Time to get serious about creative and production contracts
Focus on media has paid off
Over the past decade, many of the world’s biggest advertisers have paid much closer attention to the relationships they have with their media agency partners. This has involved both reviewing and updating the terms of their contracts and then holding their partners to account, by regularly scrutinising performance in both contract compliance and financial audits. As a result, media agency contracts are today more transparent and fit-for-purpose, with agencies delivering against well-constructed terms. It’s not perfect, but it’s much improved.
The focus on media made sense. Historically, brands spent five-to-ten times as much on media as they did on creative. The emergence and rise to dominance of digital led to some sharp and non-transparent practices in media trading which brands have done well to address. But this relentless focus on media means that advertisers have taken their eye off the ball when it comes to creative and production. This is particularly concerning given the marked increase in investment in both these areas, which means brands now spend only three-to-five times as much on media as creative.
Brands leaving money on the table
During the course of 2022, at FirmDecisions we conducted more than 40 audits of creative and production services across the EMEA region, assessing more than £433m of spend. We found that almost three percent of the spend invested – a total of approaching £13m – should have been returned to clients. The top-three areas where issues were found were fees, job balances, and work-in-progress charges.
On one level, it’s not surprising that advertisers are failing to get fair value from their investment in creative and production. This is partly because of the recent focus on media rather than creative, but just as much because the contracts brands have in place to govern creative and production are legacy contracts, featuring outdated clauses that do little to protect clients’ best interests.
Digital marketing demands that agency-advertiser teams work faster – often in near real-time – leading to a significant increase in the volume of digital production and content creation. To deliver more and more varied creative content, agencies often contract second, third, and fourth parties, only some of whom are affiliated to the agency or agency holding company. Agencies claim this is for reasons of efficiency; the reality for advertisers is that this delivers less transparency and hidden costs, very often eroding value.
Additional focus on creative and production
Without taking their eyes off media, we believe that brands now need to focus their attention on the contracts they have with their creative and production agency partners. They urgently need to review these contracts to ensure that they better reflect the reality of what they’re buying today, the links in the transactional chain, and the flow of responsibilities right across that chain.
By failing to review, update, and proactively manage their creative and production partner contracts, brands are pouring a significant proportion of hard-fought budgets down the drain. Because of the always-on, through-the-line approach that characterises modern marketing – and the shift in relative spend that this has generated – creative and production now demand the same rigour as media.
Issues that brands need to focus on as they assess their current creative and production contracts include: out-of-scope fees, resource management, cost and project management, and hidden margins – often in third-party relationships. Fit-for-purpose contracts focus on:
- Identifying all related parties and binding them to the same obligations and transparency requirements as signatory agencies
- Adding end dates and reviewing work in progress regularly
- Specifying remuneration versus pass-through costs and keeping these separate
- Crafting clauses for specialisms
- Instituting a Work In Progress ledger where third-party costs are a major part of the budget
To subject creative and production services to the same level of scrutiny as media investment, advertisers need to review and update the contracts governing how these services are delivered. This means ensuring that both the full scope of work and pricing are well and clearly documented.
Creative work – particularly in the fluid digital marketing space – can drift and easily be subject to scope-creep. Advertisers need to get into good habits, closing jobs and reconciling expenditure regularly, right across the supply chain and including all parties involved in delivery. As they start to take creative and production as seriously as media, brands should also consider a regular contract compliance audit for their creative and production partners, too.