The future of transparency

In 2022, we will be celebrating a small anniversary at Crossmedia: 15 years of transparency reporting! In 2007, we were the first media agency ever to voluntarily have an external auditing firm take a look at our books and certify that all the benefits we receive from the media on the basis of the client budgets managed by us are passed on to these same clients in a way that reflects the origin of the budgets. Our attitude, both then and today, was that these (monetary) benefits only exist as a result of our clients’ media investments, thus entitling them to the resulting benefits. At the time, this was a rarely found attitude in the industry. It used to be common sense to retain media kickbacks in order to supplement the agency’s own fees or to be used for acquiring new clients. An understandable custom, considering the pressure on agency fees that was already prevalent at the time. Yet, it remains a custom that does not reflect Crossmedia’s attitude.

We wanted to create trust in a market that was still up in arms due to the “Ruzicka affair” (even if the facts behind it were completely different), and we did not wish to let our consulting neutrality be influenced by kickbacks. Since 2007, we have been building on this trust year by year, and in 2018 we were the first media agency ever to be named “Agency of the Year” at the German Media Awards.

Pioneering work for greater transparency in the entire market
Looking back, we are proud to say that, with the transparency report, we have effectively created a market standard: In the years following 2007, constantly increasing numbers of clients have demanded back their shares of kickbacks to which they are entitled from their media agency. Today, pitch consultants even go so far as to demand guarantees on AVB kickbacks to their clients, even though the amount of these “agency volume bonuses” depends on the total investment of all of an agency’s clients. We all know how volatile these total investments are, not least since the corona crisis. Nevertheless, I would venture to say that nowadays, at least in the German market, it is absolutely standard practice to pass on volume-based media agency benefits to the clients.

We are pleased to have got the ball rolling here which has decisively promoted the required market transparency. Hopefully this will continue to help revise the non-transparent reputation that media agencies have to this very day.

Welcome to the New Media Paradise
So, is all good now? No. This is because the hunger for bonuses of managing directors of the smallest GmbHs of an agency group or the return requirements within agency holding companies by the shareholders are (again) not sufficiently satisfied by passing on the agency benefits to the clients. So, the caravan has long since moved on in search of a new oasis: Trade, i.e. the non-customized purchase of media inventory by the agency and the sale of this inventory on its own account (and with its own margin) to the agency’s clients. A win-win-win situation for everyone! The media have something to gain because the agencies buy inventory from them at their own risk and the marketing department thus gets certain revenue targets in the bag, all in one go. The clients benefit by receiving discounts from their agency that, due to the size of their investment, they would never have been able to realize with direct marketing agreements. And the agencies have something to gain because they now really do have pricing sovereignty and can achieve a handsome trading margin with relatively little effort. And because this is such a great model for everyone, the same mistakes have not been repeated as with the kickbacks: since the agencies trade here at their own risk, it was accepted from the outset by all market participants that the margin behind this is a trade secret. So unlike volume bonuses, agencies have the legitimacy to move inventory around and price as they please. We have finally arrived in what is the land of milk and honey for the media. And they can do it completely legally under the watchful eyes of their clients.

Greed for finding discounts often obstructs the view for doing what is right
The reader may wonder what is so bad about trading. Nothing! If you think of media agencies as dealers. There’s nothing wrong with being a dealer, but you can’t expect a dealer to give you objective advice. A dealer will always look at what he still has in stock and what he has to offer. For example, if I go to a BMW dealer, looking for a vehicle for my family of five, he will probably recommend an SUV from the X series. A van from Mercedes, which might be much more suitable, is quite out of the BMW salesman’s range of consideration. A fact that we all accept without batting an eye.

Why, then, do we do so little with media agencies, when they are supposed to advise us neutrally across all media channels in terms of customer-specific marketing goals?

Here, the greed for high discounts all too often blocks the view for what is objectively right. Cost savings are still easier to explain within a company than less obviously verifiable strategic improvements. However, even if the discount for the BMW X3 was really great, the three children in the back seat will still be permanently dissatisfied. And all the bicycles would also have fit in the Mercedes V-series.

Cynics call it romantic, we call it independent consultation
At Crossmedia, we have always had (and still have) a somewhat “romantic” notion of consulting: For us, independent consulting represents the highest good. And we don’t have this independence if we have to constantly squint at what inventory is still “in stock” or what promises the highest return. Just as with the agency bonuses in 2007, when we said we would not be influenced in our advisory neutrality by retaining them, we have been equally consistent in refraining from trading since the outset of this trend. To be able to advise our clients in a truly independent manner, Crossmedia is currently refraining and will continue to refrain from any trading in the “commodity” of media. And since we do not draw any margin from trading, we do not need to consider it separately in our decisions. This is how we understand independence for our customers.

By the way, the fact that we also don’t play this game doesn’t mean that our clients thus have to do without the benefits offered by trade inventories. Through our various purchasing partnerships, we have access to corresponding quotas. The only difference is that we pass on the trade purchase prices to our clients on a 1:1 basis, thereby ensuring that we have a neutral view on them. The margin (and the trade risk) is on the side of the purchasing partners, with whom we are neither linked under company law, nor have we agreed any form of purchase volumes.

The Crossmedia transparency report is being expanded
Our handling of the trade issue once again demonstrates that, for us, independent consulting is not a fancy sentence in a PowerPoint presentation but an essential attitude question from which we do not deviate, even under new circumstances and in the face of new “opportunities”. Thus, Crossmedia remains committed to transparency and – above all – to independent consulting. Therefore, on the occasion of the anniversary of the transparency report, we will expand it. Previous standards will remain, but will be supplemented by “non-trading” aspects. In future, for example, the auditing firm will not only certify that agency benefits have been passed on in a way that is fair to the originator, but also that no trading activities have taken place. A promise, which only Crossmedia gives in this general form. So, for those who are looking for a trustee of their media budgets instead of a trader, we still represent a real (if not the only) alternative in the media agency market.

Foto Credit: Julia Höfer (Crossmedia)