Production Transparency: A Good Idea or Baseline Requirement?

Board members, CMOs and CFOs are starting to ask what their companies are doing. Are you prepared to answer these questions?

We’ve pulled together the “Cliffs Notes” version of what has been happening in the industry and the ANA’s recently released study: “Production Transparency in the US Advertising Industry.”

Industry Timeline:

Advertising production and media, two of the biggest marketing spend areas continue to be at the forefront with issues and investigations. This presents an opportunity for advertisers to make significant changes. It’s time to roll up your sleeves and get started!

What Is Transparency?

• Full disclosure of relevant info required for informed and intelligent decision-making
• Lack of hidden agendas and conditions

ANA Production Transparency Task Force: Two Part Mission

• To assess for lack of transparency in the US production industry
• To assess production management processes and develop recommendations for improvement

Industry Dynamics

• The spend is huge – no single source estimates available, video commercial production alone is $6 billion (source: AICP June 2016 member survey), other areas include audio, digital, print, out of home and experiential/event marketing
• Digital has driven a fragmented ecosystem for content distribution
• Advertisers are working with an unprecedented number of agency, media and production partners
• Expanded client requirements for commercials and content
• Pressure from advertisers on fees and production budgets
• Agencies experiencing decreasing market share and revenue and adapting by increasing service offerings including in-house production, editorial, and music facilities
• Need for more content with less money and fast turnaround driving advertisers to seek greater flexibility and efficiency in production spending including decoupling, pre-qualifying suppliers, and direct sourcing

All of these factors created the “perfect storm” for issues to rise to the surface.

Findings of the ANA Study

• Creative agencies are increasingly directing post-production projects to affiliated companies within the same agency holding companies
• Producers at times ask for a “check bid” from independent post production companies with inflated prices to drive the work to the in-house option
• The producer did not work to negotiate pricing with the external bids but utilized the information to make sure the in-house estimate was lower
• Clients aren’t always informed of the ownership status of the agency unit submitting the bids
• Agencies markup vendor invoices a certain percentage which is not always disclosed to the advertiser
• Agencies are managing the bidding process while also participating in bidding for the project
• Agency management is incentivized to keep work in-house
• Cost savings are not always realized if the in-house bid was estimated low and has significant overages
• Agencies are at times acting as the principal with production suppliers entering contracts directly with the production supplier versus entering into the agreement as the agent of their client. Principal transactions can result in nondisclosure of the original purchase prices as well as an incentives/rebates paid by production suppliers and limit the advertiser’s right to audit.
• Experiential and Event Production areas have fewer bidding and reporting requirements, less operational oversight, fewer compliance audits, and more reporting lapses due to the just-in-time nature
• Production companies and agencies file for state commercial production incentives without the advertiser’s knowledge or approval; these savings can range from 15 – 30% of production spend

MRA has provided a summary categorizing the major issues and next steps, click here for a download of this chart.

ANA Member Survey Findings

• Only 43% of advertisers require agencies to disclose if bidding a production job to an in-house or affiliated production company
• Over 60% do not require or know if their agency contract requires production rebates and incentives be passed back to their company
• 33% confirm knowing their agency acted as principal with production suppliers, 38% said the agency did not and 29% don’t know
• Marketers lack familiarity with state commercial production incentives and don’t know if their company is benefiting
• The knowledge of advertiser personnel making buying decisions varies dramatically and in many cases, is very limited

Similar to what was discovered with media transparency, the blame is not all on the agency side, advertisers need to be much more actively managing and controlling production spending.

Join us next week as we explore the study’s recommendations for advertisers and case studies illustrating how to bring these recommendations to life.

Written in collaboration with Angela Saferite.