Who's footing the bill for opaque media trading?

Everyone appears to be a winner in the world of media trading - but someone always ends up paying. By Maisie McCabe.

Billett: trying to ‘scare advertisers into addressing the issue’ of media pricing
Billett: trying to ‘scare advertisers into addressing the issue’ of media pricing

Is media trading the next Libor scandal waiting to happen? John Billett, the elder statesman of media auditing, certainly thinks so. Back when he invented the media audit, things were much simpler, he says. Now, because the real price of media is masked in a holding company deal, the advertiser does not know how much this really costs or, in his view, whether it is actually getting a good deal.

At present, after an agency has bought media for an advertiser, the cost of this is compared to an "average price". In traditional media auditing, if what is paid by an advertiser is the agreed discount under the supposed average price, then the agency has done its job. Yet, because the average often conceals the discounts offered to the agency’s holding company, the deal might not be as good as it seems.

Billett has an agenda, of course. He came back into the world of media last year when he bought into ID Comms, a marketing consultancy company, and he is now working on a new way of auditing media.

Once it is ready, he hopes it will provide a better way for advertisers wanting to find out whether their media is good value. Billett says he is trying to "scare advertisers into addressing the issue".

According to Billett, media agencies, under pressure from clients, have started to use holding company deals to make up a shortfall elsewhere. Most people would accept that this is probably true. If advertisers insist on deals that prevent media agencies from making any money, they are going to have to look elsewhere to fund their businesses. The fork in the story arrives with the issue of whether advertisers are being ripped off.

Billet suggests that the way media is traded is open to manipulation

Billett believes that advertisers are being denied discounts due to them. He is not insinuating that the way media is traded is fraudulent, just tentatively suggesting that the method is open to manipulation.

ISBA is about to publish "extensive guidance" on the issue but claims the complexity of trading makes it one that cannot be so easily compared to Libor.

One sales director, speaking on the condition of anonymity, baulked at the idea that advertisers are being hard done by. Instead, advertisers are getting the media agencies they deserve after years of reviews and downward pressure on prices. If media agencies win a piece of business on the basis of a price, and deliver that price, then what is the problem?

In all of this, the part of the industry to really suffer is the media owners. Media agencies, after all, have found a profitable solution to the pressure on commission payment and advertisers are getting what they were promised. As WPP’s chief executive, Sir Martin Sorrell, often attests, media is currently one of the most profitable marketing services. This money is coming from somewhere: the media owners. Radio and press are suffering at the sharp end, but the practice is prolific among digital media owners too.

When you have a situation where an auditor is using a benchmark that does not exist, it seems sensible to look for a better solution. But in a world where clients are increasingly asking to extend payment terms and for upfront fees, it is unlikely there is much concern for advertisers’ plight. If the desire for change comes, it might be from the media owners drowning in discounts and volume deals.