I don’t want to take up too much of your time, seeing as how the holidays are banging on the door to see if we are ready to pack up and go get a drink. So this will be a brief listicle to peruse while online at TSAPre…
The big agencies love to announce big deals. Recently IPG announced a big deal with Cox. GroupM does a big upfront with Huffington Post. Omnicom says it will plunk down a jillion dollars with Instagram.
Every couple months there is a spate of announcements about a huge agency entering to some kind of major commitment with a media property. The details are always the same:
“We see the value of this innovative channel and believe that our clients will be foisted onto the cutting edge of history, while at the same time showing that we have our eyes on the future,” says some chief investment spokesperson at Three, Last , and Names.
“We are excited to offer innovative ad products to Three, Last, and Names’ client. We think we are uniquely positioned to slice his or her fingers on the cutting edge of history in a way that no one else really can right now. We are humbled by TLN’s realizing our greatness,” says CEO and Founder of JiggyJaggyFizzleWizzle, a new social media something-or-other.
Yes, the upfront has been around for TV long before most of us have been alive. And large media buying concerns have done big-money commitment deals over the years fairly regularly. As someone who has worked on the inside, the real value has always been up for debate; usually a small price break (like, really small). Most of the time, the onus of any of these deals almost always falls on the agency, where the corporate layer pushes the obligation down to the agencies who are then “strongly urged” to allocate spending. Now, most of the time the decision about how big the commitment should be is based on historical spending, and so the risk is ostensibly nil to small.
But times change. If I said I’d spend $100 million with MySpace over the next 3 years back in 2007, would I be doing my clients a service saddling their agencies with the commitment?
So, why do the holding companies do this? What are the real benefits? Shhhh. Keep this between us.
The benefits to agencies and their holding companies are as follows:
1. It’s not about the pricing; it’s the value-add. Everyone gets the same pricing at the holding company level; don’t let anyone tell you differently. The distinguishing features are what kind of value-add is a part of it. The data, the research, the tool development that can contribute to business analytics and insights. It really ain’t about ads at all.
2. The PR kick. Being able to tell the industry, and your clients, that you have seen the future and are committed to it makes everyone in the organization feel good. It might even lock the back-door of some agencies, keeping clients from leaving who might have been considering it. Clients want good ideas and good intelligence, and they don’t care where those come from as long as they get them first. Deals like this portend that the ideas and insights could be forthcoming.
3. The kick-back. No body talks about it, but everyone knows it’s there. With downward cost pressures having eroded agency fees, the holding companies need some other way to pull in a few bucks. They are already getting the double-dip on arbitraging their trading desk buys. These kinds of agreements invariably have as part of them a “rebate” that can be shared among those agencies that participate, commensurate with that agency’s contributions to the total spend commitment of those deals.
So, there it is: a short listicle for the trip home.
Merry Christmahanakwanzaka, everybody!
Jim Meskauskas is a co-founder and Chief Strategic Officer of Media Darwin, a consultancy specializing in strategic planning of commercial communicative action. He’s a medialogist who has spent the last 20 years living, breathing and thinking about how to use media to move people to action. Outside of that, his likes are horror movies, Southeast Asian cuisine, his wife and his cat — not necessarily in that order. His dislikes are mean people, people who text while walking in or out of the subway entrances, pestilence, war, famine and death.