Both sides are to blame. Marketers want more for less and their procurement departments have been squeezing media agencies’ margins for years. At the same time, agencies have turned to less transparent ways to make money such as rebates and acting as principal.
The widely accepted narrative is that media agencies have kept one step ahead of marketers, which is why ISBA and the Association of National Advertisers, the trade bodies for advertisers in the UK and the US, have urged members to tighten up their contracts with agencies. But marketers must accept some responsibility. It’s absurd that ISBA and the ANA, and their counterparts on the agency side, have barely been on speaking terms.
Hostilities show little sign of improving as Group M has been asking pointed questions about the role of media auditors, which advise clients on how their agency is spending their money.
All this needs to be seen in the context that, contrary to what some think, the media agency business model is hurting. According to Kingston Smith, margins at the big UK media agency groups fell below 13% last year. That’s a big drop from 15.6% in 2014 and the average of 18% since 2000.
The way forward for agencies must be to move into higher-value consulting services, which is what marketers say they want. The problem is that when procurement strikes, price becomes the deciding factor.
When Volkswagen Group recently reviewed its media, it staged an e-auction. MediaCom, the incumbent, was said to be furious because only it knew the real prices that it was being asked to discount against while rivals were offering discounts "blind".
Stephen Allan, global boss of MediaCom, won’t comment about Volkswagen but says more broadly: "Do you want to treat agencies like vendors or like agencies – what is it?"
Procurement has a role to play. Marc Pritchard, chief marketing officer at Procter & Gamble, makes a good point when he says procurement should take a more public role in this discussion.
But, ultimately, it’s about advertisers and agencies needing to treat each other with honesty – a key theme from an Oystercatchers debate last week, where it emerged that most advertisers wildly underestimated just how costly it is for an agency to pitch.
This is the communications business. It shouldn’t be so hard to talk.