As digital accelerates, Alexander Mauch says it’s time to take transparency seriously.
Germany has the biggest economy in Europe, and the German advertising market is worth €29bn – Europe’s largest and one of the most important worldwide. TV is the single biggest medium and is growing, while print is steadily losing ground.
And although digital has been booming over recent years, the market lags behind other developed economies – notably the UK and USA – and is yet to truly experience a digital revolution. But things are changing.
With investment in digital growing, media is increasingly traded programmatically. Not only is there a more complex transactional chain than for traditional media, it is also considerably less transparent. The German legal system is known for its fairness and stability, and German contract law is well established as equitable.
This is why many German advertisers turn a blind eye to the legal and commercial impact of the lack of transparency found in programmatic transactions. What’s more, new market dynamics are inadequately reflected in contracts between advertisers and their media agencies and many should be updated; the law doesn’t legislate for what is left unsaid.
According to the World Federation of Advertisers (WFA), rebates are widespread in Germany. In addition, advertisers report that approximately 40 percent of rebates are retained by agencies, rather than passed back to advertisers.
Germany also indexes highly for ‘free space’, offered by media owners and used by agencies. This can be problematic for advertisers, particularly if contracts fail to detail free space as an agency volume bonus and do not specify how it should be calculated or dealt with.
“Changes in how media is transacted mean advertisers should fundamentally review their relationships with their agencies.”
These factors have enabled German agencies from the big six global groups to remain highly profitable. According to market sources, they are recording double digit margins, and the more opaque digital transactions are boosting profitability further.
Changes in how media is transacted mean advertisers should fundamentally review their relationships with their agencies. They should negotiate new contracts with increased transparency and clear audit rights, in line with the emerging mechanics and dynamics of the market.
This is the only way that those in marketing, media management, and procurement can guarantee their investments work in their best interests. It will also enable them to stay competitive and be sure they receive proper compliance.
Innovations bring opportunities and threats; they underline strengths and expose weaknesses. By improving contracts and securing their commercial interests, German advertisers will make their agency relationships more balanced and equitable. A significant component of this will be the growing trend for financial compliance media audits, which we believe will become standard procedure for leading marketers across Germany in the near future.
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