan typifies the reaction of the indies when he says that the TVNZ move is just a fancy guise to realign their ratecard. And one can sympathise. For a lot of small agencies, the problems seem insurmountable, with business models and expensive software having to be adapted or even discarded.
Media strategist and commentator Martin Gillman confirms that agencies clearly see the review of commission to be a serious threat. Although he says that it is interesting that it appears that those making the most noise are not directly earning commission at all and little has been heard from the major accredited buying agencies.
Gillman points out that the value provided by both media and creative agencies is not proportionate to the media spend, and with the growth in digital where workloads can be high for low spend levels, commissions actually need to be much higher.
Most media agencies have been gradually moving away from commission as the main source of income but it’s not always easy to do with existing clients who have been used to paying nothing or receiving a discount from part of the commission.
“The review is an opportunity to address placing a real value on work rather than clipping [reducing] the ticket,” says Gillman. “Some clients may not be happy with this as it might mean they have to pay a higher percentage of their media spend.”
All other media will be watching closely and perhaps some will try to capitalise on TVNZ’s predicament.
The hard part for agencies will be in renegotiating remuneration with their clients. But now is as good a time as any to begin the process.
A change to the commission system for newspapers is also on the cards and should be welcomed by agencies. “The newspaper system now, where a direct rate and an agency rate is published, defies common sense and agencies should resent every cent they pay for newspaper accreditation,” Gillman says.
Many agencies are reluctant to be quoted, preferring to use association channels to express their discontent. By the time 2011 comes around this so-called debacle will be seen for what it really is, a storm in a teacup. Fifteen months is plenty of time for agencies and clients to agree on a fair remuneration for advertising services, and as a result we are likely to see a greater degree of transparency and fairness in the sector.
The current commision structure in media is archaic and outdated and rather than being seen as the villain of the piece, Rick Ellis should be seen as a realist and a visionary, in being, if not the first to see the flaws in the current system, then at least the one with the balls to break it.
Ellis is fortunate in that through powerful programming he holds the largest TV audience. And there lies the rub. Despite what is being said about the decline in television and the rise of online options, big brand marketers know the truth.
If you want to get to a large audience to gain brand share and strong sales, TV is still the place to advertise. If TVNZ has properties that deliver the target audience, then marketers will ensure that agencies buy from TVNZ regardless of any issues surrounding commission rates.
On the other hand if TVNZ believes that advertisers will bypass advertising agencies and buy direct then it will be sadly mistaken. This is not the airline industry. Marketers appreciate the value advertising agencies provide, and they will pay fair market rate.
It’s just that getting to that “fair market rate” may be a little painful.

– graham.medcalf@ihug.co.nz

Carnival spirit
Like most media, NZ’s Asian TV network, World Television (www.wtv.co.nz), is getting creative to secure its share of ad revenue.
“Our strategy is to provide added-value bundled packages to our clients,” says WTV’s Samson Yau.
“Our combo packages combine TV (CTV8 on the Freeview/HD platform and the Pay channels on the Sky platform) with radio and magazine exposure – at an attractive discount for clients who use more than one media.”
WTV’s network includes WTV (Sky pay channel), Chinese TV, Chinese Voice radio (in greater Auckland at AM936 & FM95.8), and WTV magazine.
WTV also offers its Total Marketing Solution, a plan that brings together above-the-line, below-the-line and direct selling opportunities – like the three annual events the network offered this year (LunarFest in January, Summer Carnival in April, and Moon Festival in September). These events return in 2010.
“For each of these, we have a cost-effective package, including pre-event promos, editorial and ad-libbing opportunities, product ads on our TV and radio channels, and a client stall at the venue,” says Samson Yau.
“These events attracted 30,000-40,000 people, and clients like ASB, CMC Markets, Osim Massage Chair, NZ Fire Service, Kings Plant Barn, ACC, Flight Centre, and HRV.”

© Copyright AdMedia magazine October 2009

All material appearing is copyright and cannot be reproduced without prior permission of the publisher.

Please contact the copyright officer: Ph 0-9-845 5114, Email copyright@mediaweb.co.nz.

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Television advertising : Pain before gain

TVNZ has halved the commission it gives to advertising agencies. Is this the beginning of the end for some agencies or just the end of the beginning of a fairer remuneration model? By Graham Medcalf.