If you are an advertiser, are you sure that your media agency is transparent? Is it passing on rebates and discounts that it is obtaining from media house? Media audit and advisory company, Spatial Access, has recently partnered with global media compliance firm, FirmDecsions, to set up operations in India. In an interview with Business Today's Ajita Shashidhar, Terry Edwards, Co-Founder and Global Media Director, FirmDecisions and Meenakshi Menon, Chairperson and Managing Partner, Spatial Access, claim that more than often media buying companies don't adhere to compliance norms. Here are the excerpts.
Can you tell us about your partnership and the kind of compliance issues that media buying companies usually have?
Terry: We complement each other perfectly. From Spatial Access side, the analysis is looking at how well the media agency bought the media money and spent the media money and got value or not. What FirmDecisions does, we take over from that point. We say you have spent Rs 100 crore that Spatial Access has just audited, what our audit does is we go into details with the finances to see if the agency really spent Rs 100 crore and in the 17-18 years of FirmDecisions existence in more cases than not the agency hasn't always spent the money the client has passed on to them. It could be for a whole lot of reasons, one of them may be due to the change of costs during the campaign that have been reconciled, there may have been some change of costs that have been reconciled and credit notes not been raised correctly and passed back. It could be that the agency has been offered some extra discounts by the media owner, which technically should have been passed back to the advertiser. So, our audit would go through once the invoices have been cleared and settled, we assure that the money that was told to the client was actually spent correctly.
Agency finances are not as transparent as the client would like it and certainly not as transparent as one would like to believe they are. Our team is an expert in agency finance because all of our staff are experts in media finances or agency finances. When we do an audit, we can see through the clutter that perhaps someone who isn't an expert can't. That's the USP of FirmDecisions versus another audit firm. We, an ex-agency financial chiefs, know exactly what we are looking for. We provide our clients the transparency of their media buying chain that they otherwise wouldn't have known and allow them to see where monies haven't been passed back or should be passed back or discounts and rebates that have been held which should have been passed back or put through a system. Our clients can stay one step ahead of this opaque media trading world that is becoming more and more opaque as each day goes on.
What kind of challenges does the Indian market throw up? Is it any different from what you face globally?
Terry: The challenges that the Indian advertisers face are no different than the challenges that an Italian or a Norwegian advertiser may face. The way media is traded and the only deal that major groups can get of ways of increasing their revenue are totally transportable across borders and there is one key thing for this and that is digital. This frightened me that 20 per cent of all advertising revenue goes to Facebook or Google. I first thought it was a mistake and I said that probably it was 20 per cent of all digital ad revenue, but it is 20 per cent of the entire advertising revenue. You have got global players as well as local players who are driving the way media is trading. We did a study two years ago with the AMA in US about transparency in that market. They had always maintained that US is a transparent market, there is nothing opaque and when we were banging on people's door to do this study, most advertisers would say why would I mistrust my agency, they would never ever treat me like this. The study threw out the fact that it's actually not as clean as one thought it was. Digital had started to drive the way advertising sales are going. So, if you got this new major for digital which would go to a big agency and say I want to pass some of my digital. They would tell agencies that if you spend $1 million with me, as a group I would give you a 5 per cent kickback under the table. All of a sudden this way of trading with digital has taken off on a global basis, which as a medium, advertisers can't get enough off. They say, oh I love digital because someone told me how good it was. There are innumerable stories that print is almost dead and digital is the messiah. Then why do digital companies always advertise on TV if digital was so good?
Agencies and clients are being quite willing in this: one, agencies get a kickback, as the trading has changed, and two, there are ways of buying and trading digital that can be very non-transparent. Meanwhile, the poor old traditional media, not so much TV, but print, suddenly has readership is going down. How do I get back on the schedule? So, resort to the lowest common denominator, put some more money my way and I will give you a little kickback. All of a sudden you are finding that this kind of trading has rolled across the globe. When we come to work with global advertisers in India, the issues we find in India are no different from the issues we find in Italy, Spain, Brazil, China and Australia. That's the reason there is an impact on Indian advertisers and India is the sixth biggest market in the world in terms of media spend. It isn't a market that can be ignored.
Meenakshi: Every client wants to believe that he wants to operate in a unique environment. Every agency knows that the client believes that the markets are different. Around 95 per cent of the organised advertising business is with network agencies. So, they all have standard operating processes, they follow global diktats. From the media perspective, they are constantly under pressure to bring down rates. The whole volume rebate thing has become a reality. But the agencies don't acknowledge that reality to the client. When FirmDecisions is doing audit after audit, their work starts where Spatial Access work ends. We look at data from the client and industry data, we don't look at the agency's books. They look at the agency's books, because they are looking at the books of the agency, they are able to find this...the amount of financing that the clients are doing, paying their agencies and agencies are not paying their media. Media is not able to pay salaries due to cashflow issues.
So do media agencies have an undue advantage?
Terry: It's something like the whole advertising group's income, media accounts for 23 per cent. Of all advertising group profits, media accounts for 40 per cent. So, media is the one which is delivering profits to the advertising groups.
Meenakshi: If agencies continue to arm-twist media owners, how long will media owners survive?
You mean to say that the digital media is not that effective?
Meenakshi: Digital spends have gone up phenomenally. Even traditional FMCG companies have increased their spending on digital. Clients always like anything that is new, all your advisors are asking you to use digital, so obviously you are going to say that I will do digital. Your advisors push digital to you because the margins are significantly higher. A gross margin for an agency on traditional media would be between 5 per cent-7 per cent. On digital, the margin will be 50 per cent.
Terry: There are a lot of examples that digital isn't that powerful, TV still wins. For every pound you spend TV wins hands down in terms of effectiveness, not digital. If you ask why they are using digital most clients say that it's new, isn't it.
Is the digital euphoria short-lived?
Meenakshi: No, it is not short lived, because it is fuelled. The stuff that is short lived is short-lived because something else comes into the picture. Digital euphoria is being fuelled by two key constituents in the eco-system - the digital companies themselves and by the agencies.
Terry: What can't be ignored is that the public is using digital messages far more than they ever did, expect that the advertising on that is isn't that effective, that's the key thing. The consumer is using digital, so there is a reason to do it, two, agencies want clients to do it and three, clients are quite keen to do it; and four the digital supplies are increasing. We mustn't forget that public do use digital, it's just that advertising isn't potentially as powerful as it is on other media, it doesn't necessarily get exposed and the way it has got there is through this whole chain of non-transparent costs that can get agencies to make more money.