Things weren’t always this bad. They’ve become so with every passing year.
People in the advertising agency business talk about their history in two parts. The days before Reckitt Benckiser, and the days after. So the story goes that in the year 2010, Reckitt (the second-highest media spender in India back then) invited a pitch for its media buying business. But it came with conditions:
Keen to participate
That any agency keen to participate must pay $10,000 as a pitching fee.
A compensation arrangement if the television ratings of broadcasters finalized in the media spend strategy falls.
Commission to be paid by the agency for the first 12-18 months of business. In simple terms, this should be understood as doing business under a 1% commission.
This last number is especially important because in the good old days the media buying business enjoyed a commission of at least 2.5%.
“Back in the day 2.5% was considered decent,” says a senior executive of a media advisory company, who asked not to be named because he works with several of these agencies, on behalf of clients. “Over the last 20 years, with more and more mouths to feed and media spends going up, the commission rate has kept dropping. In the early days, 4-5% was considered healthy, and then it came to 2.5% and then 1%.”
Needless to say, Reckitt kicked up a nice little storm. The Advertising Agencies Association of India advised all agencies to stay away, so quite a few boycotted the pitch. There was chatter. There was outrage. How it would be impossible for any agency to make a living on Reckitt’s three conditions. How it could set a dangerous precedent from which there is no coming back. Except, not long after, outrage gave way to opportunistic opportunities. Several agencies participated in the pitch and ultimately Zenith Optimedia, part of Publicis Groupe, won the account.
Writing on the wall
“Everybody saw the writing on the wall that the days of making money from commissions are numbered,” says the executive quoted above. “This meant that everyone started looking for other sources of income.” It helped that around this time market dynamics were also changing. Media supply had increased exponentially. Print, broadcast and digital; their numbers were only going up. The perfect storm found its perfect, rickety boat wavering in the ocean.
“The agencies were under pressure for margin,” adds the executive. “The media companies, i.e. the sellers, were under pressure to sell because there was a lot of supply. This is when terms like ‘agency rebate’ started coming into play. The agency would basically say, I’m buying this much, how much can you discount? The media company would be like, here this much, and the agency would be like, thank you. The rebates soon led to all forms of creative usage. Call it a discount, incentive, bonus or kickback.”
“A lot of people I know say that the agency is at fault,” says Chintamani Rao, an independent media consultant. In a career spanning three decades, Rao has worked with several agencies, including Lintas, Ogilvy & Mather and McCann, as well as BCCL, where he was the vice-chairman of Times Global Broadcasting.
Going with the flow
“No,” he says, “my sympathy is actually with the agency, or at least with some of them. Because when you pay someone below the living wage, they will find a way to make a living.”
Agency executives and industry insiders speak of many arrangements.
There’s the agency rebate, of course. The more an agency buys from a media company, the more volume discount it gets. In an ideal world, that would be the money that the agency saves for its client. But our world in 2018 is grimy, and far from ideal. So, there are deals where the volume discount is absorbed by the agency itself, in the most layman terms as a payback. Some clients are aware, some aren’t. Some clients bother and get the agency audited, some don’t.