As the financial house of cards continues to tumble, some advertisers are attempting to improve their cash flow by asking media owners to extend credit payment terms, with the implicit threat that they may be dropped from the schedule if they do not comply.
Last week, drinks companies Anheuser-Busch and Diageo wrote to media owners saying that they were lengthening their payment periods to 120 and 60 days respectively; cash-strapped General Motors is thought to have taken similar steps. Media owners and media agencies, however, are in no shape to absorb the costs that come with delayed payments.
Nick Bampton, senior vice-president and managing director at MTV sales house Viacom Brand Solutions, says that while it is understandable that brands want to hold off on paying for media space for as long as possible, it merely pushes the problem onto another company suffering similarly in the recession.
'TV companies are not in the position to take on these financial burdens,' says Bampton. 'During extraordinary times companies need to take more risks in order to get things going but it's not a "one size fits all" scenario. Until times get better, media owners and agencies will have to sit down with clients and work out what is best for everyone.'
Strong-arm tactics
The Institute of Practitioners in Advertising (IPA), which represents agencies, has also criticised brands attempting to shift costs to media suppliers. Marina Palomba, legal affairs officer at the IPA, called it an 'appalling tactic', aimed at bullying smaller businesses into submission.
InBev, Anheuser-Busch's owner, has defended its app-roach, however. It says: 'We value greatly the sup-pliers that we work with. It may take time for some of the suppliers to get used to the new system but we will do what we can to help them with the transition.'
John Billett, chief executive of media auditing firm Johnbillett.com, does not accept this. 'Why should an agency bend over backwards to help the cash flow of a brand?' he asks. 'An agency is not a bank. This is simply the short route to bankruptcy for any agency, especially now as credit insurance is more difficult to get.'
The standard payment period for media supplier contracts is 25 days. This is shorter than many suppliers in other sectors, but because of the amount of money involved, it is more pressing for ad campaigns to be paid for promptly.
Jim Marshall, executive director of Starcom Media and chairman of the IPA's Media Future's Group, says media owners have to be paid on time or ad campaigns will be dropped. 'Media agencies don't have any flexibility when it comes to paying media invoices, because the amounts are substantial,' he adds. 'It's down to the individual agencies to decide payment terms and often it is part of a wider arrangement.'
Several media suppliers are attempting to introduce greater flexibility to payment. Viacom Brand Solutions, for example, is aiming to attract new advertisers with its 'Force For Enterprise' programme, which offers options to brands such as revenue-share arrangements.
The Media Circus Group (MCG), a marketing communications group, also intends to introduce an alternative approach to payment. It is offering a full service from concept to air for a fixed price that guarantees a certain audience figure. Peter Knight, chief executive of MCG, points out that payment has always been a burning issue. 'Brands are obliged to pay on a fixed date. In reality, any delayed payments are swallowed by media owners because agencies can't bankroll the cost of extra days,' he says. 'There might be a few brave agencies that would offer an extended payment period, but they would be few and far between.'
There is a fear, however, that if one agency accepts an extension, others will be forced to follow to remain competitive. Billett likens this to writing a suicide note. 'If all agencies refuse to accept unfair terms, brands will have to stick to the standard conditions,' he says. 'If there were ever a time to stand up and be counted, now is it.'
As every business cuts costs, media owners and agencies may find that, ultimately, it is not a case of choosing not to accept 'unfair terms', but simply being unable to.