Is this the last Christmas of television share based trading?
A view from Bobby Din

Is this the last Christmas of television share based trading?

In the media world that's experiencing seismic and systemic change, how much longer will share based trading last? Goodstuff's investment partner answers this question.

As creative and independent media agencies spend the remaining few weeks of the year desperately juggling the delivery of seasonal client campaigns with too many Christmas parties, five people from the network media agencies are locked away in high security meetings trying to finalise the finer details of the share percentage deals supporting over £4bn (80% of total TV) worth of television trading for 2018.

And in the media world that’s experiencing seismic and systemic change, how much longer will this form of trading last?

A simple question maybe. However, I realise the answer is less than straightforward as it will require collaboration and change from clients, agencies and media owners to reflect this. So, there is a question to each of the three parties to debate. 

But before that, and for those not familiar with how the big media networks negotiate television, let me briefly and simply explain. Firstly, the agencies look to predict at least 12 months out what their television spend will be and then negotiate a share of this budget with the broadcasters in return for a commensurate price. The higher the share the better the terms. Once agreed, the agency’s primary objective for the next 12 months is then to ensure they deliver that share to the broadcaster. Failure to do so has significant commercial implications. 

To the clients: price or value?

There we go. Right up front. I said it. What really matters – cost of access or cost of growth?

Ask a client business owner if they’d like the cheapest media price in town or the best cost per acquisition and I know what most would go for. This matters because the principle benefit of a share deal is the perceived price (for the chosen few big clients who are actually given access to this). But, if that price precludes you from optimising your spend into channels and environments that deliver the best return, if that price penalises you for releasing short-term budget increases or prevents you from making vital cash flow amendments, it’s a false economy surely very few modern business owners would back.

To the agencies: industrial scale or independent service?

The UK media market has never been so unpredictable and volatile with rumours of over-trading once again rife, and put simply, I think agency owners and shareholders have two stark trading options for differentiation and success. At one end of the spectrum the really big groups will probably stick with share based future trading as they have the scale and depth to reduce risk and build in some client flexibility. At the other end, the smaller agencies should focus on client based deals that are bespoke to their needs and are positioned to media owners as discretionary spend. Those stuck in the middle, however, and claim to offer both industrial scale and independent service, have some tough decisions to make. 

Lastly to the media owners: share or volume?

Given the choice, what would most business owners and commercial directors go for? A higher share with less revenue or less share but more revenue? It seems a strange question, but in reality, this is what happens in the mature TV market where share dictates price and theoretically, a TV sales director could be satisfied with less revenue provided their share was higher. This is not the way markets grow nor the way most other media is now traded. And as if that’s not enough reason to challenge the status quo, these sometimes-onerous share-deals are often cited as the core problem of the network agency business model. 

So, what will happen?

Share based television trading has been around as long as I have (yes, I know…). So, it’s not going to go overnight as it does have benefits for the biggest clients, agencies and owners and the legacy for some will simply be too difficult to unpick. That said, all agencies and media owners want to grow their businesses in what is a flat economy, so we will see more interesting and entrepreneurial ways of trading emerge that focus on net cash in, not percentage points of share.

Bobby Din is an investment partner at Goodstuff.