Media and Agency Industry Squeeze downstream supply chain David Gustin - June 4, 2015 6:36 AM | Categories: Trade Credit Commentary | Tags: ABInBev, Payment terms, WPP Advertising services are categorized as creative and media services, where the latter takes care of media planning and media buying. Creative services typically comprise idea generation, idea conceptualization, creative development, and commercial production, where the production is typically outsourced to the third party by the advertising agency on the client’s behalf. The major functional and service areas of the full service advertising agency are account services, creative services, media planning and buying, and account planning & research. Over a period of time, media services were decoupled from advertising services. Therefore, the trend is to handle creative and media services separately by agencies that are specialized in their service areas. Make no mistake, it is a huge business. In the USA, the advertising market was about $190 billion in size in 2013 (TV, Radio, Print, Internet, Cinema). Buying agencies are strong players within advertising and there is a huge pass through element in the payment cycle. The money the agent pays out can be up to 5 times as much as they retain. In many cases, a buying agent’s client (eg. Mars, ABinBev) tells the agent what suppliers they want to use and the terms are dictated accordingly. If Mars or P&G pay the agent in 90 days, think what that does to the downstream creatives? This creates downstream problems with producing companies, ad tech, creative agencies, basically anyone serving these ad agencies. They run into huge cash flow problems even if their business is big. So understanding this payment cycle is critical. So who has the leverage? When Anheusier Busch wants a commercial and coordinates through a major buying agent like Omicon, who will not pay their downstream creatives until ABInBev pays (and note ABInBev is a slow payer). Payment terms in media are rumored to much greater than 60 days unless you are a major player that can push back. Given the number of layers between advertiser and publisher has become so complex, it’s made everything messy. It all starts with agencies paying slowly, and creates problems downstream. There are some industry sector focused solutions here we will examine when news becomes more public. Stay tuned! p.s. to receive TFM’s weekly digest every Monday morning, sign up here Related Articles First Voice Tony Brown: 04.06.2015 at 8:20 am Readers might be interested to know of Fast Pay (www.gofastpay.com), a factoring and supply chain finance company specializing in the media industry. They’ve just secured an additional $15mm of capital from Oak HC/FT. Excellent solution for the challenge you focused on, David. Reply Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of new posts by email.