The recent furore around Omnicom's OPera and Channel 5, and the wisdom of media owners approaching advertisers direct, made for good headlines. But I fear it served to disguise the real issue behind the squabble.
The key issue that should worry advertisers and their main stakeholders relates to how best to measure and get value for money from any ad media investment.
And the tragedy – and it’s not too strong a word – is that media agencies and the supposedly independent auditors are complicit in creating and maintaining wholly spurious and misleading measures.
To compound matters, agencies get performance-related fees, using a tick-box auditing approach based on misleading metrics. And, until recently, media owners have just gone along with it, accepting what could be construed as bullying tactics by media agencies.
The focus is on relative – rather than absolute – value for money. Deals are completed, bought and sold on a spurious concept.
For example, let’s say there are two buyers, Pat and Dave, and two media owners, North and South. Pat buys North at a 10 per cent discount and South at a 15 per cent discount. Dave buys North at a 5 per cent discount and South at a 10 per cent discount. Who is the better buyer?
'If we concentrate only on the single metric of relative pricing, advertisers get misled'
Seems an open-and-shut case for Pat. He gets the bigger discount on both North and South. But that’s the problem with relative metrics: the maths are incomplete.
Let’s replace relative with absolute metrics. The absolute price of the goods on North and South are not the same. The standard cost of reaching the chosen target audience on North is £100 but on South it’s £140.
The absolute price of Pat’s buying on North is £90 and £119 on South. The equivalent prices for Dave work out at £95 on North and £126 on South. So Pat is still the cheaper on each channel but there is one more piece of maths to complete before reaching a conclusion.
Pat has decided to split his investment 20 per cent on North, the cheaper channel, with 80 per cent on South. Dave declines to spend that much on the more expensive channel and invests 45 per cent on the cheaper absolute price of North while still investing the larger proportion of 55 per cent on South.
Pat delivers a network price of £113.20. Dave delivers a network price of £112.05. It is Dave, not the discount operator, who delivers the better absolute value across the network.
The use of this absolute value approach was introduced years ago as "cash price". It takes into account the three steps necessary to determine real value for money and avoids the pitfalls of the erroneous concept of "discount". It’s sad to realise that this validated approach is seldom, if ever, employed in current auditing.
The three steps embrace: a) the discount; b) the absolute price and; c) the buyer’s chosen allocation across media. These are the three steps that Channel 5 is encouraging OPera customers to take. I applaud that approach. If we concentrate only on the single metric of relative pricing, advertisers get misled and media agencies and auditors continue to swan around in, and get paid for, a quagmire of misleading nonsense.
John Billett is a consultant at ID Comms