What Advertisers Should Know About Agency In-House Production Units

March 24, 2017 / Features

By Alex Reeves

Is this more ‘streamlined’ model for or against clients interests?

The rise of the in-house production unit at advertising agencies has been one of the more lively issues in the industry in the past few years, with passionate views on both sides. One session at Advertising Week Europe on Tuesday 21st March called What Advertisers Should Know About Agency In-House Production Units attempted to distil these arguments down for clients, and called on a relevant panel to discuss it.

Moderated by Dominic Mills, Columnist for Mediatel, the panel consisted of Steve Davies, CEO of the Advertising Producers Association, Sylvaine Mella, Bureau Member of the French Association des Producteurs de Films Publicitaires, Tina Fegent, Marketing Procurement Consultant and Chair of the CIPS Marketing Knowledge Group, Claire Randall, Creative Production Consultant and Philipp Schuster, Business Partner for Global Procurement Marketing Agencies at Bayer.

Dominic began by summarising the situation. “Some see these agency in-house units as just another way for agencies to make money,” he said. “Others that it is a free market and agencies can offer their services as viably as anyone else and, in some cases, perhaps offer services not only cheaper but maybe faster and perhaps even more user friendly. But on the other side we have those that believe agencies are acting dishonourably, seeking alternative bids from independents and then winning the work themselves. Judge and jury on their own bid, you might say.

“In the US this has taken a serious twist with a number of agencies under investigation by the Department of Justice for bid rigging. People could go to jail. They did 20 years ago in a previous Department of Justice investigation.“

With the stakes established, the panel were invited to describe the general pressures their respective parts of the industry are concerned by.

Steve and Sylvain stressed the increased quantity of content demanded by clients, paired with the same budgetary constraints and fast turnovers production has always wrestled with.

Tina explained clients’ demands for more streamlined and effective structures within agencies, while Claire noted one of the major motivators for agencies ramping up their production offerings – money. “We are seeing a move away from having an agency of record,” she said. “A lot of brands are working with a creative agency on a project-by-project basis, which is putting pressure on agency fees, which is why I think they’re looking for other ways to drive revenue.”

Philipp’s client perspective was that the decoupling and diverse business models that have hit the industry have increased choice for brands for how they buy advertising. “There are endless options,” he said. “To have choice is always good, but you have to pick the right option for you and that’s more and more difficult.”

The panel agreed that relationships are more opaque than they need to be and stressed that this needs to change. “It’s an oversupplied market,” said Tina. “Agencies haven’t been clear about what options are available. This lends itself to the role of procurement, making sure we understand the supply chain.”

But brands don’t question their supply chain often enough, suggested Claire, provided their agency is delivering quality, cost-effectiveness and on-time delivery.

Nobody is condemning the notion of in-house production outright. “It’s entirely up to a client how they spend their money and it’s up to an agency how they structure their business,” said Steve. “But the issue is whether they compete fairly. We don’t think they are when they bid themselves against independent companies. That is bad for clients because what appears to be an open competition in the open market isn’t.”

When asked whether he thought the bid rigging the US DOJ is investigating was happening in the UK, Steve said no, but that’s not required to make the system unfair. Agencies can withhold information from production companies or skip the negotiation phase and accept their first price. “There’s nothing illegal about that,” he said, “but you’re creating and environment where you are both player and referee There are so many ways in which agencies can favour themselves without doing anything as crass as entering into a criminal conspiracy with another organisation.”

He reiterated the APA’s public stance on the issue – that “an agency should be able to decide whether it’s going to do the work itself or whether it’s going to bid it out to the production community, but not both.”

This is unnecessary, as Claire saw it. She suggested that there are ways to fairly accept both in-house and external bids: “For example, different deadlines so that the agency has to make their bid prior to the external bids, or the bids go direct to the client, or to procurement, or to the production consultant, so that it’s an even playing field.”

Steve disagreed, arguing that if bids are judged by another party the value of judging a treatment and budget on its creative value to the idea is lost. That is a huge role of the creative agency that must not be bypassed.

Philipp expressed his concern for any possible unfairness. “That someone is judging their own bid doesn’t make sense,” he said. “We have to set up a process where this is not possible. Or bring in some independent body to make sure the referee is a referee, and not also a player. That’s critical.”

Some agencies feel insulted that their integrity is being questioned here. They claim they would never favour their own bid unfairly. Steve said he understood this. “But although I have faith in their personal integrity, I just don’t think that’s possible. Things have to not just be fair, but be seen to be fair. That’s why the chairman of the National Lottery can’t enter the lottery.”

Of course the pressure to move more production in-house is a revenue-driven one, not a creative decision. Steve noted that these demands usually come from agencies’ financial leadership, but while responding to business challenges by taking on new work is a good way to grow, clients should see the inevitable risk that an agency will decide who does a production based on its own interests, rather than their clients.

Ultimately the market will deliver the best value for the client, Steve argued. There are too many companies competing for this work and production companies have to fight on two fronts: with their treatments, in order to demonstrate the most compelling creative solutions their directors can envisage, as well as on price. “In any over-competitive market you can cannot put your prices up,” he said. “You have to put them bid as low as you can just to win the work. That’s what clients should take confidence from.”

Sylvaine added that production companies are uniquely positioned to support emerging directing talent. “That’s something that may be difficult,” she said. “You might not find it in an in-house production company at an advertising agency. It has been our role forever and I think we’ve done it pretty well. It’s really important to keep that love for the craft that we have as the producer. Most of the time we’re also able to invest in music videos that are not bringing in any money, but are bringing new talent that the advertising world is eager to use.”

That may be less of a hardheaded business argument, but we’re not talking about buying pig iron here – this is the creative industry. Tina noted that “the right procurement person” should take that into account.

It’s ironic that the session was hosted on the IPA Centenary Stage. The British agency and production associations haven’t been able to get on the same page on this issue since the APA called for the IPA to issue a best practice statement suggesting agencies should not bit themselves against the independent sector. Some agencies have vowed never to do this, but others insist there’s nothing wrong with it, and the IPA have so far refused to take a stand either way. APA member companies have decided not to bid against in-house production units, “so in a sense it doesn’t matter whether there is third-party approval,” said Steve.

But he does feel agencies should do their bit to reassure their clients of their integrity. “I would like to publicly ask WPP and Omnicom to say that their agencies won’t bid themselves or their own network in-house companies against independent companies,” he said.

The “spectre at the feast,” as Dominic put it, was the in-house production units that clients have now begun setting up. “There are new models popping up every other month,” said Philipp, the client voice here. “So there will always be a debate about it. We’re in a vibrant and lively exchange all the time. And we need to figure out the best way.”

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