Media Analysis: Outdoor's extras under siege

Advertisers are starting to fight back against oft-hidden agency commissions of up to 25%, writes Jeremy Lee.

The outdoor industry has long been accused of being the least transparent of all the media channels when it comes to agency commissions. With a rate of anything up to 25% topping up their basic fees, outdoor is often the subject of rival media's claims that this is why it has enjoyed such a dramatic growth in ad budget share in the past decade.

The highly lucrative nature of the business is borne out by Aegis' decision two months ago to buy Concord, the last remaining independent outdoor specialist of any scale, irrespective of the fact that Unilever was preparing to shift its £40m account out of the agency and into WPP's Kinetic - a decision confirmed last week.

The Concord acquisition deal was based on Aegis paying a maximum purchase price of £8m, but with the loss of Unilever, its key shareholders will get a smaller sum than they anticipated.

Nonetheless, with clients including Nestle, Masterfoods and Peugeot, Concord is still a valuable asset, as outdoor buying clout polarises between Aegis' other outdoor network, Posterscope, and WPP's Kinetic.

Inflated commission

The reason why outdoor advertisers pay a higher commission rate than with rival media is because outdoor specialists - which, traditionally, have creamed off 5% commission on top of the 15% payable to the agency - were created when the outdoor landscape was very different.

In the days before large-scale media owner consolidation, and technology that allows planners to look at poster sites online, specialists had a field team to negotiate with a multitude of poster contractors and tour the country assessing the value of their inventory. This resulted in an additional expense for the agency and the 5% levy was created to enable the specialists to carry out the job.

In an age when consolidation has reduced the number of poster contractors and technology means regular site visits are no longer required, this levy could be seen as anachronistic. But outdoor has been required to keep up with technological developments of its own, such as digital outdoor and the growth of non-traditional or ambient media, as well as the creation of worldwide networks. It is therefore difficult to begrudge the specialists continuing to charge the premium.

However, advertisers are becoming increasingly concerned about the issue of sur-commissions on top of the agreed standard commission rate. Most of these come in the form of volume discounts, paid by the media owner to the outdoor specialist for providing a guaranteed volume of advertising budget. While not illegal or necessarily improper, recent events have meant that these have become the focus of advertiser attention.

The issue came to a head last month when Interpublic's outdoor specialist IPM was forced to pay back money to Tesco as part of its efforts to clean up its financial relationships with its clients. As a US-listed company, Interpublic's hand was forced by its obligation to be compliant with the Sarbanes-Oxley ruling, which states that all payments received from media owners and other sources must be declared.

As well as making a mockery of the ad industry's boast that it is media-neutral, the main problem with volume discounts is that they are paid to specialists without the explicit knowledge of the advertisers that are paying the bills.

It is an area the Incorporated Society of British Advertisers (ISBA) is aware of and suggests advertisers keep a close eye on. An ISBA spokesman says the organisation recommends that advertisers use media auditors to ensure they get clarity over how and where their ad budgets are spent, to ensure they are getting value for money.

Money back

Hugh Lindsay, a partner in media auditing firm Slik, thinks that other advertisers should be following Tesco's lead by asking for some of their money back. He also believes that because outdoor commission rates are higher, the way agencies spend their clients' ad budgets could be distorted. 'Being cynical, agencies are planning outdoor rather than more labour-intensive media such as regional press,' he says.

On the other hand, it is understandable why media-holding companies such as Aegis have expanded their outdoor operations. With margins for traditional media squeezed so tightly by the increasing influence of procurement directors, and with agencies apparently determined to destroy their own business by ruthlessly undercutting each other, traditional media planning and buying no longer pays the dividends it once did.

But with auditors taking a close interest in the outdoor market, and rumblings from poster contractors that they are no longer willing to continue paying volume discounts, there seems to be a feeling in the market that the outdoor industry will have to clean up its act.

'The whole area of hidden rebates, irrespective of the media, will have to be cleaned up one way or another in the near to medium term because of the increased scrutiny from clients, procurement people and as a consequence of legal compliance requirements in the US,' concludes Media Audits global accounts director Martin Sambrook.


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