Between the Lines: Agencies must make profit

It's no surprise Interpublic is already in talks with clients about returning undeclared payments to agencies. You can bet that the talks stretch beyond Tesco to other clients and to other IPG agencies beyond Initiative and Lowe London.

Most of the debate so far has been about undeclared volume discounts received by media agencies from media owners. But it's interesting that talks with Tesco apparently also involve a rebate from its creative agency.

Ad agencies have always sought to supplement their income by, to put it politely, putting a premium on production costs. Now, however, there is pressure to end this widespread practice or at least for agencies to be clearer on what they are charging the client.

In general, agencies are facing falling revenues from the production process as many large advertisers are starting to put their production costs through specialist production houses outside of the ad agencies.

All of which puts downward pressure on margins and increases the temptation to make money on the side.