The debate around principal media trading, a practice whereby agencies buy inventory from media owners at discounted rates, then sell the media onto their clients at a markup, has flared up again over the past year. Part of this resurgence stemmed from a report released by advertiser trade association the ANA, which found that many marketers don’t really understand what it is, and don’t know whether it’s part of their media activity or not.
It’s a controversial practice. Proponents argue it’s a way for agencies to protect their margins while securing cheaper inventory for clients, critics say it’s an opaque procedure which incentivises agencies to not always act in their clients’ best interests.
Mark Read, CEO of agency holding group WPP, added his voice to the debate earlier this year. While WPP does engage in principal media trading (which Read calls “proprietary media”), he suggested that his own group has a smaller principal media offering than competitors, partly due to its own desire to maintain transparency.
“I think there’s a number of, I would describe them as, black box media models in the market that perhaps WPP has not offered,” said Read. “And I think some of those black boxes are not that transparent. I’m not sure in the long run that they’re going to work in a market that’s transparent like America. But we are looking at our proprietary media products and […] looking at how we can innovate to be more competitive. We do offer some proprietary media in the market in the U.S., but much less than a number of our peers.”
Today Arthur Sadoun, CEO of rival holding group Publicis Groupe, fired back on an earnings call following Publicis’s Q3 earnings, defending his own group’s principal media offering.
Throwing stones
Sadoun mentioned principal media early in the call, in reference to how Publicis reports its financial performance (in comments which themselves threw shade on Publicis’s competitors).
Speaking about Publicis’s approach to transparency, he said Publicis operates “clean performance measurements” by reporting on net revenue growth, rather than total revenue growth – a model not followed by all of Publicis’s competitors. “This means there are no pass-through costs inflating our growth,” said Sadoun. (Pass-through costs are costs which a business pays, but then passes on to clients. Principal media is relevant here, since the agency pays for media, but then sells it on to the client.)
He then said that for Publicis, principal media activity in the US represents less than one percent of net revenue.
Later in the call, Sadoun was asked about the controversy around principal media directly, and about Mark Read’s comments specifically.
Sadoun firstly argued that Publicis’s principal media trading hasn’t been a major reason why it’s outperformed its rivals in recent years in terms of organic growth, again stating that its contributes less than once percent of net revenues in the US. He then defended against the idea of Publicis’s principal media activity being opaque, stating that no client will be opted in to principal media unless they’ve specifically asked for it “sometimes two times or three times”.
“We don’t as Publicis operate black boxes, [and] I can safely tell you that it is the same for our peers,” he said.
Sadoun even suggested that Read’s comments were sparked by WPP’s comparative financial difficulties. “It’s exactly five years ago [that] we made a very strong profit warning […] at that time, I was the CEO under pressure, so I know what it is”, he said. “And honestly I don’t think that throwing stones at competitors, or by the way predecessors, will help neither WPP nor the industry.”
