Media Forum: Is it time to kill off commission?

Is it time to scrap a system where media owners reward agencies?

Even when it's all honest, decent, legal and above board, there is arguably something anachronistic about commission - media owners rewarding media agencies for using them. It is bound to end up in the odd case of confused or misplaced loyalties.

And, of course, that suspicion is magnified a hundred-fold when you hear instances of the system being abused. And it is, regularly. The really shocking thing is not so much the fact that the odd scandal bubbles up now and then, but rather that such scandals are, in the broad scheme of things, relatively rare.

The latest case, courtesy of Telewest, only came about because the company is traded on the Nasdaq exchange in New York and the company's US accountants were unable to distinguish between (alleged) dubious dealings at the UK sales house IDS and what passes here for standard business practice at certain levels of the media industry.

The main commercial question many smaller media owners face is how they go about attracting a share of revenue greater than their share of audience.

Many will talk a good game about the unique nature of their demographic profiles and the innovative deals they can offer. In reality, however, some just cut to the chase and offer more or less cunningly concealed ways of rewarding media traders for giving them "incremental revenues".

A market leader such as ITV doesn't need to do this. Others do. You can hardly blame media owners for doing all they can to maximise revenues.

But isn't it time for media specialists to insist on a cleaner and more open trading environment? After all, they will insist on banging on about wanting to be regarded as consultants, advisers and the true business partners of their clients.

The most radical solution would be to call for an end of the commission system in its entirety. Start again with a transparent, 21st-century way of doing business. Is it ever likely to happen?

Nick Manning, the chief executive of OMD UK Group, hopes so. He states: "If it were a horse, the commission system would have been put down by now. It's a payment system devised decades ago, when media buying was the main end-product of agencies. We should charge fees based on hours worked, with an agreed profit margin and performance-related fees based on service and results - including, obviously, buying - and this is what the most enlightened clients now also believe."

Andy Bolden, the UK advertisement director of GlaxoSmithKline, would agree with most of that, but he also acknowledges that any change could be painful for all concerned. In any case, he states, commission has already become somewhat peripheral.

He comments: "It should come way down the pecking order where remuneration is concerned. I think we recognise that you can't expect to get insight, analytical tools and econometric modelling from a payment system based solely on commission. The other important element is performance-related payment. Rewarding great performance is vitally important in cementing partnerships. But there are circumstances - for instance, ad hoc pieces of work - for which commission is an appropriate way of receiving payment."

Andy Barnes, the sales director of Channel 4, says he's willing to consider any form of remuneration system that people want. But, he says, whatever they may say in public, some agencies believe it's in their interests to maintain commission. He explains: "It's hard for me to comment on (alleged abuses of the commission system) that I have no personal knowledge of, but I'd suspect one of the factors here is that many advertisers have put pressures on agency margins. Many clients are effectively saying they will no longer be paying for some of the things agencies do."

In other words, aspects of the system may have become a necessary evil.

Iain Jacob, the chief executive of Starcom Mediavest, doesn't exactly see it that way. Some advertisers (sophisticated, media-literate ones at that) know what they want and will often give their agencies tasks where the emphasis is clearly on implementation.

He concludes: "For that sort of advertiser, commission is a good, risk-free method of remuneration and for us there is a good correlation between payment and workload. But it's true agencies are asked to do a lot more than just buying and remuneration has, as a result, become more bespoke. Commission continues to decline in importance but it can be too easy to dismiss it."

YES - Nick Manning, chief executive, OMD UK Group

"Buying is only part of what we do now - if we're paid (principally) for spending money, we discount our input on insight, strategy, planning and accountability, not to mention the 10 per cent of time we spend talking to auditors."

YES - Andy Bolden, UK advertisement director, GlaxoSmithKline

"These days, a commission is no more than a token admission that there is administrative work to be done in the process of media implementation. Fees and payment by results are now more important."

MAYBE - Andy Barnes, sales director, Channel 4

"There will always be agencies that want to work within the commission system. There will always be those who believe they can gain an advantage. But I am happy to talk about whatever form of remuneration system people want."

NO - Iain Jacob, chief executive, Starcom Mediavest

"We prefer methods that allow us to allocate resources in a measured way and we firmly believe there should be a performance-related element. But no agency can dictate to its clients how it will be paid."

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