Media agency bosses, publishers and technology platforms are again under the cyclical spotlight of transparency and arbitrage.
Agency bosses have suggested they are unfairly targeted when it comes to the business of making money from digital media planning and buying.
Many are reticent to go on record about the transparency issue for fear of giving oxygen to stories around transparency and being perceived as those seen as being opaque over fees and processes and making high mark-ups.
Some have suggested that the continued debate around margins being made is being fuelled by technology platforms that want to make more money by selling direct to clients. Other holding group bosses, as well as technology companies, have questioned why everybody else is allowed to make a profit without disclosing margin, and yet they are constantly hit with that stick.
Group M chief intelligence and investment officer Danny Bass, Alisa Bowen, group director, digital product and development at News Corp, Kerry McCabe, Asia Pacific boss at RadiumOne, Tereza Alxandratos, digital ad development director at Fairfax Media and Liam Walsh, ANZ boss at Kenshoo, were questioned about transparency and arbitrage back in May.
Bass said that “agencies were an easy target.” The Xaxis model is transparent, he said, but just does not disclose margin. Clients he said, “cannot go into our trade desk without opting in.”
“We have the difficult conversation upfront, how we buy the media, what we do with the media, the fact that we employ all of these people... and the client has a very easy decision as to whether or not they want in.”
The challenge that model presented was “you are effectively changing the contract from agency to principle which has never happened before. The marketing guys get that quite quickly, but the procurement guys... can get quite tricky because they think 'you've got all our money, and we trust you to invest that money on our behalf in the best place possible, but now you put it in your own product'. So straight away there is a light on that.”
Agencies in that position, he said, “have to be bold and stand behind your product” and that the “beauty or curse of digital is that you know pretty quickly whether it has performed.”
News Corp's Bowen said that the “fact that there is perception that there is arbitrage going on is enough of a problem for us all to be concerned about it.”
“Everyone is comfortable with the fact that people have to make money,” but when you look at [the so-called lumarscape diagram] and see all the players in the value chain, that causes people to have concerns about where the profit margins are going.”
Consolidation, she said, could not come soon enough.
Fairfax's Alexandratos said the industry “needed to have honest conversations” and that explaining the value that each part in the chain adds to clients had not been properly done. “We've swept it under the carpet and said 'they make a lot of money'. No, actually. There is a lot that goes on in the middle and there is a reason why there is a difference between the start point and the end point. We have to get better at making that a transparent conversation.”
McCabe said there was nothing wrong with making a healthy margin “we all should be”, but that the industry had to work on demonstrating why, that is “becasue we're going to help you sell more stuff”.
Kenshoo's Walsh said the whole margin issue, where it was fine that a publisher can make as much money as it wants, but a problem that an agency makes money on a non-transparent business was “weird”.
Watch an edited version of the session below.
This article has been amended to state that GroupM's trade desk model is transparent, but just does not disclose fees.
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