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Ad Agency Commission and the Rise of the Media Black Market

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The fundamental problem with the fee structure of ad agency compensation today is that it is uncompetitive with the commission structure that is at work supporting and enriching the new media economy. In the hands of ad agencies, client objectives are being overwhelmed by the cacophony of the marketplace. New media today is a black market of countless, non-indentured providers that are trafficking inventory, harvesting data and pocketing half. Ad agencies, still the guardians of client briefs and objectives, are being forced to join-in or risk extinction - unless we fix agency comp.

Go back to 1994, around the time former Procter & Gamble CEO, Ed Artz, delivered his speech to the 4As' Annual Meeting warning of a fragmented media world, and focus on media as it existed then. The remote control, the VCR and console gaming had breached the wall.

In 1994 it was clear that media was losing its grip on audiences. A few years further down the road senior executives at leading magazine and newspaper companies would face serious inquiry into the falsification of circulation data. Broadcast had fragmented into cable. Two newspaper towns were down to one newspaper towns. Accumulating enough reach and frequency against key target audiences was increasingly a problem for the world's major marketers.

Media value was in question and, therefore, advertising value was in question. Indeed, for nearly a decade, since the mid- to late-80s, media owners and ad agencies had been gripping the handle of a pointed stick together in order to fend off the total loss of confidence among the paying community of marketers. Magazine and newspaper open-rates for advertising were largely fictitious; discounts were 50%. Added-value benefits - trips, bonus circulation, events, trade show support and distribution, cross-media deals - attached themselves to media proposals as value supplements.

By 1994 marketers were aggressively segmenting their product lines into vertical units befitting the special interests of consumers and their desire for personal choice. Mass marketing, it was being pointed out at the time, was over. New media solutions to align with those changes, however, were not apparent and Mr. Artz came before the ad agency industry to worry aloud. He never said anything about the Internet.

One year later, there it was. But, born into a time of crisis, the Internet is a war baby. It has grown-up subject to the privations of a cautious and suspicious generation and at 15 years-old, instead of being marked by charm and confidence indicating it is ready to meet the needs of a hungry market, it is conflicted and unsure of what experienced generations demand.

The question becomes, who is accountable for that answer? Who should be helping the Internet - and new media, generally - find its way?

Consciously or not, Ed Artz understood it must be the ad agencies. Agencies must serve as the primary care-giver of media for the reasons that agencies occupy the middle ground with a need to satisfy in both directions. The life of the client is devoted to sales - theirs. Media is similarly self-absorbed, intent on audiences. Only ad agencies are positioned for the balancing act that can bring media into mature partnership with the rest of the marketing world.

Sadly, they can't afford it. They are fee-based providers in a commission-driven world. As such, the complexities that require people to help build media reach and frequency models that result in competitive advantages for advertisers have strained the ability of most agencies to take full advantage of the opportunity online. The result is a "sameness" today - influenced by automation and driven by price - that pervades new media planning and buying. "Sameness" leads to talk about continued ad agency relevance and doom, while the role of buying and selling and sometimes producing advertising in the new media economy is spirited away by third-parties without obligation to the past - or, really, to the future. New media, therefore, remains conflicted and progress on the important consumer brand questions that Ed Artz put on the table over 15 years ago remains in low gear. And that's the important part: namely, that progress on the business of brand marketers remains in low gear with the danger that brands, themselves, will get dragged under by media "sameness".

All that said, we can rely on the fact that the relentless grinding of the marketplace will correct for the excess present in today's fee-based agency compensation structures. We can, if we decide, do nothing. Change will come as surely as it's come before. Indeed, change is coming as this one piece of commentary combined with many others on the subject of agency comp (see also this week's "Agency Issue" from Advertising Age) attests. Change is coming as the rise of Demand Side Networks and their partner platforms show, which afford agencies the chance to mimic successful commercial behaviors online. Change is coming as the ascension of digital media specialists to Chief Executive role inside the agencies confirms. And, yes, the market is growing. Change is coming.

From here, it will depend on how we want change to occur - transparently, or not; in mysterious increments, or not; quickly, or not. It stands to reason that brand marketers are opposed to opportunity that sits on the shelf. Which of them will reach up and grab it, and when.