Could the fractious client-agency relationship have been salvaged if agencies had been willing to take less than 15% commission?
"Losing the 15% media commission was the biggest game changer in the ad business since it started," contends Gary Burandt, who worked across the world for Young & Rubicam before becoming executive director of ICOM, an independent agency network. He retired from that post in 2015 and now serves as an adjunct professor of marketing at the University of Denver and gives guest lectures at the universities of Missouri and Colorado. He's been married for 50 years to the "extraordinary" Harriet "Freddye" Krumrey, a teacher and author of children's books.
Gary said the commission system worked well for decades, but by the 1980s because of inflated media costs it was getting too favorable to the agencies. The fat profits were an incentive for agency chieftains to sell out to the newly emerging holding companies at big multiples -- spurring the consolidation of the agency business in a few hands.
At about the same time, freestanding media-buying operations started to develop in Europe offering clients (sometimes competing clients) cheaper rates based on combined volume.
"In retrospect it would have been better for the agencies to voluntarily agree to a lower commission of 10% and keep a system in place that was working well," Gary said, noting that the conversion to client fees and hourly rates "has made no one happy and has become a distraction on both sides."
There's no longer money available for agencies to do training and invest in new talent, Gary said. And, he added, "an inordinate amount of agency time is spent on accounting rather than growing the client's business."
On the client side, procurement people, "who know little about the agency business, are now involved in writing compensation contracts and rewarded for squeezing more and more out of the agency. Agency reviews are too often won by the lowest bidder rather than the most capable." And agency-of-record agreements are vanishing along with the security they provided to take risks.
Too often junior (cheaper) staff are assigned to major accounts to assure profitability. The work and service suffers, Gary says.
It's a difficult situation for both clients and agencies. "Hard to find common ground when trust has been lost and 'face' is on the line."
Gary, in his days at ICOM, was always looking for ways to give his agencies an edge, and he viewed the abortive merger attempt between Publicis and Omnicom as a "giant opportunity." At the time, he told them that there would be "a lot of Publicis and Omnicom agencies being very distracted in the near term."
Before the merger went south, he'd counseled shops to "quickly review the agencies involved in your marketplace and the clients they serve for conflicts. … Make contact with the clients involved in the conflict and say, 'We're an established agency, we're run by people in the marketplace. You don't have to go through the insecurity that's bound to happen with this merger.'"
Independent agencies and networks should have been championing this alternative all along, Gary conceded, "but the merger is an impetus to do it now. Now's the time to approach those clients and give them a secure alternative in their marketplace without having to give up international resources."
Gary's great challenge was to keep his agencies away from the talent-hunting multinationals. "It's my most frequent nightmare," he said. As a former Y&R exec, Gary came to believe that money can't buy independence. He worked for 25 years at Y&R, leading agency offices in many parts of the globe, including Moscow, Paris and Singapore, where he ran the Asia-Pacific region in a partnership with Dentsu. For him, the advantage of not having shareholders and not having to send checks every month to different countries was significant.
Gary pointed out that there are still places in the world where the commission system continues and media-buying shops have not been established, including most of Latin America and India.
He said most of the big media agencies, many now worth more than their general agency progenitors, developed out of the international agencies' media operations and operate under a holding company umbrella.
You'd think it would give the independent agencies an advantage to offer media buying as part of their services, but many independents around the world no longer have a media-buying function and work with a media shop they have a relationship with or that their clients choose.
It probably wasn't going to happen that agencies on their own would have agreed to take a lower commission, even if that's what it took to keep the commission system in place, Gary concedes.
"But what could have happened is the 4A's and the ANA agreed to continue the commission system at a lower percentage. … Ten percent seems right and makes the math easy," Gary said, and the agreement could have also provided for a periodic review.
Whether or not such an agreement would have violated the Department of Justice's consent decree with the 4A's and five media associations from requiring that its members charge a 15% commission is debatable. Maybe a sliding-scale commission would have passed muster.
Gary admits it would be "nearly impossible to return to the simple commission system that provides good value to clients, fair compensation to agencies and a lot less rancor between the two.
"Nearly impossible -- but may be worth a serious look for the future of the business."