Have we got the right trading system for today’s market?
With resurgent volatility, ISBA's Bob Wootton asks if our trading systems are sufficiently agile to cope.
The past few years, from before and right through the worst recession in memory, have seen many media prices static, if not declining in real terms.
Media, especially television, has not been the major cost input with unpredictable price and sometimes runaway cost for advertisers. Rather, they have enjoyed almost constant pricing arising from the economic climate and market innovation. Media cost inflation has not been a discussion point.
But buying reviews and audits of H1 2014 media activity last autumn saw recriminations as the market came back in a big way and prices surged well ahead of expectation in some months.
And so far this January, it looks like everybody's got it quite seriously wrong again. Costs are up about 20% (only yesterday somebody punted me 25%!) against an expected 7-8%. Oops. To paraphrase Oscar Wilde, "once is unfortunate, but twice is carelessness".
Advertiser demand is well ahead of expectation and a major driver - retail is up 25%, financials 20% and telecoms 19%. At the macro level, we should celebrate this because advertising has been shown to be a good and true bellwether of the broader economy. And improving revenues make the position less precarious than it has been for some media, restoring profitability and making the generation of quality content more sustainable...
...provided that revenues continue to be reinvested in content and effective distribution, of course.
But unfortunately audiences are down too, creating compound inflation. Many advertisers are missing their targets or reluctantly having to inject more money to reach them, which only makes matters worse as it raises the market's rising price further. A rising tide lifts all boats.
This is leading to the rebirth of advertiser concerns about effective media owner investment in their product. And the word is that broadcasters are overtrading too - granted, there are 11 months left in which to reconcile annual deal books, but this is cold comfort for the brands whose time is now.
And stop press - just in, news of a letter from Five to its advertiser clients represented by Omnicom agencies questioning the wisdom of their non-use of the channel when it can claim its prices are lower and deflating unlike their competitors'.
All this raises two big questions:
1. Why can't we gauge the market better? and
2. Is the trading system still fit for purpose?
On gauging the market, it's self-evident that the bigger the media agency, the better its visibility of the market. Advertisers and media owners have precise knowledge of their own spends and takes respectively, but the bigger the agency, the broader view it will have and market consolidation means most are big enough.
During the recession, broadcasters sometimes flexed their advance booking deadlines, but as the market has returned, so these have once again stiffened so late money held back shouldn't explain things, at least not fully.
Yet the disappointment of shortfalls doesn't materially affect agencies like it does their clients' unless their remuneration is somehow geared in part to the accuracy of their forecasts (now there's a good idea for the next major advertiser pitching their media account...).
As for the trading system, most of the money is now tied up in big agency deals. If you believe some insiders, this even includes some of the agencies that profess not to operate agency deals. It's hard for advertisers to tell quite what's what these days.
These deals are big, can be complicated, doubtless all promise keen pricing, privileged programme access, bells and whistles etc, but now there's the question of whether they're sufficiently agile to cope with resurgent volatility. Indeed, it's been argued that the way major media are traded annually has become quite 'comfortable'. Just look at the key players' golf handicaps.
So how does an advertiser retain flex, whether to make its targets when it needs to, or simply to express its displeasure and swing its weight by rewarding strong performance and punishing failure if a particular media owner is not delivering?
Bound up in deal frameworks, this appears to be difficult for many. Once it was only ITV and C4 that mattered to reach, now every major player has a story and contribution to make. Volume and diversity should mean plenty of competition for ad budgets. Yet the positive incentive to perform and disincentive to fail are dulled - a perverse impact of agency deals.
Good news for advertiser opportunity and broadcaster revenues that the market is diversifying away from spot. But - pace Thinkbox, who will as ever jump on this of course - what if the reported structural changes in US TV viewing are now coming here? At least one of our leading members now looks there for an idea of how things are going to be here in a couple of years.
If there is indeed a trend towards other ways of watching 'telly' - which everybody still seems to love even they also deny they're doing it! - then advertisers will surely look to other audiovisual channels to make up the reach deficits. (As ever, frequency is relatively abundant and cheaper to chase.)
But advertisers are in the main pretty rigorous, and need data upon which to base such budget migration decisions which is - for the moment - rather lacking. Nielsen OCR helps, but has its supporters and detractors and is not an industry standard. And Nielsen's loss of the UKOM contract a couple of years back doesn't exactly help.
BARB is to be admired for working furiously to a stretching timetable to deliver its Project Dovetail, which will embrace all forms of viewing and promises advertisers what they seek, but it's not due until the end of the year (assuming all goes well) and advertisers are calling for information now.
This autumn's trading round ought to be the most interesting for years - but will old habits and massive group/bundled deals which largely favour the comfortable status quo and arguably hobble advertiser agility still prevail?
Vegas - a dry old place for damp squibs?
So another year and another Consumer Electronics Show has come and gone in Vegas. We keep a close eye on it in case anything comes to light that signals opportunity for marketers.
But despite delegates' evangelical belief that absolutely nothing shown there each year has ever been seen anywhere before, nothing much came out of this year's shindig (unless you're into internet-connected plant waterers).
To be fair, the gamification of children's toothbrushing was interesting and societally on-message and the ring that turns your hand into a (computer!) mouse would have been interesting were it not for the pre-existing motion sensing tech in our smartphones, tellies and game consoles which er, turns your whole body into a control surface. Ho hum.
Bob Wootton is director of media and advertising at ISBA.