World of pain? Further evidence that principal media is harming the ad industry
Opinion
It is more obvious than ever that principal media is damaging for the ad industry and even advertising itself. Let’s examine the reality of such non-transparent practices.
“Nurse! He’s out of bed and writing his article again.”
In May 2024, I wrote a piece about principal media and its detrimental effects on advertisers, media agencies, their parent companies and the media owner and vendor community.
One year on, it is more obvious than ever that principal media and other non-transparent media trading practices are highly damaging for the advertising industry and even advertising itself.
The latest trends affect all industry players:
• Many advertisers are seeing very little benefit from principal media and are aware of the super-profits being made from it by a number of media agency groups.
• Principal media and other non-transparent practices are reducing advertising effectiveness at a time when advertisers are seeking better “outcomes”.
• Some holding companies have become perilously reliant on media trading revenues, including those that are non-transparent.
• Principal media is undermining some media owners and vendors, especially those already vulnerable.
Messy debate
This topic is often described as being “messy” and “complex”, partly due to a conspiracy of silence surrounding it and a shortage of inside knowledge.
Public comment by insiders is rare, with one notably explosive exception, but LinkedIn and podcasts are full of opinions from people who have never been involved in media trading and its dark arts.
At times, it’s like listening to the world’s worst football phone-in. Spectators call in to find that there’s only other spectators in the studio and no ex-players, managers, referees or expert commentators.
A casual observer may think that the rapid growth in principal media is evidence of the “win, win, win” mindset that its sellers promote.
The view that advertisers, media agencies and media vendors all benefit is contradicted by the facts, so I have compiled a paper that examines the reality of principal media and non-transparent practices by some media agency groups.
The paper can be accessed here and is summarised below.
Better information, better choices
This new analysis is based on insight from my own experience across 45 years, conversations with anonymous insiders, industry research and publicly available information.
It aims to provide advertisers with better information to aid their media investment decisions. The choice about whether to use principal media is not to be taken lightly and it’s important to know where else budgets may be eroded.
Moreover, it’s a necessary step to finding a better way forward that leads to more effective advertising and a better balance of agency contribution and rewards.
First, some definitions are necessary to address potential confusion.
“Principal media” includes all practices where media agencies (including associates) act as both buyers of media for and sellers of media to their clients — a catch-all for “inventory media”, “proprietary” media and their derivatives.
“Non-transparent media trading benefits” refer to the range of agency schemes that include cash rebates, free or low-cost inventory, services at a premium, media cost arbitrage, “preferred supplier lists” and others.
A good starting point is a quote from an unnamed banker in a Financial Times article in 2019 about how structural challenges to the media buying business would bring disruption to agencies, concluding that “there is a world of pain coming… that is only just starting”.
Short-term gains
In its 2024 year-end earnings report, WPP stated that four of its five reporting divisions had declined. The fifth, GroupM, was up by a modest 2.7%.
WPP’s market capitalisation at the time of writing is £5.8bn, down 55% compared with Q4 2021, and Publicis Groupe has grown by 44% to now be worth over three times more than WPP.
To address its decline, one of WPP’s stated solutions is yet more principal media.
Curiously, we find a statement from WPP in 2017 that refers to its reluctance to engage in certain media trading practices:
“There have been several examples recently of major groups being prepared to offer clients up-front discounts as an inducement to renew contracts, heavily reduced creative and media fees, extended payment terms (which are starting to show up on agency balance sheets), unlimited indirect liability for intellectual property liability and cash or pricing guarantees for media purchasing commitments, even though the latter are difficult for procurement departments to measure and monitor…
“These practices cannot last and will only result eventually in poor financial performance and further consolidation, the premium being on long-term profitable growth. Our industry may be in danger of losing the plot.”
Eight years later, we find that these practices do not lead to “poor financial performance”, they do indeed lead to “further consolidation” and the emphasis is not on “long-term profitable growth” but on the shortest of short-term gains.
Investors can jump out of shares at a moment’s notice to go elsewhere, but employees have no such choices; they are more likely to find themselves unemployed with no obvious alternative.
Dangerously hooked
And we do indeed seem to have lost the plot.
Admittedly, the purchase of InfoSum is evidence of some catching up in the data arena, but it is clear that WPP and some major groups are having to double down on principal media as revenues in other divisions nosedive.
