Is principal media buying shady or a legitimate way to squeeze margins? 

By Chris Pash and Ashley Regan | 4 September 2024
 
Credit: Alexandra Gorn via Unsplash

The big players in global advertising are throwing themselves at what’s known as principal media buying.

This essentially means an agency becoming a vendor of media rather than acting as an agent, making bookings on behalf of brands.

With principal media, agencies buy inventory directly from media owners, seeking a discount for a bulk order, then resell to clients at a margin.

This is all done in the name of squeezing margins in a world where brands are looking for cost savings.

And some think the practice is on the shady side. Clients have no idea if what they’re being given is designed for them, and their campaign plans, or if the agency has pulled it off the shelf because it needs to be on-sold. 

“Every holdco agency pre-commits based on muscle memory with large volumes of clients' money before those very clients have even briefed agencies on their problem,” an industry insider told AdNews.

“The reason they spend money with certain platforms is because out of that $200 million upfront investment, 4 million comes back in rebates.

“Media agencies behave and perform in the way that they do, because there's something in it for them - that is the whole harsh truth."

At IPG, it’s early days for principal media buying. The global holding company is approaching clients and media partners in a “measured” way.

The company points out that its media business has been “really successful” for a long time without principal media buying.

Philippe Krakowsky, CEO of IPG, revealed his global advertising group’s plans when being questioned by market analysts after the agency announced June quarter results. 

“We're very focused on it,” he said in reply to a question from Steven Cahall of Wells Fargo.

“You've got to get clients who opt into the model and understand the benefits. And then that volume yields a benefit. We're going to move thoughtfully but at pace.”

Krakowsky says a combination of data, tech and marketing expertise has been key to long-term success at IPG Mediabrands. 

“And while our tech-enabled media offerings are consistently ranked as best-in-class by marketers, during the past 12 to 18 months, we have seen a number of clients place a greater premium on efficiency and costs.

“Given that marketplace evolution, we have pivoted and are now able to deliver value not only with advanced and effective media solutions but also through our growing practice in principal media buying.

“This new component of our media practice will take time to scale fully but represents an incremental option for media value creation for current and prospective clients as well as the new avenue for growth for what has consistently been our strongest performing business.”

Principal-based media is a discreet strategy, not the dominant one across the industry, but it also has its detractors.  

SPEED managing partner Ian Perrin describes the arbitrage model as shady, non-transparent and an embarrassment to the industry. 

“It is dressed up as something called Principled Media Buying in a cringe-worthy attempt to hide what it really is,” Perrin said.

“The ‘principle’ of course being the purchase of media inventory at an agreed price from a media owner and then marked up to clients at a higher rate. Usually without them knowing. 

“But make no mistake, fancy packaging doesn’t hide a crap product. It’s simply the same inventory at a higher price.

“Worse still, the inventory that is being marked up may not even be what the client requires, its simply what the agency has pre bought. And that’s still if you can call them an ‘agency’ in this regard, because by using arbitrage they are basically ‘resellers’.

“Sadly, most clients won’t even be aware this is how their inventory is bought because it’s hidden in a tiny disclaimer at the bottom of a media plan. 

“But they are starting to wise up to the practice, and therefore migrating their business to transparent indie media agencies, such as SPEED, Kaimera, Match and Wood and many others.”

Research by Jay Pattisall, VP, principal analyst at Forrester, shows total media billings transacted using principal-based media buying is less than total broadcast or performance channels.

“The media value in the form of cost efficiencies drives the use of principal-based media,” he told AdNews

“When agencies are transparent when they act as principles and clients adopt the strategy with eyes wide open it can be beneficial to both brand and agent. 

“Brands gain important efficiencies that are necessary in an environment where every media dollar needs to work as hard as possible. Agencies benefit economically, also an important consideration given the procurement-centric environment that’s designed to drive down margin.”

The downside can come via a lack of transparency when brands are not aware of the terms or pros/cons or the sacrifice of strategy when applying pre-purchased inventory to a plan after the fact. 

The method works well for those with deep pockets. “Holding companies and large media agencies have scale/ buying power to provide brands cost efficiency and media value,” said Pattisall.

“The best approach is to apply that scale to media plans designed for what’s right for the brand’s business objectives, audiences and growth.”

Research by the ANA in the US says agencies have increased their use of principal media due to downward pressure on margins, deterioration of payment terms and an overall focus on “driving media costs down”.

The Acceleration of Principal Media study also reveals a substantial knowledge gap among marketers about principal media.  

For some, the practice can produce media cost savings of 10% to 15%. However, the report revealed a a lack of knowledge among marketers.

Only just under half (48%) of the survey respondents were very familiar with principal media. About half (47%) used principal media in the past year, a third (35%) did not.

Principal media may offer marketers reduced costs. However, there are multiple challenges marketers must navigate, including an overall determination as to whether such purchases are in their brand’s best interests. Multiple respondents confirmed they had concerns about agency conflicts of interest. Other issues cited include the loss of full audit rights, the quality of actual media inventory delivered and lack of visibility into agency profitability.

According to analysts at Madison and Wall, Principal Media was a key source of growth for Publicis and Omnicom and a key use of budget by many of the world’s largest marketers.

“It’s an important topic for everyone to understand," says Brian Wieser. 

“The idea that marketers opting into these programs are effectively conveying that many of them ultimately prefer bundles of discounted services with less-transparent, less-selective and lower cost media to alternatives.”

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