Commission impossible: The real cost of 15%
In 2017, Ster (the major public broadcaster in the Netherlands) announced a bold move to scrap annual agreements and offer universal pricing conditions to all advertisers.
The system was simple, with one base-rate and indices based on requirements: cheap packages in daytime TV, premiums for specific spots and so on. This was good news for performance advertisers, giving the benefit of fair costs without committing large annual budgets, meaning advertisers could react to the most recent results and deliver the most efficient ROIs without risking price hikes or penalties. All Response Media’s share of (broadcasting organisation) NPO spend increased +30% year-on-year (YoY), whilst agency volume bonus (AVBs) continued to drive decisions for network agencies, with Group M decreasing NPO share of spending to 6% YoY vs. 35% natural delivery.
Alongside the new commercial policy structure, came another industry-shaking move: Ster scrapped agency commission, a move to incentivise more direct advertisers to try TV. Removing agency commission meant advertisers and agencies would receive the same price. NPO also reduced prices, with All Response Media’s average cost per GRP on NPO decreasing by 15% YoY.
Next year will see a slight change for Ster, with advertisers being given the maximum of a 10% discount for very high spend – but only once tiers are met. A move possibly driven by the fact that spend in H1 was down almost 50% YoY (but with a 10% increase in new advertisers).
As we draw closer to 2019, sales houses across the board are preparing to announce their full commercial policies for next year after an interesting shift in the market.
RTL was the first of the sales-houses to reveal that they too would abolish agency commission earlier in September – having last year said that Ster’s move made sense but was ‘too soon’. Since then, the market has followed, with Talpa citing ‘the vast majority of customers speak out for market standardisation’ and Brand Deli following suit ‘In line with market developments and the wish of the majority of (their) clients’.
This move hasn’t been confined to TV. Earlier this week, major radio station QMusic offered a similar announcement, citing the need for an ‘unambiguous purchasing system without unnecessary confusion’.
However, whilst the major sales houses have copied Ster’s move in terms of scrapping agency commission – with no mention of reducing pricing overall – as yet there has been no confirmation of whether the other sales houses will be as keen to embrace Ster’s ‘one price for all’ initiative.
All Response Media viewpoint
The pricing changes in the Netherlands bring up a couple of important questions that are relevant to the advertising market across the globe.
- Will sales houses put their money where their mouths are with truly transparent and fair pricing structures?
- With no agency commission, how do agencies prove their worth?
With Ster taking a slight step back towards a tiered system (if still free from binding annual agreements), it looks like the market will strike a balance somewhere in between annual agreements and universal pricing.
The talk in the market is about ambiguity, transparency and fairness – something we fully embrace – but will only truly be achieved when sales houses end annual deals which allow larger advertisers to monopolise the market and restrict smaller advertisers who value flexibility. To fully move towards a fair and flexible market, sales houses could scrap the annual agreements and ensure that the removal of agency commission is not simply a guise to increase prices for agencies by 15%.
The changes to agency commission structures also means agencies have to prove their worth. If advertisers get cheap prices directly, the focus turns to agency expertise. This can only challenge the industry to be accountable for spending decisions and to provide additional insights that ultimately deliver results.
Sources: AdFacts 2018, RTL, SBS, BrandDeli, NPO & QMusic press releases September-October 2018.