CES and the Future of Advertising

As we speak, the future of advertising is being debated in Las Vegas at the Wynn Hotel by a cast of characters including Sir Martin Sorrell, WPP Global CEO, Brian Lesser, North American CEO of Group M, and Brian Gleason, [m]PLATFORM Global CEO. In the past few years, marketers and advertisers have had an increasingly large presence at the Consumer Electronics Show, signaling the pervasiveness of technology in marketing efforts.

But perhaps CES and the agency world isn’t where the discussion needs to happen. Perhaps it needs to happen at the marketer level. After all, programmatic techniques have allowed individual marketers to exercise the same media buying power they used to have to outsource to agencies. Back in the good old days, before people hated advertising, media buyers had to use agencies because the agencies had better buying power than any individual brand, and they got the best prices.

Not so anymore. Or if they do, they don’t pass those prices back to the customer. Last year, in the face of the ANA report,  some forward-thinking companies began to build their own attribution models and take some of their buying in house. They also began advocating for transparency into their media rates.

Although the ANA report didn’t appear to make much of a dent in last year’s buying trends, it has slowly been building momentum in the minds of advertisers, because at the end of the day they pay the bills. Besides, the more they know about how their own media buying works, the more strategic their planning can become.

The report, conducted by research firm K2, disclosed:

  • Cash rebates from media companies were provided to agencies with payments based on the amount spent on media. Advertisers interviewed in the K2 Intelligence study indicated they did not receive rebates or were unaware of any rebates being returned.
  • Rebates in the form of free media inventory credits.
  • Rebates structured as “service agreements” in which media suppliers paid agencies for non-media services such as low-value research or consulting initiatives that were often tied to the volume of agency spend. Sources told K2 Intelligence that these services “were being used to obscure what was essentially a rebate.”
  • Markups on media sold through principal transactions ranged from approximately 30 percent to 90 percent, and media buyers were sometimes pressured or incentivized by their agency holding companies to direct client spend to this media, regardless of whether such purchases were in the clients’ best interests.
  • Dual rate cards in which agencies and holding companies negotiated separate rates with media suppliers when acting as principals and as agents.
  • Non-transparent business practices in the U.S. market resulting from agencies holding equity stakes in media suppliers.

So meeting at CES to discuss the future of advertising had best begin with a fundamental change in business practices between agencies and their clients. So many trends threaten the future of advertising that now’s not the time for agencies and marketers to be working at cross-purposes.