The holding companies are desperately building their own AI platforms and need the profits and working capital to fund them.
There is a heavy price to pay for not betting heavily on principal media and we now know what it is — although the cost is much greater for the employees who will be affected.
Further evidence of the corrosive effect of principal media is contained in Q1 reporting from Publicis and Omnicom, and no doubt Friday’s report from WPP will show a similar trend.
It seems that some holding companies are getting dangerously hooked on principal media given how lucrative it is and how it avoids the need to grow organically through the laborious process of winning new business.
In fact, we are now in the surreal situation where holding companies are ramping up principal media and touting its virtues while denying that they are too dependent on it in case analysts get nervous and advertisers resent inflating their profits.
Unsurprisingly, some advertisers have spotted the super-profits being made and want a bigger share of the proceeds, although this is normally about spreadsheet “savings” gains rather than anything to do with real-world business advantages.
The problem is that advertisers hardly benefit from it at all.
For advertisers that have tested it, the results are at best hard to gauge and for most imperceptible, not least because it is invariably blended with non-principal media, leading to the impossibility of judging its impact.
At its worst, it produces a misleading picture of false efficiencies. It delivers a minimal reduction in total media pricing that may help a marginally better “cost per” for advertisers that value that metric, but for the majority of brands it has virtually no benefit.
Ceding control
This is unsustainable in an era when advertisers seek better evidence of business effectiveness, rather than spurious “savings”.
One of the more surprising recent comments on this subject came from Brian Wieser, who is cleverer than the rest of us put together, but he has said consistently that advertisers “prefer” principal media because it bundles up media and services in a way that makes everything more affordable.
Specifically, Wieser said that advertisers can thereby obtain services that “procurement wouldn’t allow”.
The reported complicity of advertisers in the spread of principal media is, in my view, erroneous because it suggests that advertisers are homogenous and don’t mind the lack of transparency that it brings.
Yes, some big advertisers have adopted aggressive procurement practices to regain some of the proceeds, but let’s be clear: they didn’t start this.
They don’t force unrealistically low fees and CPMs on agencies; they get offered them. They don’t want to under-fund agencies, but the promises they get lead to it.
There are currently only six big global holding companies and they share many characteristics, but there are thousands of advertisers, all of which have different procurement practices, so generalisations are unhelpful.
And in my many years of looking at requests for proposal, I have never seen one that specified that services need to be bundled up to make everything affordable within the “working” media budget.
Media agencies propose the combination of media and services that they think best meet the needs of clients and how to get there.
This sometimes may include principal media where such bundles exist, but clients don’t generally know enough to specify this and don’t want to over-brief.
The bundling up of media and services cedes control to agencies in ways that are invisible to the client and therefore the benefits are hard to judge.
Impact on media owners
The patience of the editors of The Media Leader is not infinite, but one extra point is worth making.
Principal media exacerbates the process whereby media owners that produce high-quality, well-curated content are being strangled.
Their ability to carry on creating content that is user-safe and therefore brand-safe is further imperilled by principal media as it places further pressure on them to distort their market in favour of those media buying groups that strong-arm them into providing it.
It might be said that all of this imperils advertising because it feeds off its volume and not its value, exacerbating the decline of its effectiveness.
One final quote from Sir Walter Scott is appropriate: “Oh, what a tangled web we weave when first we practise to deceive.”
This story started in the 1970s, when the first web was woven.
We don’t need to go into the entire history, but we do need to confront the stark reality of today’s advertising industry as a precursor to finding a better way forward.
The Advertising: Who Cares? movement aims to address the loss by the advertising industry of its core purpose in the pursuit of extreme profits to the detriment of advertisers, some media owners, the public and, ultimately, media agencies and their owners.
We will be analysing the solutions to this in advance of our conference on 16 October but, in the meantime, we have to be clear-eyed about the parlous situation we’re in.
Happy reading.
The Media Leader is keen to hear alternative points of view on principal media and disagreements with the above analysis for a follow-up piece. Please comment below.
Nick Manning is the co-founder of Manning Gottlieb Media (now MG OMD) and was chief strategy officer at Ebiquity for over a decade. He now owns a mentoring business, Encyclomedia, offering strategic advice to companies in the media and advertising industry, and is non-executive chair of Media Marketing Compliance. He writes for The Media Leader each month.