Adjusted media coverage: Leader-driven media acquisition strategies
In the past, media agencies operated in a less complicated landscape. With only one commercial broadcaster before Channel 4 and Sky emerged, print media, such as The Sun and The News of the World, reigned supreme, reaching up to 4 million readers. Radio and out-of-home (OOH) advertising were vital components of any brand campaign, while direct mail, door drops, and inserts were essential for direct response clients. The way people responded to advertisements was limited to phone calls or physical store visits, making tracking performance a straightforward task.
As the 21st century approached, digital media began to rise, necessitating media planners to acquire an entirely new set of skills. The digital revolution not only marked the biggest shift in media landscape history but also triggered a change in what clients were prepared to pay agencies. Traditional media owners once offered agencies a 15% discount, allowing them to maintain healthy margins, but as media agencies expanded, they mostly competed on lower media costs, which led to a race to the bottom, often reducing fee's to win pitches, eroding margins even further.
The dwindling margins did not sit well with agency holding companies and shareholders, prompting media agencies to become more innovative in their revenue generation and margin protection. They argued that digital media required more resources, enabling them to charge more for that segment until pricing promises during pitches also eroded those margins. Agencies then found another means to restore their revenue through the black-box nature of programmatic trading, by adding margins to technology costs, thus driving income growth that remained hidden from clients. However, this practice was eventually exposed, causing many clients to move from the networks to independent agencies, which promised transparency and better service. Yet, many clients still sought ways to reduce their agency costs.
To lower costs, clients initiated another round of pitches, where agencies, desperate for business, reduced fees and pricing even further, further eroding margins despite needing more personnel to manage the increasingly large and fragmented media landscape. Was this the end of healthy margins once more? To counter this, media agencies identified a novel approach by buying their own media inventory in bulk at discounted rates. They later sold this inventory to clients at market value, or often much higher, restoring those dwindling margins through a practice known as principal-based or proprietary media buying.
Though this practice persisted for a while without clients' knowledge, it has since been exposed by pitch consultants, sparking intense debate over its ethics. On one hand, agencies justify this model as enabling them to offer clients the lowest media prices and provide better value. However, when agencies struggle to meet their targets, they may prioritize their own profits by overcharging clients for media, leading to concerns about the lack of transparency. Moreover, such practices can result in questionable media planning choices, where agencies prioritize their own inventory, raising questions about whether agencies ultimately work in the client's best interests or their own.
The largest media agencies can harness this approach to win clients with their attractive pricing, but smaller clients risks being left behind. As clients with smaller budgets may not receive the same benefits, it appears that the agencies' biggest clients will reap the advantages of principal-based media buying. While this model has its merits, it is important to maintain transparency and avoid conflicts of interests in order to uphold trust between agencies and clients.
Main image by Alberto Contreras on Unsplash
[1] "Programmatic Advertising Market and Growth Story 2021-2026," ResearchAndMarkets.com, 2021.[2] "Principal-Based Trading: The Evolution and Ethics of Media Agency's Proprietary Purchases," AdExchanger, 2019.
- The digital revolution in media landscape not only required media planners to acquire new skills but also led to changes in what clients were willing to pay agencies, triggering a race to lower media costs and eroding margins further.
- To restore dwindling margins, media agencies resorted to practices such as programmatic trading, adding margins to technology costs, driving income growth that remained hidden from clients, although this practice was eventually exposed.
- In response to clients' efforts to lower costs, media agencies implemented proprietary media buying, where they bought their own media inventory in bulk at discounted rates and sold it to clients at market value, or often much higher, restoring margins through a practice known as principal-based or proprietary media buying.
- Despite its benefits, it is important to maintain transparency and avoid conflicts of interests in the proprietary media buying model to uphold trust between agencies and clients, asQuestionable media planning choices can arise when agencies prioritize their own inventory, raising concerns about whether they ultimately work in the client's best interests or their own.
