March 12, 2009

The Times They Are A-Changin'

Thomas L. Friedman is a NY Times columnist and Pulitzer Prize winning author of Lexus and the Olive Tree and From Beirut to Jerusalem.

Mr Friedman wrote a column in the New York Times on March 11, 2009 titled "This Is Not A Test. This Is Not A Test."

The column so eloquently states in exactly 860 words how badly up shits creek we all are.

His exact words are "Economically, this is the big one. This is August 1914. This is the morning after Pearl Harbor. This is 9/12."

Hows that for not beating around the bush?

On the same day I read Mr. Friedman's words pertaining to the economy as a whole I also read a statement made by the Omnicom Group saying that they are issuing a very stringent sequential liability clause in vendor contracts.

The clause is that vendors will not be paid anything until the agency gets paid by its client. Additionally the Omnicom agencies will not assume liability for a project if the client doesn't pay.

If your part of a production shop or a digital vendor I will give you a second to say "WTF!!!?"

:one second pause:

We all work in an industry where we are obligated to our clients to sell more of whatever it is they are offering.

As ad industry professionals we are supposed to find innovative ways to come up with creative campaigns that will somehow be impervious to the economic crisis we face in this country and to find ways to get our audiences to buy stuff regardless of the fact that they have no money to spend.

The very fact is that no matter what, the public all needs things. Basic items, luxury items, services and everything in between, we are a country built on consumption and no economic downturn is going to change that.

Smaller production shops are the lifelines of these massive agencies. We are the blood, sweat and tears that go into every project.

We are the craftsmen and women who have honed our skills to perfection in the various fields of film, editing, digital, technology and beyond.

We are the assassins who come in on a project by project basis and give everything we got to make sure, in many cases the turd of an idea we are handed is polished and sparkles like a diamond.

We provide the small details, the documentation, the specifics and the education. We set up the infrastructure and handle the executions. We offer up solutions that sometimes don't even exist before we create it on the fly.

How many times has the experience of a production shop given an agency the core idea for a brand because the agency had no clue what kind of technology was needed to execute whatever it is that they are trying to communicate?

This is a collective slap in the face to all of the folks who work hard day in and day out to get these projects done. The producers, the directors, the flash programmers and video editors, the after effects wizards and the 3D modelers, the gaffers, the grips, the designers and the programmers.

This is the first step towards what I predict is going to be a major impasse in the advertising industry. Productions shops will not accept these suicide contracts and eventually will go directly to the brands themselves to provide the services that these brands all need to communicate to their consumers.

Where does that leave the agencies?

Granted this is just Omnicoms policy and I am sure other agencies outside of Omnicom's group will not adopt this policy. However this is not good for the industry to take a stance against those folks who break their necks day in and day out to get projects out the door.

As holding companies agencies need to be the financial brokers between us smaller vendors and the massive client. Agencies get to call the shots because they were the ones holding the cash, but now what?

Brands would benefit more from working directly with the vendors in executing the ideas that the agencies come up with. The transparency would produce some shocking results.

Brands communicating with vendors directly will result in campaigns being richer and better communicated, the lines of communication would open up and the barriers would get torn down so that the soul of the idea doesn't get diluted by all of the needless layers.

Oh! And budgets would be utilized towards the core idea and not for roles that are simply not needed within the project.

In doing this we would usher in a new golden age of advertising that would welcome and utilize all the advances and experiences of the various vendors. The stories that we tell would be more compelling and the creative will explode into the hearts and minds of the public.

Clients should know exactly how and where their money is being spent and they should have realistic expectations for what is going on with their campaigns during a project life cycle. Vendors have always been hidden away and the agencies have tended to throttle the flow of information in a way that only benefit themselves.

Its time for CHANGE!


matt said...

Omnicom's new policy goes against the traditional payment/barter system that humans have been using for millennia. You show me the money, then I'll show you the goods.

It seems like smaller development shops are going to get screwed here.

I think we could actually use a banking model here, where Omnicon is an investor looking for a loan (their project) and the shops it farms work out to are like little banks who take on that loan. After all the interactive or print shops will be the ones who are actually paying for Omni's projects in man hours, overhead and creative capital.

That's perfectly fine, banks loan out capital all the time. The difference is that banks charge interest. Why shouldn't the development shops act the same way?

So I'd say, go ahead Omnicon, wait on your clients to pay you, so you can pay your vendors...but expect to be charged interest on every delivered account until that account is paid in full.

Anonymous said...

