Media Forum: Is inflation causing conflict?

Are client-agency relationships being put under strain, Alasdair Reid asks.

Everyone likes a bit of inflation. It oils the wheels of the economy. Even the freshest of freshwater economists tend to concede that modest increases in the money supply are not only healthy but are an inevitable by-product of growth.

And inflation (or reflation) is surely somewhat desirable if a market has been through a painful period of deflation. A market such as, for instance, the UK media sector. After all, another brutally deflationary year like 2009 and it probably wouldn't exist at all. And then where would we all be?

Almost inevitably, however, inflation (even modest inflation) tends to bring its own irritations - as, indeed, we've seen on and off recently as parts of the market, notably the television business, not only thaw out but start to exhibit the odd hot spot. Irritations that aren't exactly soothed by the fact that some media agencies won business last year on highly ambitious value-delivery guarantees.

You can argue that advertisers were just as stupid in accepting fantasy promises as the agencies concerned were in making them. But that's all somewhat academic now. There's anecdotal evidence that delivery problems are being exacerbated by inflation - and this is beginning to cause serious strains in relationships (largely between agencies and clients but also between agencies and media owners).

Something surely has to give. Media owners, for instance, could be more public spirited and begin dropping their prices again. Alternatively, advertisers could ignore the promises they've been made. Or reset the clock to year zero and put business up for pitch again.

One way or another - are we facing serious turbulence ahead? Nick Manning, the chief operating officer of Ebiquity, admits he can see some worrying signs out there. He explains: "Inflation is a problem in that it's much higher than anyone expected. Some agency promises - not just ones made on fixed pricing - are just not achievable this year.

"So inflation has just made that situation worse. Consolidation (on the media sales front) makes it even harder because there are fewer weak points. So what we've been seeing is a widening spread of value delivery (to clients). I don't think the current situation will lead to another round of pitches next year - but it's going to be a time for people to hold their nerve."

Chris Locke, the Starcom MediaVest Group trading director, argues that, where most clients are concerned, we can decouple the issues of inflation and pitch guarantees.

He explains: "Unless you have a deal guaranteeing zero inflation - and there are one or two of those around - then it's the same for everyone. If the market is suddenly up 26 per cent (year on year) as it was in May, then there's nothing anyone can do about it. They might be missing ratings versus the plan - but then predicting the future is never easy. Some agencies are better than others at keeping their clients informed about what is happening in the market. And some are better than others at offering them possible solutions. But I think it's clear that everyone continues to recognise the strength of TV - and they want to be there. So my view is that, by and large, the market continues to be well-managed. There's nothing new here."

And what of media owners? Are they caught in the crossfire here? Not really, Neil Jones, the director of commercial strategy at News International, says. He states: "Yes, media agencies made some crazy price guarantees last year. In the past, agencies have always counted on there being a certain amount of wiggle room. These days, though, procurement people are more savvy when it comes to getting agencies to deliver. So the wiggle room is smaller. We accept that, from a media agency perspective, new business is the engine that keeps the market running, so there is always going to be a certain element of cat and mouse involved."

Andy Pearch, a director of MediaSense, points out that, although TV inflation has been reaching double figures this year, 2010 will almost certainly be the third-cheapest year in the last decade. And we all knew that we'd see inflation this year - because 2009 was so grim.

He concludes: "Big inflationary headaches may yet lie around the corner, initially on the supply-side. But at MediaSense, we are developing with our clients an altogether more strategic approach, refocusing on productivity over unit cost, replacing inadequate and often retrospective performance metrics with more relevant and current ones. In other words, clients are spending more time managing and anticipating and less on process and retrospection."

YES - Nick Manning, chief operating officer, Ebiquity

"Some agency guarantees last year were always going to be difficult to deliver - but the current market has made it even less likely. It's easier to meet an ambitious deal in a declining market than in a rising one."

NO - Chris Locke, trading director, SMG

"Yes, there were agencies that made suicidal offers last year - but inflation doesn't really make those deals any easier or harder to achieve. The sector in which inflation is most marked - TV - trades off a floating price system."

MAYBE - Neil Jones, director of commercial strategy, NI

"Have agencies over-promised? Yes. Is inflation a factor too? Yes. But is it a problem that's going to go away? I think it has always been with us. There's always cat and mouse in this business."

NO - Andy Pearch, director, MediaSense

"The bounce-back from last year's nadir was predictable, so inflation should have been manageable. There are tactical ways to contain media inflation. Smarter clients also insist on better market intelligence, developing contingency plans pre-laydown and flexing the agency trading account in their favour."

- Got a view? E-mail us at campaign@haymarket.com

Topics