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The rapid acceleration of key trends in the marketing industry during COVID has created a particular challenge for the way media agencies are rewarded by clients.
In most markets, agency contracts are made up of remuneration terms with a degree of risk and reward. High performance over and above the base terms unlocks financial rewards; poor performance results in malus or financial penalty. For media agencies, this risk/reward system has for a long time been hitched to media pricing commitments – specifically the baseline price achieved for linear TV advertising.
But the way consumers interact with brands, spend time with content and media, and buy products and services has been revolutionised. In almost every country, consumers have moved away rapidly from traditional communication channels like linear TV into a complex system of experiences across (mostly) digital platforms. For advertisers, this makes audiences harder to reach at scale, more expensive to engage, and almost impossible to predict.
This has in turn upended budget allocation. Linear TV used to account for the vast majority of clients’ media spend. It was highly trackable by independent auditors and clients alike, and potential price fluctuations were well understood and accounted for.
Owing to the impact of COVID, and the growing financial clout of global streaming services – GroupM Finecast estimates the cost per episode of the most expensive Disney+ show to be $25m, compared to NBC’s most expensive show at $2m per episode) – audiences of linear TV are falling away, and media pricing is inflating rapidly. Even the most skilled agency traders cannot counteract the forces of supply and demand.
As a result, client spend in linear TV has fallen rapidly in favour of other online video platforms (and digital in general). Savvy clients are adjusting their paid media spend as a share of advertising and communication in favour of investment in production and the creation of content and assets for owned and earned. It’s a smart move – Global Web Index data shows owned and earned touchpoints have grown exponentially as a source of brand discovery over the past two years, while paid touchpoints have declined.
This creates an inconvenient truth that media agencies and client procurement teams must tackle together urgently – TV pricing is no longer a good indicator of agency performance.
It’s a complex issue and the solution is not straightforward.
Beyond linear TV, media pricing as one test of success (or not) may still have some relevance – but with much digital media bought on a biddable model, the pricing dynamics in digital require a more flexible approach if used to assess performance.
In China, where linear TV has had a much smaller role in the marketing plan, there is already a more nuanced system in place. “Agencies are more likely to be assessed on the digital investments that attract 87.4% of Chinese media spend, up from 50% in 2015,’ says Sachin Gupta, Wavemaker’s China Head of Investment. “Like linear TV metrics, KPIs include cost and quality but also engagement-driven metrics like click-through rates and even ROI in some cases, especially with ecommerce in China predicted to grow 9.2% this year.”
In the US, the TV market has long been dominated by the seasonal upfronts and fixed annual media commitments to linear broadcasters. Things are changing – in 2021 several top 50 advertisers opted out of the upfronts – but more is needed.
Vinny Rinaldi, Wavemaker US Head of Investment and Activation, advocates a new value exchange in TV using data-driven tactics. “Advanced TV mechanisms being built into pricing templates still only consider price and not qualified reach points,” he points out. “But if you’re controlling frequency and waste through an addressable-first approach, you’re buying more reach – by doing this at the same spend levels, you will grow household penetration and steal share (and sales!) from your competition.”
By shifting perception from price to value, we will begin to merge the linear and streaming marketplaces into a holistic investment where we can outsmart the marketplace, not outspend it.”
Smart procurement teams are shifting their risk/reward model to a multi-layered system of digital quality metrics, consumer engagement and KPIs related to the transformation of the marketing model. Nicole Cavallaro, Wavemaker US Managing Partner, Digital Investment, says many clients now include digital pricing commitments as part of the equation, which also comes with challenges. “In many cases, there is a misalignment between KPIs and a pricing template that’s tied to a CPM commitment. If we want to focus on a more addressable audience, in higher quality, brand-safe environments that will ultimately deliver a better ROI, then we must go beyond pricing as the main measure of success.”
So it’s not just how we measure success – but the way we define it – that must change. As media agencies we are increasingly partnering with our clients to build and manage complex omni-channel consumer experiences, creating opportunities for valuable exchanges of brand content for data, and building and executing strategies for customer lifetime-value.
Our risk/reward system must change to reflect this; it must reflect the new outcomes we are seeking to derive from consumers. We should define success in KPIs related to short- and long-term consumer behaviour, not only KPIs related to media performance.
Anna Hickey
Global Client President
