MEDIA FORUM: Can media agencies afford greater transparency? As the industry moves on, can income figures still be regarded as too intrusive a way to give media agencies a ranking, Alasdair Reid asks?

If only everything in life could be as reliable as the accountancy profession. Where would we be if companies could just "make up numbers that they found pleasing and managed to get a whole bunch of bean counters to give them an official-looking rubber stamp? It doesn't bear thinking about, does it?

Unfortunately, though, the advertising industry knows a thing or two about creative accountancy - or at least it did once upon a time. Back in the bad old days, agency league tables were compiled on the basis of "billings - a concept linked to a commission-based payment system believed to have been widespread way back in the last century.

Billings became increasingly irrelevant for creative agencies as they moved more to fee-based remuneration. And these days they never actually get their hands on the media budget - the old measure of what an account is worth. So even those who insisted on trying to punt their own version of their billings figure (derived by applying lavish amounts of exaggeration to the number you first created) were eventually laughed into line.

Last year's IPA league tables were the first to be compiled on the basis of income and this year's tables represent a fine tuning of that first effort - and it's surely especially encouraging to see an increased participation by media agencies. Is this an indication that income is becoming more accepted as a currency? There are, however, some notable gaps in the media table - Carat, Zenith and Mediaedge:cia continue to withhold their figures.

Why? Because, Mark Craze, the chief executive of Carat, says, even the IPA recognises that, for media agencies, billings are still a valid measure.

"For us, income figures are not a true representation of the industry or valid as a ranking mechanism. If you look at this year's table you have Poster Publicity appearing at eighth place on £7 million. But it's a nonsense to compare Poster Publicity to someone like, say, MediaCom.

They are totally different business models. Any measurement system needs some level of consistency and people also like to be able to look at trends.

The beauty of MMS (the main billings measure currently in use, compiled by monitoring media spend) is it's like for like and there's trend data there. The income data is like trying to compare apples and bananas. We are happy with our position at the top of the billings table. For creative agencies income makes sense but from our point of view income is commercially sensitive information and I'm delighted so many media agencies have decided to share that information with me. I'm happy to see their willies but their not seeing mine."

Sources at Zenith agree with much of that. Income data is operationally sensitive information with limited relevance from a rankings and trend point of view - and one way that it can be abused is by clients wishing to squeeze even more in terms of margins. Zenith did not wish to comment on the record though - and that won't dampen speculation that its income figure remains relatively low.

But surely income data is the way forward over the longer term? Hamish Pringle, the IPA's director-general, points out that the income table was instigated last year by popular request - many media agencies felt left out when the creative agency income table first appeared. "We are a membership organisation and we abide by what our members say. Naturally we would like a complete table and it's a shame we haven't got everyone in, but when people see this list and hopefully find that the world hasn't ended or the sky fallen in, it might give them more confidence to get involved for next year. Equally some may see the table and say they're not doing it again."

The IPA is aware of agency fears that they'll reveal too much. Some agencies believe that declaring an income figure can, when juxtaposed with billings, give too much of a fix on margins and the deals they have. Another complicating factor is that many are part of plcs and are wary of the possibility they might be disclosing price-sensitive information. Pringle argues that an increasing amount of income is derived from fees, which means that the figure is not as revealing as some people fear.

He adds: "The point we keep coming back to is a philosophical one. We're doing it to communicate to clients that agencies are relatively small businesses operating on relatively small margins but that they punch well above their weight in terms of what they deliver to clients. Hopefully the waverers will take a step back, worry less about what the table might reveal about the internals of their companies and reflect more on what the table achieves as a whole in positioning the industry."

Nick Lawson, the joint managing director of MediaCom, believes that changes to the media industry have already made income a more valid measure of an agency's success than billings and that as the changes continue, billings will become an increasingly irrelevant measure. He says: "To begin with, agencies have long been moving away from commission to working on a fee basis - although you could argue that fees are still often calculated to equal a nominal commission rate. But other changes move us away from billings and commission altogether. A major planning win won't show up as billings. And as media agencies move beyond traditional planning and buying and offer more and more added-value services, the amount of work we do that isn't billings related will only increase."

Lawson says it's hard to see why any media agency would be reluctant to publish its income figure. "Transparency should be central to any media agency and anyway, when you compare the income figures from our sector with those of creative agencies, and consider how much more we are actually offering clients, we should all be happy to show what a bargain we are."

Iain Jacob, the chief executive of Starcom Motive, agrees: "Billings remain important for media companies but they can be terribly misleading.

You always have to treat them with caution. But my view is that the IPA is perfectly right to promote these figures - it suggests a degree of professionalism and progress. Other professional sectors certainly do it so why shouldn't we? As for the argument that they are too revealing, these days income comes from all sorts of areas, such as international billings, research and consultancy and planning-only business - that aren't recorded by MMS. That shouldn't be underestimated.

Our business needs to get more confident. Agencies have famously lacked confidence but there's less excuse for that as the business continues to consolidate."


Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus