campaignlive.co.uk, Friday, 06 March 2009 12:00AM
It's archaic and belongs in the 80s. No, not Rory Sutherland's dress sense, but the annual Nielsen billings table, as viewed by Gary Leih, the chief executive of the Ogilvy Group.
Leih, whose agency is ninth in the table, believes the measurement, far from reflecting the relative health and wealth of an agency, "is so far removed from the science of communication, it's a bad joke".
Leih is not alone in his assessment; Stephen Woodford, the chief executive of DDB, believes the industry should move away from the Nielsen table towards a revenue measurement. Woodford, who witnessed DDB dropping out of the table's top ten last week, explains: "If I was looking at how we were performing against our competitors, I would look at our revenue rather than billings."
Based on the ratecard, Nielsen billings show which agencies saw the most media spend during the previous year. Critics argue that because Nielsen does not include billings for direct marketing, digital, other non-traditional services and international work, the results are skewed. Woodford says: "Nielsen only measures advertising in one market. It has limited meaning. It is purely domestic, purely above the line."
Jim Marshall, the Starcom chairman, believes that while the billings measure serves as an indicator of trends, it is more suitable for media agencies than for creative agencies. He says that attributions for creative agencies are more complex and there is also potential for misappropriation of billings for clients who use a roster of creative agencies. But even for media agencies, the results are not definitive. Marshall says: "It's based on average rates and nobody pays an average rate. There is always going to be a question over precision."
Some argue that a league table based on agency income would be more relevant, but the Sarbanes-Oxley Act in the US, which prohibits the public release of unaudited financial information, hinders this. Others suggest headcount, but there are difficulties surrounding the inclusion of flexi-workers and freelancers. Experts tend to look to the Kingston Smith W1 analysis of Companies House data, but that also has its critics.
Bob Willott, the former editor of Marketing Services Financial Intelligence, believes that the only meaningful measure of an agency's size is the scale of its output, represented by the amount billed to clients that can be used by the agency to pay its operating costs and to contribute to profit. It's a method used in the US (albeit only for publicly listed companies) and one Willott is lobbying the International Accounting Standards Board to introduce here.
However, in the absence of a comparable alternative, many in the industry feel the Nielsen data still serves a purpose. Cilla Snowball, the chaiman of Abbott Mead Vickers BBDO, which has been at the top of the table for the past 13 years, says: "It's objective and it's a fair 'apples with apples' data comparison of agency performance and momentum. The trend and market data over time is useful and it tells the story."
Hamish Pringle, the IPA director-general, feels that despite the drawbacks, Nielsen is still a measure worth watching: "We need to ask exactly what is it we want from a league table. I think we just need to know who's up, who's down and who's treading water. In which case, Nielsen billings provide internally consistent results over time, and thus an approximate truth we can all believe in."
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MEDIA AGENCY HEAD - Jim Marshall, chairman, Starcom
"The Nielsen data has relevance in terms of showing trends and the broader picture as it relates to the main media, but you have to treat the figures with a degree of caution.
"It shows the broad view of which agency has gone up, which has gone down and it's largely indicative of the direction they are moving.
"It's indicative and illustrative of what is happening, but it's not definitive data.
"Part of the problem is that the data was designed for the 20th century and, in the 21st century, life is more complex."
CREATIVE AGENCY HEAD - Will Orr, chief executive, WCRS
"The most important measure for any agency is the quality of its output and the depth of its client relationships. Then, from a shareholder or employee perspective, margin and profitability are key.
"Billings aren't the most important measure, but they're not 'irrelevant'. Growth is important and billings are a good measure of relative growth.
"What the billings table does show is that the agencies which pursue a quality agenda tend to grow as a result."
FINANCIAL SPECIALIST - Bob Willott, former editor, Marketing Services Financial Intelligence
"How relevant are billings? The short answer is 'not very', but it is about the best we can currently get.
"Billings are a mishmash of income streams, some of which are passed on to suppliers such as media owners and production houses, and only the balance is retained to reward the agency for its work.
"The ideal comparative measure would be one that puts a value on the work done by the agency itself - represented by the cash it can retain from what it bills to its clients after paying any third-party suppliers."
CREATIVE AGENCY HEAD - Gary Leih, chief executive, Ogilvy Group
"The infamous billings table is not a measure of the health and wealth of an agency.
"We have an online planning and buying department that employs close to 100 people. There's no measurement of this. We have a mobile marketing company that has 11 people and there is no measurement of this. We are the biggest single employer and yet we are at number nine. It's ridiculous.
"The thing I worry about is that in publishing the Nielsen billings, Campaign is perpetuating a myth."
This article was first published on campaignlive.co.uk