Ad Agency - Media Buy - Contracts - Standard Practices

[Craig Seeman]

Although I normally focus on Production/Post, many potential clients are approaching me to buy time for spots they already have, in some cases statewide.

I understand there's a standard mark up of 15%. I've heard in some cases the client pays the agency which marks up the price and then pays the local cable provider/station. In other cases the client pays the cable provider/station and they "kick back" 15%.

How do you recommend I handle the above on buys around the state? What would be a typical contract with the client and/or the cable provider/station depending on the above two circumstance? Seems there's a lot of "trust" involved when the client pays the station and you get" kick back."

Would it be easier still to have the client pay the rate for the time to the cable provider and then pay me as consultant to arrange the buy?

[Brian Wells]

Here's an idea. Pay the full price for airtime and you'll be first in line for fire sales!

[Steve House]

Originally Posted by Brian Wells

Here's an idea. Pay the full price for airtime and you'll be first in line for fire sales!

I don't get it...

[Craig Seeman]

Locally, I've done cable spots. Sometimes the cable company send me business on spots that are unprofitable for them to produce. When I've done local cable spots I either send them to the sales rep or I help them do the buy and simply add that to my package price. I haven't gotten a percentage since it's been part of my price as I'm producing the spot.

Recently some people have been contacting me just to help with the buy (they usually have "self produced" ads (one might imagine the quality). I had been turning this business away since the buy was often small (on par with the fact that they "self produced" the ad) and taking any percentage wouldn't amount enough to make it worth the phone call and paperwork time.

I have been approached recently by someone who wants to advertise statewide. It was through a recommendation (we know word of mouth works). It's a lower budget client of course but higher budget than the others I've mentioned above. They can certainly afford a targeted statewide buy.

I'm curious about being a "recognized" ad agency though. Ultimately the cable companies want to sell their time so I can't imagine them saying no to a buyer (unless it's unprofitable of course). Obviously the bigger the volume (as "recognized" agencies can do) the greater potential for discount/markup. This is a candidate ad. Keep in mind that political candidate ads are already "discounted."

Wouldn't worse case scenario would be that I get the client the "book" rate and charge the client for my services based on the buy?

Additionally, does one create a contract (and what does it look like) if the cable company gives you the percentage vs a contract with the client.

I see three business models (maybe more?).
1) Client pays me and I write check to cable company, taking my cut.
2) Client hands cable company check and another check made out to me for my fee and I hand check to cable company (assuring I get paid).
3) Client hands me check for cable company and the cable company writes me a check for percentage (how the "kick back" - I hate that phrase - works?).

It seems that since I'm not a "recognized" agency and this is not a local buy (those folks know me and certainly want me to bring them regular business) that (2) seems to make the most sense. In this case I would assume the client signs contract with cable company, I do the administrative work, and have a separate contract with the client for such consulting work.

I guess not many have gone this route (buying time for spots one hasn't produced) given the response. Anybody done this?

[Gary Moses]

Craig, this is my 22nd year owning an ad agency. What you're asking about is a business of it's own. Here's the way it works:
1. As a recognized Agency you are entitled to buy the media at a 15% discount.
2. The client then pays you the full amount 100% and you keep the 15%. i.e.
the advertising run is $10,000, you pay the media $8500 and you retain $1500. The client pays $10,000 either way. The terms used are Gross and Net.
3. If the client pays the full amount to the media, you probably won't see your money for many many months and you will run the risk of now involving a 3rd party (the media) in your business. By the way, media doesn't like to pay out money, only received it. Oh and I would avoid calling it "kick back" that is a term many attorney's would love to work with.

So, it all sounds pretty simple and lucrative huh?
Here's the reality:
1. When you become the Agency of record you are accepting the responsiblity of the all of the billing. You become the client to the media and your client is responsible for paying you. If that client doesn't pay you, guess what?
2. it's imperative that you become incorporated so the you have what they call "a vail of protection or security". You must also have an iron clad agreement with the client that says he is responsible for the payment. This will only be helpful when you go to court. The media still considers you their client.
It's a serious decision and one that can be very rewarding.
Good Luck.
Gary

[Jim Montgomery]

Let's discuss what the producer's have to do. Having produced a TV show, submitted to 4 channels and awaiting replys, how does one find an agency to work with? I have show sponsor, 4:30 of commercial time, 3 segment sponsors, and billboards to fill and do not have a clue where to begin. Obviously I don't want to try and accomplish the feat myself, but without an approval as yet and an expected air date of 1st qtr 2007 what does one do?

Jim

[Gary Moses]

Craig, I'm a little confused. I'm not sure if your second post occurred before or after my post.
By "recognised agency" it means that you fill out a credit application with banking info and other media companys as references. As you can see they're looking for a responsible party if the client doesn't pay you (the agency). The contract from the Cable Company you will sign, if you're acting as agency.

[Craig Seeman]

Thank you Gary. Very informative. I've heard others mention the risks involved.

Given the current circumstances and the client involved, what I may do is arrange the buy, present the contracts to the client to sign and they can pay me and the outlets separately. Might mean a higher price but I can't take the financial risk and the client may not be in a position to do this any other way.

