'Inventory buying' is now heavily indulged in by ad agencies, but without them providing any clarity on the actual costs involved. Clients end up suffering. Image Credit: AFP

Until digital came to dominate advertising, media trading was simple. Broadcasters and publishers offered space or slots where brands could advertise – on TV, radio, cinema, press, and outdoor.

Agencies bought space or slots for their clients, addressing the most relevant audience segments for their client’s products or services. Agencies acted as the ‘principal’ for the trade. They re-charged net costs of media to their clients, plus whatever commission were agreed. Media costs were transparent.

New media

Things are very different now. The established model was used for digital media initially, but it’s not the only way digital is traded today. Digital publishers can offer unlimited media space because websites and digital platforms aren’t constrained by the number of pages in a newspaper or magazine, and time allowed for ads on TV or radio.

Since digital media space knows no limits, agencies started buying media inventory themselves - in bulk - and reselling it to clients. In the world of inventory media – also called proprietary media – agencies act as both ‘agent’ and ‘principal’. This creates inevitable conflicts of interest as agencies act in their own - and client’s - interests.

Agencies often insist that advertisers buy inventory media with strict no-audit clauses. This makes it unclear how much they paid for the space and so how much of a mark-up they make on the deal. This is challenging, as inventory media can include ‘bargain basement’ or clear-out space – space that publishers couldn’t sell – as well as free media given to agencies as part of bulk buys.

It’s this built-in lack of transparency in inventory media trading that means advertisers have no idea how much it cost, what it’s worth, or, indeed, whether agencies are reselling space that was gifted to them.

A price worth paying?

The agency argument goes that the no-audit clauses in inventory media deals are a fair exchange for getting access to ‘great value’ media. They claim that because they buy the inventory before reselling it they take all the risks and so should be allowed to sell it on at whatever price they choose. And yet creating a market with a fundamental lack of transparency built in should always make partners who are blind-sided ask: “Yes, but what have you got to hide?”

Often, agencies say that using inventory media allows them to deliver real cost savings to clients, but these could depend on sub-optimal media plans, cobbled together with a long tail of inappropriate or irrelevant media. Advertisers should reflect that, if publishers or vendors couldn’t sell the inventory themselves, but rather had to sell it via a wholesaler, then the media can’t have been that desirable anyway. Even in a fire sale, vendors and agencies will both take margins, paring the client’s budget to the bone, slice by slice, and in a non-transparent way.

Inventory media

All major agencies and holding companies have their own inventory media buying divisions or third-parties. Most have operations with different names for each type of media, because inventory media is now widespread in all categories. Advertisers need to question this practice keenly, because TV, radio, print, and out-of-home inventory is finite, unlike digital media space.

So with non-digital inventory media, agencies are either buying less desirable media at a knock-down prices or are putting themselves into the chain for desirable media. In the long run, that’s not good for either media owners or advertisers.

Inventory media adds another level of opacity to media trading at a time when transparency has never mattered more. The leading social media platforms self-certify performance and audience delivery, sitting behind walled gardens. This approach has now been extended to agencies acting as middlemen in managing influencers and bloggers.

This casts a long shadow over modern media and marketing, meaning less transparency for more of brands’ total marketing spend.

Transparency has been high on the media agenda for the past five years, and in that time many advertisers have invested time and energy to address the issue. Making sure that transparency is baked into contracts with their agency partners is one powerful way they can achieve this.

So, too, is staying on top of the terms agencies and vendors use to describe different categories of media. Inventory media is one area where urgent action is necessary.