TVNZ won't budge on agency commission

Television New Zealand is staying on its collision course with advertising agencies and sticking with plans to halve their commission.

The corporation shows no sign of changing its plans, saying the cut from 20 per cent of money spent on ad time to 10 per cent takes effect from January 1, 2011.

But "it's still very much a live issue", according to Bryan Crawford, who last week was appointed president of the Communications Agencies Association of New Zealand. "It would be a mistake to think it was a fait accompli".

Crawford - who is chief executive of FCB Advertising - said the cut from 20 per cent of the money paid for television ad time to 10 per cent could have a dramatic effect.

"TVNZ are the price maker for advertising and I think they might have forgotten that," he said. "It's a mistake to think that this is a fait accompli."

TVNZ says the commission will make the cost of advertising more transparent. But agencies believe that the money will go directly on to TVNZ's profits.

Crawford said cuts could undermine both the advertising and the media industries, including TVNZ.

He said this would move New Zealand media-buying decisions to agencies in Australia.

Former TVNZ sales boss Lauren James - now head of the independent media-buying agency Carat Lauren James - has issued similar warnings.

The question is whether other broadcasters - most immediately MediaWorks - will follow TVNZ's lead. MediaWorks, owners of TV3 and C4, says it is "watching developments closely".

The alternative approach is to keep commission at the higher 20 per cent rate with the expectation of moving ad spending from TVNZ.

The Association of New Zealand Advertisers - representing the big-spending advertisers - is on the side of the agencies.

Crawford believes that behind the scenes "some [have] decided to send TVNZ a message" moving some peripheral work to TV3 and other media.

"Work is moving over. TVNZ, having shown its hand, has given some advertisers reason to consider where they are spending their money.

"An agency is always going to select the best media for a campaign - that will not be compromised. But in most advertising schedules 5 or 10 per cent of the budget can go one way or the other without affecting the effectiveness of a campaign.

"It's that sort of marginal money that could move if the relationship [with TVNZ] is not strong."

The comment illustrates the risk taken by TVNZ chief executive Rick Ellis and chairman Sir John Anderson in alienating the agencies - and the need to keep advertisers on board.

The Business Herald is aware of at least one large television advertiser which backs change because it would diminish the influence of agencies.

TVNZ head of sales Dave Walker - who recently announced a 2 per cent increase in TVNZ rate-card prices - said that where agencies took that approach he would notify advertisers.

Asked how the halving of the commission would affect advertising rates, he said the market would decide.

Crawford says the commission row is complex.

Some ad agencies are wholly paid with fees for their work rather than commissions so would not lose money from the commission cuts.

Sometimes the money goes directly into agency profits - sometimes it is returned to the advertiser or used to finance the production of more commercials.