If you believe some of the headlines there is no one advertising on television and yet the 13 and a half minutes of advertising every hour on commercial television appears to be full of commercials.
The trade media are busy showcasing the latest campaigns from the major brands with the latest 60 second or 90 second director’s cut of television commercial on YouTube as the headline visual for the story.
So clearly television commercial production is still happening, but perhaps not at the volume seen in the golden years of advertising and not with as many multi-million dollar budgets.
But that doesn’t mean that advertisers are getting great value for money or even getting everything they are paying for and here is why.
Commercial production market is depressed
The production industry is complaining about budget pressures and the volume of work has fallen for television productions. Certainly some of the production houses and directors are focusing on more long form and content work in the face of declining television production projects and spend.
But you would think that in a highly competitive market, with a large number of production suppliers, there would be significant pressure on prices. And you would be right.
There is a high level of discounting happening across the market, sometimes by up to 50% of the past fees as companies compete for the increasingly smaller number of projects and spend in the market place.
There are great deals on a whole range of services
These discounts are not just from the production companies, but right across the production process.
Production crews, who traditionally found the advertising production revenue lucrative, with significant loadings on their day rate, are under pressure to accept longer shoot days for less money.
Those crews with a significant investment in equipment such as grips, gaffers and sound recordists are particularly under pressure as they work to recoup their investment.
Even the equipment hire companies are under pressure and many have responded with significant deals to avoid day rate discounting. The most common is that traditionally, where a production company could rent the equipment for a week for the cost of 3 days, this has dropped to two days, making longer shoots even more cost effective.
But it is not just the shooting process that is under pressure. Many of the post production houses including editing, visual effects and audio are under pressure and offering significant deals. These could be volume discounts like the equipment hire companies, or rebates for volume spend, or simply discounts on the hourly and daily rate.
These deals are not being passed on to the advertiser
You would think that with all of this discounting that the price of television commercial production would have dropped significantly too. And in some cases it has, usually where the advertiser is contracting the production company or facility directly.
But from our recent experience it seems that the agencies are still managing to justify the traditional fees using the standard rates as the basis of that justification.
Many production company estimates still show the crew rates for the grip, gaffer and the like at the industry standard rates, yet we know that most of these crew are getting paid at a discounted rate.
One of the most insidious practices is paying crew for a standard day and then the production company charging the advertiser for overtime and retaining the difference, which can be half the base fee.
Likewise we have been told of other suppliers such as post-production houses who are paying a 30% or better rebate to production houses and agencies alike as a way of securing the work. Yet these discounts are rarely making it to the advertiser estimate, with the cost justified using the casual published hourly or day rate from the supplier as justification.
Yes, the discounts are happening and it is why the industry is frustrated and angry. We have spoken with crew who blame the advertiser for being under paid as they are told by the production company producer they cannot pay more as the ‘Client’ has cut the budget.
Where is the money going?
Sometimes these discounts make it back to the advertiser. But this is rare in our experience. It does raise the question that if the smaller suppliers to the production companies are getting squeezed on price and yet the advertiser is paying the rate card rate, then where is the difference going?
We believe there are two main possibilities.
First is the production company. Over the past ten years we have seen the production company mark-up drop from up to 25% down to 10%. This mark up was meant to be the effective margin on the production.
But with the drop it is possible the production companies could be short changing their smaller suppliers to supplement their own declared and dwindling margins. The sad part is that in the process they appear to be justifying this practice by blaming the advertiser.
Second is the advertising agency. The reason we believe this is a possibility is two fold. Many advertisers are increasingly commissioning video content and sourcing this direct with production companies to find that the costs are often much cheaper and less inflated to accommodate the involvement of the agency.
Also, like the production company, the agencies have endured downward pressure on their fees, and production is an ideal area to make up the short fall in other areas.
What can advertisers do about it?
There are a number of strategies that advertisers can deploy to ensure they are getting the value that they are paying for and ensure the savings and discounts are passed back to them.
- If the investment is significant enough you could both decouple production from the agency and go direct. In this case you would need to consider all production and not just television commercial production.
- Alternatively you could contract or employ a production manager for yourself to oversee all aspects of your production both through your agency and direct with production companies to ensure transparency, accountability and efficiency.
- If your production needs are ad-hoc then you could engage a production consultant on a project-by-project basis to assess your production costs and identify cost savings and opportunities.
There is some amazing production talent out there in the market place and they have the ability to make any broadcast production more effective through their skills and abilities. But you want to ensure you are getting what you are paying for and that the quality ends up in the final product.
The fact that there is great value to be had in this competitive market should be encouraging advertisers to look for that value and make sure it is delivered for their brands. And we are happy to help make this happen.
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