Apparently the client and no one in the client's organization has experience with media buys and they need to buy statewide. They actually don't have much money as statewide buys go so it'll likely be a couple of thousand dollars in a bunch of markets in a very targetd buy.

If it happens (not sure of this), the numbers may be equal to or greater than what you mention and this small business can't take the financial risk.

For my more frequent local clients where the dollars are smaller and the clients may repeat and the local cable reps know me the situation is different.

How does one confirm the spots air on a state (or even regional level)?
I've bought locally, get a air sched from the cable company and spot check.

[Gary Moses]

Craig, The only problem with the procedure you're suggesting is that if you have the client sign the contract there will be no agency commsion involved. He'll have to pay the gross amount. That would mean you would have to add an additional 15% and I'm not sure the client would like that. You can only get the agency commision if you sign the contract and take the billing.
One of the services that an ad agency provides is central billing for the client. When you have to deal with multiple cable systems, as in a state buy, there may be as many as 8 or 10 reps, contracts and bills involved. By having an agency, the client needs only to deal with one person, the agency.

As far as tracking when the spots ran, there are 2 methods. You can request a traffic schedule, from each cable company, that will tell you when the spot is scheduled to run. They usually are only good for 1 or 2 days in advance. The other method is at the end of the month and along with the bill is an affidavit, a computer printout that shows where each spot ran, on which network, at what time and in what program. The affidavit must be notorized before it goes out, so it's very accurate.
Gary

[Gary Moses]

Jim, I'm not sure I understand your question. Do you have a 4 minute 30 second segment that you produced or are there 4 30 seceond spots?
When you say 3 segment sponsors, are they advertisers in the your segment?
And what type of billboards?
Gary

[Steve House]

Originally Posted by Gary Moses

...
As far as tracking when the spots ran, there are 2 methods. You can request a traffic schedule, from each cable company, that will tell you when the spot is scheduled to run. They usually are only good for 1 or 2 days in advance. The other method is at the end of the month and along with the bill is an affidavit, a computer printout that shows where each spot ran, on which network, at what time and in what program. The affidavit must be notorized before it goes out, so it's very accurate.
Gary

The affidavit is sent by the agency to the broadcaster with the bill attesting where each spot was SUPPOSED to run, or the affidavit is sent from the station back to the agency with their payment certifying where the ads actually DID run??

[Gary Moses]

Steve, The broadcaster must accompany their bills with a proof of run. So the broadcaster sends the affidavits to the agency/client with the bills.
One of the additional benefits to the affidavit is if you purchased a specific program (Larry King Live on Wednesday the 24th) it will show that you got what you paid for.
Gary

[Steve House]

Originally Posted by Gary Moses

Steve, The broadcaster must accompany their bills with a proof of run. So the broadcaster sends the affidavits to the agency/client with the bills.
One of the additional benefits to the affidavit is if you purchased a specific program (Larry King Live on Wednesday the 24th) it will show that you got what you paid for.
Gary

Duhhhhh - my post was a senior moment to end all senior moments - for some bizarre reason I got it into my head that the broadcaster was paying the agency's bill and the affidavit accompanyed the cheque, not the other way around. I'll just go sit quietly in the corner now and mumble to myself ... ROFL.

[Gary Moses]

Steve,
Always remember what Vice President Dan Qualye Said, " A mind is a terrible thing to lose".
Gary

[Craig Seeman]

Gary, regards tracking, that's exactly what I've done in local buys (getting the scheds printed and end of month printout. Usually I can spot check the accuracy by leaving a TV on in the background. Primitive I'd admit. The issue is having a viewer watch to confirm the spots actually air at the times claimed. Overly caution but I don't want client calling with complaints that viewers watching at a given time didn't actually see the spot.

I understand the advantage of centralized billing and yes there'll be about 9-11 reps in this case. I'm thinking the client would simply sign the paperwork and I'd actually take care of the rest.

I don't know if I want to take a check, wait for it to clear and then pay the cable providers. I certainly don't want to risk fronting the money while waiting for the check to clear.

Basically it's a question of acting as more of a consultant doing the leg work vs actually acting as the buyer/agency. I'd have to cut the mark up doing the former. Cut profit to cut risk basically. It's not a long term model but something circumstancial.

Thanks for you advice Gary as I think about this.

Originally Posted by Gary Moses

Craig, The only problem with the procedure you're suggesting is that if you have the client sign the contract there will be no agency commsion involved. He'll have to pay the gross amount. That would mean you would have to add an additional 15% and I'm not sure the client would like that. You can only get the agency commision if you sign the contract and take the billing.
One of the services that an ad agency provides is central billing for the client. When you have to deal with multiple cable systems, as in a state buy, there may be as many as 8 or 10 reps, contracts and bills involved. By having an agency, the client needs only to deal with one person, the agency.

As far as tracking when the spots ran, there are 2 methods. You can request a traffic schedule, from each cable company, that will tell you when the spot is scheduled to run. They usually are only good for 1 or 2 days in advance. The other method is at the end of the month and along with the bill is an affidavit, a computer printout that shows where each spot ran, on which network, at what time and in what program. The affidavit must be notorized before it goes out, so it's very accurate.
Gary