An on-stage conversation among the half-dozen heads of the biggest media agency groups on Tuesday became the most confrontational panel yet at the 4A's Transformation conference in New Orleans.
Moderator David Verklin of Calera Capital kicked off his probing with a pointed question about the trading desks where agencies increasingly buy digital media. Some agencies arbitrage that inventory, applying their own data and insights to the media they've secured and then charging clients a higher price than they paid. "If you agree that clients' business comes first, where do you stand on transparency?" Mr. Verklin asked Group M Chairman-CEO Irwin Gotlieb. "How can trading desks be fair to your clients?"
Mr. Gotlieb, who has been an advocate of arbitrage in digital trading, said: "We have to be transparent with the client on what the business model is and we have to execute that way. But it doesn't say in Genesis that everything we do has to be on a fully disclosed basis to clients. We have to make massive investments in the business and those don't lend themselves to overhead charges of 200-300%."
IPG Mediabrands CEO Matt Seiler chimed in to say that prevailing practices don't give clients enough information -- excepting, of course, his own agency group. "We're totally transparent," he said. "We don't arbitrage at all." In describing the firm's philosophy on that front, he referenced IPG's occasional revisions of its financial statements over the years. Partly as a result, he said, "We are ridiculously squeaky clean."
Vivaki's soon-to-retire CEO Jack Klues said Publicis' trading and DSP model is more akin to that of Mediabrands, but acknowledged that the group needs to identify other "models of remuneration" as agencies get squeezed and the business gets more complex. "We're in a dangerously risky spiral with the FTE cost model," he said, referring to full-time-employee costs.
Other panelists included Horizon CEO Bill Koenigsberg, Aegis Americas and EMEA CEO Nigel Morris and OMD U.S. CEO Alan Cohen stepping in for Omnicom Media Group CEO Daryl Simm. (That made the contentious panel also perhaps the conference's least diverse assembly, featuring seven white men, as some attendees noted on Twitter.)
With tensions high, Mr. Verklin moved on to address rumors of Carat's difficult transition on-boarding the GM business and the particular rumor that "half of [Mr. Morris'] staff in Detroit used to work for Jack [Klues]." Vivaki was the parent network that housed Starcom when it handled the General Motors business in the U.S.
"The handover wasn't easy, going from around 50 agencies to one," Mr. Morris replied. "Everyone is seeing what you have to do to drive consistency with global brands." More broadly, he said, "At the same time, we have to drive convergence. The industry has not done good job in terms of flattening out agency structures and fostering innovation from young people. As an industry we have to take organizational design more seriously."
Mr. Koenigsberg said that to boost innovation, and drive down the often more-than 30% employee churn at the agencies, the shops need to "do something about the abysmal entry-level salaries in the industry."
"We need to bring more diversity into the industry, right-size the pay level and compete for the best minds," he said. "The people coming out of Harvard or the Ivy League schools need to come into the industry."
On talent, Mr. Gotlieb added, "We need people who can do quantitative work, the heavy lifting and the crunching, because we have merged with technology."