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TVNZ: whose 10% is it anyway?

Concluding its review of advertising sales, TVNZ has decided to save some money by only paying half as much commission to agencies who place TVCs with the network. Who’s saving the money is not very clear, however.

This has been running for a while, so let us track back a little. Not so long ago, in a land called TVNZ, the King and his Head of Advertising Sales discovered that all was not well in the kingdom and that the advertising sales revenue was hitting the fan. They were not alone in this discovery, but they were the ones who instituted a review.

Following a confidential meeting with agency chiefs in mid-August, at which TVNZ outlined its thinking, somebody let the review cat out of the bag.

Here is the letter TVNZ sent out a month ago today, in response to said cat being let out of the bag.

Lovers of irony will appreciate TVNZ responding to “Client advertisers telling us they want far greater transparency” by conducting a review behind closed doors and then – when forced to make a statement about it – sending out a letter (rather than a media release) and then finding it posted on the internet.

It is, however, beautifully written and will doubtless turn up in PR school as an example of a softener-upper, how to make it clear whose jam you intend to squeeze out of a sandwich.

Yesterday, TVNZ made its announcement that it had concluded its review and would cut commissions, from 20% to 10%, the cut to take effect on January 1, 2011. That time lag is at some odds with blaming the recession for conducting the review, although apparently TVNZ wanted to make the changes sooner.

It also leaves a fair amount of time for agencies to formulate a consider response which, being advertising agencies, they naturally haven’t done.

The agencies industry body, CAANZ, lost no time putting out a press release “dismayed” by the injustice of it all.

David Walden, CAANZ President, said, “Agencies and advertisers will need an assurance from TVNZ that this reduction will also result in a reduction in airtime prices so that it is cost-neutral for advertisers.”

However, the release also said: Most commissions are rebated back to advertisers who use the funds to help offset advertising costs.

And in the aforementioned letter, TVNZ says, “We can promise you that there will be no TVNZ price increases to advertisers as a direct consequence of any changes we might make.” So, the network will return to 10% commission saving to advertisers.

Where in this money-go-round is any actual folding being lost?

TVNZ ends up with same amount of cash in its coffers as under the current (20% commission) arrangement. Advertisers either pay 10% less for placing their TVCs and pay more to their agency to compensate them for the loss of the 10% commission, or they save some money by not compensating the agency.

But if the agency is rebating commission to the advertiser anyway, then there’s no loss. The money stays in the advertisers pocket rather than being paid out to the agency, which pays it to TVNZ, which returns a commission to the agency, which rebates it to the advertiser.

Confused? Take a number.

However, the real worry on the part of agencies is that little phrase “as a direct consequence”. There’ll be no price increases for this reason, but by a total and unforeseen coincidence we have discovered that our costs have risen by 10% and therefore our prices will rise commensurately. Or something along those lines.

Still, January 2011 is a way away. There’s plenty of time for this one to play out.

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