Sequential Payment, 'Preferred Vendors': Has it come to this?

By Published on .

A year ago, the world changed. In hindsight, most claim to have seen it coming. The prospect of an economic downturn was looming for most of 2008, but the true spiral to the edge of the abyss came the day that Lehman Brothers went down. What ensued in the weeks and months after was nothing less than mayhem. Immediately everyone, including the advertising industry, started playing defense—and with good reason. Rumors abounded that two of the Big Three could go belly-up. How could that be? Sure, they haven't done well in years, and had bloated operations, but that never affected their ad spending or their creditworthiness.

Fears both real and imagined sent the world into procurement chaos. Almost immediately agencies started the process of insulating themselves from the toxicity of their clients (whether their clients were toxic or not). In the rush to protect their interests and assets, many clients and agencies both seemed to forget that the goal of the business is to craft and execute the best possible communications in good times and bad—not just to follow Auntie Em through the Bilco doors.

The first hit came from BBDO, Detroit, which took its Sequential Liability clause (something adopted by agencies decades ago to protect them from their financial commitments in the event of a client's bankruptcy) in dealings with production and media vendors, and bolstered it, adhering to a policy that was more sequential payment (finance my client, please—because we won't) and akin to Wimpy's hamburger deal. Other agencies followed suit.

Then GSD&M began looking to production companies to provide credit information before those companies could bid on a job—the rationale behind this policy being that since the client's funds might not be available to pay for the production, the agency wanted to ensure the production company had enough money to finance the job. In other words, "We know you are good producers, but are you a good bank for us and our clients?" Then there was a single office of DraftFCB that instituted a policy of only cutting checks to vendors within 53 days of invoice if they were paid a $45 "rush fee" ... even if only engaged 10 days from the first shoot day (when the majority of the payment is needed).

Much to the credit of GSD&M and DraftFCB, they sat down with me and reassessed their policies once they understood the outrage of the production community and the impracticality of what their finance departments were proposing. It is refreshing when people take a deep breath, set aside their fears and knee-jerk positions and logically address policies that don't make sense. These agencies' willingness to discuss how business should work is a bright spot and bodes well for the future.

The fun didn't stop with agencies playing defense, though. Clients are now in on the game and playing offense, and clearly taking advantage of "the market." Recently, the "new GM" instituted a policy whereby production companies must agree in advance to essentially finance GM's productions, as payments wouldn't be made until 60 days after submission of invoice. It's odd, at the very least—commercial production is not a business grounded in financing and cannot survive as such, especially when it is free financing. Didn't we, the taxpayers, bail GM out so that it could restructure as a leaner, more efficient company? Did the government intend for its entities to place financial burdens on small businesses, outside of the business norm?

Over the summer, Procter & Gamble began the process of creating a preferred vendor system based on a two-year commitment to a "price list" for costs—elements that by their very nature move. Did anybody explain to procurement that hard costs are virtually the same for all and are in check through competition and bidding, that cost differential is truly about approach? This is a losing proposition for anyone "lucky" enough to be selected for the list.

By far, the most outlandish policy I have heard is Verizon's recent decision to mandate that on its jobs, which are all cost plus (giving them audit rights to real costs), production companies would only be compensated for a 10 hour day even if shoot days went longer. No one seems to be able to explain the rational for this arbitrary cap. No thought process seems to be involved except to squeeze costs. Frankly, I don't want to pay for any time over the first three minutes of a phone call, but that is the cost of using a phone. Is it too late for Judge Greene to repeal divestiture?

While there have been some moments of clarity, many clients have been belligerent, agencies panicked, and all of their vendors (including production companies) are getting paddled. Many have said, and continue to say, no to unworkable policies, and they have continued to work on jobs that make sense. And many have responded to these onerous business practices in these difficult times with: "Thank you, sir, may I have another?" They, of course, are reacting to the times and are simply trying to keep some cash flow, hoping to weather the storm. However, that business model will assure them of not seeing the next wave of creative prosperity. Normal is not the way business will thrive in the future; innovation and added value are.

Many opportunities do exist. While procurement departments on the client side are clearly now in control and their training and instinct is to keep trying to "outsmart" the old process, we are experiencing a renaissance of creativity—something they need to be paying attention to, embracing and nurturing. A production company is the last stop in the creative journey; it's where a marketing strategy gets shaped, polished and finished as a communication. Production resources will only become more important to advertisers as marketing messages become more intricate, complex and multifaceted.

A production company brings its talent and its capabilities to all its projects, executing and enhancing a creative vision, regardless of media channel. While there is still fantastic TV work being done—albeit, less than there used to be—there is also experimentation by bold clients who embrace emerging platforms and know that the volume and quality of their video content needs to continue to grow. These are the clients who want to invest and experiment with marketing communications in the moving image in new and different ways.

Opportunities arise from smart thinking and innovation. Production companies have the ability to nimbly navigate and create efficiencies without harming the creative product. It's time the number crunchers start to view producers as partners and problem solvers, not adversaries in cost-cutting, and start working together to find the right creative solutions. New and efficient does not equal free; it equals smart.

Success in an evolving business landscape can only happen when you respect and embrace creative collaboration—something cost consultants, agencies, and clients would do well to put their resources behind, rather than sacrificing creativity and innovation for the sake of "managing the process."

The AICP embraces and welcomes the new and different—we encourage innovation, experimentation and expansion. To that end, we launched AICP Digital—a new chapter that will work to address the standards, practices and business needs of companies that produce content digitally. We have issued our contracts for contracting emerging work, and have assumed the role of thought leadership through creative demonstration with the launch of our Next Awards, a featured presentation of the AICP Show. And we will continue to call out those who cannot see the forest for the trees. The future is bright, and those who treat the future of creativity with respect and value will reap the benefits. Those who treat it like an opportunity to flex and squeeze will get what they pay for.

Most Popular