Brains Beat Brawn in TV Negotiations

MPMA Study Finds Media Agency Clout is a Myth

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NEW YORK (AdAge.com) -- So size doesn't matter, after all -- at least when it comes to TV budgets. It's a long-held and fundamental tenet of the ad business that the more dollars a media agency brings to market the better ad prices it gets for marketers -- for many years, in fact, that principle was the media agency's raison d'etre. Too bad it's not true, according to one of the biggest auditors of media spending in the U.S.
MPMA, the U.S. arm of media auditor Billets, found that big advertisers often paid premiums for their spots while little guys got discounts -- and vice versa.
MPMA, the U.S. arm of media auditor Billets, found that big advertisers often paid premiums for their spots while little guys got discounts -- and vice versa.

After two years of monitoring about $3 billion in spending from 17 clients -- or about 5% of U.S. TV market -- MPMA, the U.S. arm of Billetts, has found that advertisers often pay vastly different prices for the same inventory. It also found that the ability to fetch low cost-per-thousand rates had little to do with being part of a massive bulk buy: Big advertisers often paid premiums for their spots while little guys got discounts-and vice versa.

"There is no predictive correlation between advertisers' scale, media-buyers' scale and media prices," said John Billett, chairman of Billetts Worldwide. "Economies of scale benefit agencies more than clients."

Gearing up for upfront
One of the findings was that prices varied on average 30% in either direction. So, for instance, one marketer may pay a CPM of $13 while another pays $7. In Europe, where media auditing is more commonplace and where there's been more consolidation, that spread is about plus-or-minus 15%.

These data come as advertisers and marketers gear up for the annual upfront negotiations, which have been the subject of mounting criticism in recent years; many advertisers are frustrated with having to pay rate increases despite the fact that audiences are fragmenting. And these findings, which call attention to disparity in rates among advertisers, are sure to fuel that criticism.

What's striking about it from the agency perspective is that a lack of correlation between clout and value undermines the very premise of media-agency consolidation: that pooling budgets would ultimately result in discounts for clients. In these days of media proliferation when smart strategic thinking is increasingly important to reach increasingly tough-to-hit consumers, even the biggest agencies don't solely position themselves based on the amount of budget they control. However, that girth remains a key reason for their being.

"The fallacy is that the big agencies are negotiating prices," said Peter Knobloch, president of midsize independent media agency RJ Palmer. "They're really negotiating percent increases and there's a huge difference between the two."

Mr. Billett says that his findings offer an opportunity for media agencies of all sizes. For all agencies whose executives worry excessively about differentiating their services, the focus is on agencies' and marketers' willingness to hold budgets for the scatter market or shift into other media.

The findings also highlight the fact that the best rates are usually obtained by the most savvy, skilled and senior staff.

"I haven't seen any evidence that the big buyers get the better rates, but I haven't seen evidence of the opposite either," said Garth Hewitt, senior VP at Hawk Audits. "The best buyers do the best job."
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