ADVERTISERS WIN BATTLE OVER COMMISSION SYSTEM;INDUSTRY GROUPS SEEKING A WORKABLE ALTERNATIVE

Published on .

[sydney] The scrapping of Australia's controversial system that required media groups to pay commissions only to accredited advertising agencies has thrown the industry into turmoil. But it has delighted advertisers, who have long complain ed of discrimination.

FEB. 3 DEADLINE

Media, agency and advertiser groups have been given until Feb. 3 by the Australian Competition & Consumer Commission to dismantle the present system and find a workable alternative.

Under the present system (run by the Media Council of Australia, a private body comprised of most major media organizations), "accredited agencies" are given 10% commissions in return for paying the media's accounts promptly and for car rying client credit risks.

The ACCC found the system represented a "substantial exercise in market power" and was anti-competitive, while carrying "no redeeming benefit to the public, but rather operating to erect unjustified barriers to particular styles of bus iness activity."

Its decision is a resounding victory for the Australian Association of National Advertisers, which had fought a long battle with both the Media Council and the Advertising Federation of Australia to have payments to agencies more fairly r epresent the work they do.

Kate Henley, executive director of the AANA, said she now expects clients to pay less.

"In situations where clients wish to negotiate direct rates, we would expect pricing mechanisms to reflect that change," she said. "If a client does not use an agency to negotiate prices, the price should be net of commission charges. Volume discounts and special arrangements would then need to be factored in. Clients who pay promptly should also get prompt payment discounts."

MEDIA BUYERS TO GROW

Typical of initial reactions from media-buying groups was the comment from Howard Mitchell, chairman of Mitchell & Partners, Melbourne: "I expect media-buying shops to increase in proportion to the business they control. Like the United Kingdom, in five yearsCommission battle over the top five buyers will be media-buying shops, not agencies."

The AFA has offered an alternative proposal, saying it had reached an agreement with the credit-rating organization Dun & Bradstreet to provide a credit reference system to agencies.

"The D&B model is more flexible than the Media Accreditation Authority's rule-based system because it looks at a large range of qualitative and quantitative information, and it is constantly updated," said Colin Wilson-Brown, AFA federa l chairman and deputy chairman of Foote, Cone & Belding Australia.

NEWS LTD. REACTS

Rupert Murdoch's News Ltd. was quick to announce a new credit reference facility. In a letter to agency finance directors, Graham Lawrence, group advertising director, said News Ltd. would offer a system providing the same terms and condi tions as the accreditation system, including a 10% commission and 45 days to pay.

A full-service agency in Australia usually seeks 17.5% of the total cost of advertising, receiving 10% of the fee from the media commission and 7.5% from the client. Sometimes the agency's client service fee is figured on a sliding scale, depending on volume and other factors. Media-buying shops usually get between 2% and 5% of total placement.

`DEATH KNELL' FOR SMALL AGENCIES

Agency comment has been mixed. "All the decision will do is sound the death knell for smaller agencies," said Alex Hamill, chairman of Australia's largest agency, George Patterson Bates.

"I can see a scenario where big agencies will be hit hardest," countered Paul Williams, founder of Williams McKay, a small, fast-growing agency. His reasoning is that large accounts often cost little more to service than medium accounts , so, with the removal of the commission system, big ag

In this article:
Most Popular