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How to pay for global ad production
 

How to pay for global ad production

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WFA Webinar run in partnership with APR on how to pay for ad production and structure payments across major global regions.

WFA Webinar run in partnership with APR on how to pay for ad production and structure payments across major global regions.

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    How to pay for global ad production How to pay for global ad production Presentation Transcript

    • Ad Production Payments Practices AcrossRegionsAnd Why They MatterTuesday, 21 Jun 2011
    • Introduction Steve Lightfoot • Welcome • Panel Presentation • Agenda2
    • 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 Basil Stephens Pedro Roura Director of Innovation Sr. Production Consultant Brand Executive Producer and Strategy3
    • Agenda • History of Production Payments • Evolution of the Industry… • … and New Complexities • Resonance for Advertisers • Payment Process and Issues per Region • Q&A4
    • 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 anymore6
    • 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 vendors7
    • 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 realities8
    • Unfamiliar Issues Fiscal Realities Unwilling to advance production Agency money without payment from clientUnwilling or unable to assumerisk. Significant upfrontpayments required Prod. Client Company Needing to maintain leverage by controlling the payment process9
    • Larger Issues Affecting Production Process 1. Large corporations and small vendors showing signs of financial distress 2. Vendor consolidation 3. Currency / exchange rate volatility10
    • 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” market14
    • 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 instability16
    • Africa, Asia, Middle East In absence of “standard” practice, 50-50 payment structure widely accepted17
    • Africa, Asia, & Middle East Issues • Budgets are written to compensate for longer payment terms • Lack of transparency • Impact of local practice18
    • North America 3 Typical Payment 50-40-10 50-25-25 75-25 Scenarios 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 theAGENCY. This is often referred to as “sequential liability.”*75-25 most common for Canada19
    • North America Issues • Erosion of trust in payment process because of:  Late payment  Sequential liability  Financial distress20
    • 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 jobs22
    • Latin America Typical Payment 50-50 50-25-25 Scenarios 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 another24
    • Latin America25
    • 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 Decoupling28
    • Next Steps Worldwide Playbook29
    • Questions?30
    • Thank youFor more information contact Steve Lightfoot s.lightfoot@wfanet.org or visitwww.wfanet.org