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

1. Ad Production Payments Practices Across
Regions
And Why They Matter
Tuesday, 21 Jun 2011

2. Introduction
Steve Lightfoot
• Welcome
• Panel Presentation
• Agenda
2

3. 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 Strategy
3

4. Agenda
• History of Production Payments
• Evolution of the Industry…
• … and New Complexities
• Resonance for Advertisers
• Payment Process and Issues per Region
• Q&A
4

5. 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

6. 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

7. 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

8. 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

9. Unfamiliar Issues
Fiscal Realities
Unwilling to advance production
Agency money without payment from client
Unwilling or unable to assume
risk. Significant upfront
payments required
Prod. Client
Company
Needing to maintain leverage by controlling the
payment process
9

10. 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

11. 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

12. Overview of Worldwide Payment Practices
as They Exist Today
• UK, Europe, Africa, Asia, and Middle East (Basil)
• North America (Alex)
• Latin America (Pedro)
12

13. UK
Typical Payment Scenarios 50-50 75-25
First Payment 50% 75%
Second Payment 50% 25%
13

14. 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

15. Europe
Typical Payment Scenarios 50-17-33 66-34
First Payment 50% 66%
Second Payment 17% -
Final Payment 33% 34%
15

16. Europe Issues
• Fragmented and varying practices
• Advertisers have contracted directly with production
companies
• Inflation & Currency instability
16

17. Africa, Asia, Middle East
In absence of “standard” practice, 50-50
payment structure widely accepted
17

18. Africa, Asia, & Middle East Issues
• Budgets are written to compensate for longer payment
terms
• Lack of transparency
• Impact of local practice
18

19. 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 the
AGENCY. This is often referred to as “sequential liability.”
*75-25 most common for Canada
19

20. North America Issues
• Erosion of trust in payment process because of:
 Late payment
 Sequential liability
 Financial distress
20

21. 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

22. North America
Trend
• Compressed timelines (6-7 weeks)
• Last minute jobs
22

23. Latin America
Typical Payment 50-50 50-25-25
Scenarios
First Payment 50% 50%
Second Payment - 25%
Final Payment 50% 25%
23

24. 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

25. Latin America
25

26. Latin America
• 2008 Mexico exchange rate went from 10 to 1 to 14 to 1
on a short period of time.
26

27. 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

28. Broader Trends & Opportunities
Direct Payment
Preferred vendor / roster deals
Decoupling
28

29. Next Steps
Worldwide Playbook
29

30. Questions?
30

31. Thank you
For more information contact Steve Lightfoot s.lightfoot@wfanet.org or visit
www.wfanet.org