Media agencies criticised on arbitrage

10 September 2014

SINGAPORE: Media agencies need to think long term and be more transparent about the amount of money they make on programmatic deals or risk losing business, a leading industry figure has said.

"Programmatic buying is at a crossroads, and media agencies can choose one of two paths," Pete Mitchell, global media innovations director for Mondelez International told Mumbrella Asia.

He was critical of the short-term revenue path, "where media agencies charge us [clients] for additional services such as machine-based buying of digital advertising, and there's an undisclosed margin within that".

Mitchell conceded that some direct response advertisers might currently accept this situation since they had benefited hugely from the from the reductions in cost-per-conversion enabled by programmatic, "but media agencies can't do this [arbitrage] over the long term, when all media buying is done by machines, and expect clients to accept it".

Only last week a report from the World Federation of Advertisers found that two thirds of leading marketers thought the practice of arbitrage was unacceptable.

Media agencies, said Mitchell, needed to "grow up" and consider their longer-term relationships with clients.

"If media agencies say to us [the client]: 'We'll make a bigger margin out of you from programmatic than we do for other media channels, because we have the technology and we're making products and services for you that you don't have, but we'll disclose what the margin is – that's fine," he said.

He expected that being upfront about those margins would help agencies to retain and grow business as more money was diverted into programmatic.

Ultimately, he argued, clients were paying for data, not the buying cycle. "Soon all media buying will be machine-based, and there will be no value in buying, only in thought and strategy," he said.

"Putting data together to create a thought-provoking communications plan – that's what we should be paying for. The margin on buying should be zero."

Data sourced from Mumbrella; additional content by Warc staff