ISBA claims brands are using tougher agency contract to review £6bn of media spend

ISBA claims advertisers are using its new, tougher framework contract to review £6.1bn of adspend with media agencies.

Phil Smith, ISBA's director-general: 'There has been a bit of grinding of gears'
Phil Smith, ISBA's director-general: 'There has been a bit of grinding of gears'

The trade body for 400 UK advertisers launched the framework contract in April 2016 as part of a drive to improve agency transparency over rebates and online advertising.

"ISBA has identified £6.1bn worth of client media spend as having either already been renegotiated or that will be renegotiated in the near future with the framework contract used as guidance," ISBA said in a 12-page review into advertisers’ usage of the framework contract.

Twenty-seven organisations spending £1.67bn have already completed negotiations and 18 companies with £4.5bn spend will be renegotiating "in the near future" in the next 12 months.

"In the short term, there has been a bit of grinding of gears," Phil Smith, the director-general of ISBA, admitted, noting some agencies have resisted some of the measures in the framework contract.

About 28% of advertisers which have used the new contract told ISBA their agencies were "not so happy and reacted negatively".

Both UK and international brands, including some "large" advertisers, are using the framework, which covers key areas of the client-agency relationship including rebates, data usage, brand safety and online ad fraud.

None of the "big six" global agency groups have said publicly that they are willing to use the existing framework contract but ISBA’s review says the majority of clients which have renegotiated their contracts already are with agencies from the major networks.

Smith said: "The intent is to create a much healthier relationship [between advertisers and agencies] for the long term."

He added the £6.1bn figure includes information from some advertisers that he "can’t disclose" as some renegotiations with agency have taken place privately – sometimes without a pitch or a review being announced.

"The progress we’re seeing is very encouraging," Smith said. "It’s clear that some members are implementing it [the contract] wholesale or to augment their existing terms or using part of it with agencies. It’s creating better relationships with agencies and better alignment [of interests]."

Smith said every member of ISBA had asked for a copy of the framework, after the trade body updated the guidelines last year for the first time in a decade to reflect the more complex digital eco-system.

Some of the agency contract renegotiations have been "CMO-led" while in other cases an advertiser’s legal or procurement team is taking the lead, according to Smith.

ISBA controversially said at the time of last year's launch that some agencies do not have "the best interests of their clients at heart any more" and it did not consult agencies or their trade body, the IPA, before publishing the framework contract.

Smith, who started at ISBA at the beginning of 2017, admitted that some of its language had not gone down well with agencies.

"In any commercial relationship, people need to be open-eyed," he said, because their interests "are not going to be identical".

A number of independent media agencies including the7stars have said publicly that they are using the ISBA framework contract.

"The network agencies have been much more cautious about adapting this contract and, in a number of areas, they’ve chosen to manage their feedback on the contract through the IPA," Smith said.

ISBA said "the definition" of rebates and agency volume deals, known as AVBs, was the most contentious clause with 70% of respondents claiming this had been challenged. 

However, in half of the renegotiated contracts there were "no compromises" to clauses made.

ISBA said it was publishing the review because it wanted to provide an update to the industry as it works on a second version of the framework contract in early 2018, and it has appointed auditors PwC as an adviser.

Smith is hopeful that ISBA has already "ironed out" some of the "annoyances" in the framework contract.

"We know it was written with an advertiser’s perspective," he admitted. "We know some of the requests and requirements are difficult and onerous to implement in practice."

He noted "it’s difficult to access agency records all the way through the network" and ISBA has been looking for "practical ways" to overcome such problems.

Asked if the robust actions by ISBA and its US counterpart, the ANA, have led to a reset in advertisers’ relationship with agencies, he said: "It’s clearly having an impact on how agencies are managed.

"If it’s causing a short-term bump that’s probably a good thing because it will cause change for the better.

"We know from what’s being said that many agencies are looking hard at this again, at how they add value and deliver business results and growth for their clients. That has to be good."

One ISBA member from a tech company said: "We were convinced that there was a need to improve our position in terms of transparency, group level contracting, choice of auditor, definition of records, return of AVBs, treatment of unbilled media, [and] capping use of inventory media.

"The world had moved on and the market changes gave us the opportunity to challenge our previous contract language."