how to pay for global ad production
TRANSCRIPT
Tuesday, 21 Jun 2011
Ad Production Payments Practices Across Regions And Why They Matter
Introduction Steve Lightfoot
• Welcome
• Panel Presentation
• Agenda
2
APR Panel
• APR works with global advertisers and their agencies to increase return on ad production spending across the entire media mix: TV, radio, print, outdoor and digital / new media platforms
Alex Blum
Director of Innovation and Strategy
Basil Stephens
Sr. Production Consultant
Pedro Roura
Brand Executive Producer
3
Agenda
• History of Production Payments
• Evolution of the Industry…
• … and New Complexities
• Resonance for Advertisers
• Payment Process and Issues per Region
• Q&A
4
History Production Payments
• Historical structure of worldwide marketing function
• Management of production payments traditionally has been a feature of the Advertiser’s relationship with agency / agency network
Becoming concern for advertisers because…
5
Evolution The advertising business is changing
• New kinds of Media and Platforms • Exposure to multiple agencies • New kinds of entities developing to address change
Agencies that produce Production companies that do creative Digital agencies Experiential producers …and everything else in between
It’s not just an advertiser/agency relationship anymore
6
And… Additional Complexities
• Advertisers with multiple agencies in multiple countries
• Impossible to depend on typical AOR structure
• Projects/assignments awarded on one-off basis to unfamiliar vendors
7
What does this mean to you?
• Interaction with potentially unfamiliar parts of process
• Contractual / Legal Issues
• Production Payments
• Greater exposure to financial risk
• Communication gap between Marketing / Procurement / Finance
• Vendor management policy not responsive to Marketing realities
8
Unfamiliar Issues Fiscal Realities
Agency
Client
Prod. Company
Unwilling to advance production money without payment from client
Unwilling or unable to assume risk. Significant upfront payments required
Needing to maintain leverage by controlling the payment process
9
Larger Issues Affecting Production Process
1. Large corporations and small vendors showing signs of financial distress
2. Vendor consolidation
3. Currency / exchange rate volatility
10
Summary / Conclusion • Advertisers need to develop their own policies
around production payments.
• Without understanding the basic principles, it’s difficult to come up with policy.
11
Overview of Worldwide Payment Practices as They Exist Today • UK, Europe, Africa, Asia, and Middle East (Basil)
• North America (Alex)
• Latin America (Pedro)
12
UK
Typical Payment Scenarios 50-50 75-25
First Payment 50% 75%
Second Payment 50% 25%
13
UK Issues
• Contractual payment obligations are often not honoured
• Advertisers are “blamed” for late or non-payment • Leads to bad feelings towards Clients
• Financial burden on vendors leads to less options in market • Advertisers are then more vulnerable to a “sellers” market
14
Europe
Typical Payment Scenarios 50-17-33 66-34
First Payment 50% 66%
Second Payment 17% -
Final Payment 33% 34%
15
Europe Issues
• Fragmented and varying practices
• Advertisers have contracted directly with production companies
• Inflation & Currency instability
16
Africa, Asia, Middle East
In absence of “standard” practice, 50-50 payment structure widely accepted
17
Africa, Asia, & Middle East Issues
• Budgets are written to compensate for longer payment terms
• Lack of transparency
• Impact of local practice
18
North America
3 Typical Payment Scenarios
50-40-10 50-25-25 75-25
First Payment 50% 50% 75%
Second Payment 40% 25% -
Final Payment 10% 25% 25%
*Payment to the Production Companies is contingent on funds received from CLIENT by the
AGENCY. This is often referred to as “sequential liability.” *75-25 most common for Canada
19
North America Issues
• Erosion of trust in payment process because of:
Late payment
Sequential liability
Financial distress
20
North America
• SAG Strike (2001) resulted in:
Accelerated offshore production
Large upfront cash outlays needed by production companies
75% upfront required for all overseas jobs
Push for 75% Standard on all jobs!
21
North America Trend
• Compressed timelines (6-7 weeks)
• Last minute jobs
22
Latin America
Typical Payment Scenarios
50-50 50-25-25
First Payment 50% 50%
Second Payment - 25%
Final Payment 50% 25%
23
Latin America
• Dramatic currency fluctuations have a serious impact on the production community.
• These could be significant from the moment the job is awarded to the moment it’s executed (couple of weeks).
• For example: • 2001 Argentina exchange from a 1-1 to a 3.5 to 1 in a week.
• Many productions were awarded under one exchange rate and paid under another
24
Latin America
25
Latin America
• 2008 Mexico exchange rate went from 10 to 1 to 14 to 1 on a short period of time.
26
Latin America Issues
• Agency not always paying the production company within terms
• Client paying direct to production company being more frequently used (under 50-50 model)
• Mexico/Argentina • Final payment sometimes comes in 90 to 120 days after receipt of final
invoice.
• Production companies have private investors in order to manage their cash flow needs.
27
Broader Trends & Opportunities
Direct Payment
Preferred vendor / roster deals
Decoupling
28
Next Steps
Worldwide Playbook
29
Questions?
30
Thank you
For more information contact Steve Lightfoot [email protected] or visit www.wfanet.org