MEDIA FORUM: Is the writing on the wall for the credit guarantee?

Are broadcasters and media buying agencies committed to sorting out the credit guarantee system or finding a new deal?

For months now, media buyers and TV contractors have been trying to develop new rules on credit insurance. At first glance this might seem a trivial back-office issue, the province of accountants and finance directors, but it's fundamental to the whole working of the airtime market and thus the advertising business in general. For a number of reasons the old tried and trusted system is becoming unworkable but there's no clear agreement yet on what should replace it. And last week we saw Media Planning Group - the first, perhaps, of many agencies - entering a new era of trading by paying for its media upfront.

Just how worried should we be? Historically, TV contractors have always insisted that media buyers find ways to guarantee they meet their airtime debts in the event that they (the buyers, that is) go under.

The old way of doing this was essentially for agencies to take out an insurance policy underwritten by the agency's assets. But increasingly that doesn't work because most of the big players are owned by networks based outside the UK and under accounting laws, they may technically have zero UK assets to set against the policy. This means that premiums become prohibitively large or the policies less comprehensive.

And, while that side of things has been getting increasingly murky, media owner finance directors, in the wake of Enron-type corporate scandals, have increasingly begun insisting on seeing the world in uncompromising black and white.

Media Planning Group made the decision to pay for its airtime upfront rather than renew its credit insurance. Arguably MPG was unlucky - it believed that a new industry system was imminent and it didn't want to sign a year-long insurance deal that might be redundant within weeks.

The MPG managing director, Marc Mendoza, wants to make it very clear that clients will not be inconvenienced while these temporary arrangements are in force, nor will the agency suffer financially. Mendoza is absolutely convinced that a new system will emerge sooner rather than later. He also thinks that it is time to address some fundamental issues. "The TV companies have been asking us to ensure their security before we can spend money with them. On the other hand, you could argue that they should ensure their own security and that it should be a cost on their business.

"But perhaps there should be another way and we are optimistic that there will be. Everyone has taken a deep breath and we've just got to get it sorted out. There has been complete unanimity at the IPA and I think everyone has been impressed with the way that Andy Barnes (the lead negotiator on behalf of the broadcasters) has been handling the situation."

The broadcasters are doing all they can to help MPG - for instance, by keeping the upfront money in high interest accounts until the date it would have been due under the normal invoice system. They then hand the interest back to the agency. In other words, it's helping to replicate MPG's normal cash management arrangements - and one of the perks of being a media buyer is that client money comes in many days before it has to be paid out and interest is a nice little earner.

So why not go the whole hog and re-examine that and other issues? And if so, should advertisers be preparing to enter the debate? Are they worried about what they've been hearing so far? Not yet, Bob Wootton, the director of media and advertising affairs at ISBA, says.

But if a new system does not emerge within the next few weeks and other agencies begin paying up front, then this will rapidly climb ISBA's agenda.

"The role of media buyer as principal in dealing with media owners has always been an issue," Wootton reveals. "On the one hand, advertisers are big businesses and on the other hand, media owners tend to be pretty substantial businesses too. In the middle, the intermediaries are relatively small businesses - and although they hold a great deal of sway in the whole process, they have a debt exposure that is many times the magnitude of their companies.

"You can see why the finance directors (at the major broadcasters) are concerned - but if it's true that the broadcasters are the ones picking this fight, then I'm surprised at their timing. There's not only a slowdown but expenditure mix is changing. This is not the time to poke a stick at your customer base, either with media companies or further up the chain."

There have indeed been rumours that the broadcasters came very close to agreeing a new system - one based on the sort of industry-wide pooling system that you find in the travel industry as managed by ABTA. But at the last minute they completely changed their position and began playing hardball again, much to the consternation of the advertising industry.

That is perhaps a reflection of the fact that there are essentially two interest groups within the broadcasters: the bean counters who, in the words of one observer, "can't see beyond the end of their calculators" and the sales and marketing people, who are rather less than keen on committing commercial suicide at this particular point in the economic cycle.

There are rumours, though, that things have advanced substantially recently.

Are they true? Andy Barnes, the commercial director of Channel 4, comments: "Talks are continuing and there is not very much we can say until they have reached their conclusion. We remain hopeful that the outcome will be positive. Everyone would like there to be an amicable solution that will provide everyone with a level playing field."

Jim Marshall, the chief executive of MediaVest and the chairman of the IPA's Media Policy Group, is similarly circumspect: "The world has changed and it is continuing to change and it needs to be looked at differently. I think that general nervousness (about accounting practices and trading conditions) has become a factor. There are sensitivities here that we must all recognise, especially when the market is not exactly awash with money."

Hamish Pringle, the director-general of the IPA, echoes that. He comments: "It's in our mutual benefit to resolve this issue and it is important that we take the time to produce a new system for the whole industry, with options in it to suit the spectrum of (different types of) agencies involved. There are concrete proposals on the table. Let's hope there is a positive outcome. The amount of money involved here is huge."

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