Vendors are ever the brunt of the continued noose tightening compliments of the agencies. The institution of charging interest on delinquent accounts has seemingly fallen by the wayside (maybe not in your market?) but I agree with Matt that a resurgence is in order.

Anonymous said...

They have had sequential liability clauses all along. This is not news. Its just alarming to some when they now start to have companies focus on it and realizing the agreements they've signed for years.
What 3rd party companies can always do is refuse the work and not take the risk.
Remember, what Omnicom and others are saying is basically, 'if we dont get paid because of delinquent client, we will be losing our fees and costs and cant assume additional liability for any others costs who "chose" to get involved in the project with us.
Its not that Omnicom will be rolling in the $$ should there clients refuse to pay all of there bills.
You have a choice. I would argue that if you do work for Coke or established brands, you have a higher likelyhood of getting paid. If you get an RFP for work for a company who could possibly struggle during these times simply paying there debts, well, I would question my involvement in those projects without having reassurance that the 2nd party contractor was paid prior to initiating the work.

Craig A. Elimeliah said...

Perhaps agencies should not bid out projects that are liable for not being paid for. You are correct that this has been something vendors have struggled with for ages however to flat out say that the argument is over and "it is what it is" is a bit disturbing for the synergy and relationships that agencies and vendors have been trying to nurture and get to a point where credit, money and communication are all treated fairly. I see this statement as a step backward in our industry and something that needs to be addressed. I am sure it is much larger than we see at this moment and perhaps a posture to try and over take the vendors who are now threatening agencies by having the ability to service clients directly. Who knows?

This kind of reminds me of a time when Ogilvy and Sorrell were battling out their Money Vs. Creative when WPP was taking over O&M. The creative cannot die and when a statement like this is made towards those vendors who provide the detail and grunt work it is not a very friendly step towards peace and love.

Anonymous said...

In the end, the client pays the Lead agency, the lead agency works with the trusted, reliable and creative outsourced partners they feel help them and the clients succeed. Agreed?
When those clients dont pay there bills, we (meaning us outsourced 3 rd parties who do all the "grunt work" as you put it) should know that the Lead agency isnt getting paid for a lot more than the simply just the fees we are charging.
The lead agency needs to protect itself and pass on the liability to the source of the beneficiary.

If you do work for a Sears project on behalf of Y&R and Sears defaults on payment, well, Y&R doesnt get anything, but Sears did. They are the responsible party and the beneficiaries of our work.
If the sequential liability clause says that they will only pay in the event that Client funds have cleared with them and that, if in teh event they dont collect, tehy will use all resonable efforts to collect and assist in your collection efforts...well, then, that is a fair way to conduct business in my opinion. You can take that as saying "it is what it is" but really "it is".

Craig A. Elimeliah said...

How do you not see that as a major flaw in the process? A lead agency goes out and gets bids on work that hasn't been paid for yet? Are the vendors supposed to front all the costs in hope that the client will pay the lead agency? Something just doesn't make sense here.

I have been producing interactive projects for a long time now, I have produced projects for probably every single major agency that exists and there have been times when we have argued this clause and have had it changed in our favor.

How can a lead agency go out and expect someone else to do work when they themselves havent secured the money to get the work done?

Do we say in our contracts that we will do everything we can to produce the work? No, we state what we will be delivering, X,Y and Z.

I just cant fathom that agencies cannot manage the client in such a way that once a project is agreed upon that money is set aside or even paid to get the project done.

What did Sears get? Did that project go live? Perhaps the agency should be transparent and put their vendors in direct contact with the client so that if a case such as this does arise it is within the vendors ability to make sure the client is properly informed of what it is they are paying for and perhaps the client will be more inclined to pay.

Anonymous said...

If you think that agencies dont "secure" the project before bidding out some of teh work, you arent given then credit. Secure would mean a contract, and in teh event of non-payment by the client, they are essentially breaking the contract. Equally, we need to understand that many CMO's and Procurement personnel set aside money to pay for what they contract from there agencies, only to have it pulled back in times of financial need or to manage cash flow.
Sarbanes-Oxley compliancy doesnt make it any easier for companies to pre-pay for work that hasnt been performed, so these agencies arent getting paid before they bid out the extra work to production.
All is good in good times, and no one defualts on payment, but when teh going gets tough, everyone needs to think differently and protect themselves; Holding companies do it with Sequential Liability clauses, and those further down the line do it by being selective of those projects we take or negotiating the SL clause (if they agree to take it out, 99% they have already received the money or are changing a minimum 50%+ markup so its worth the risk - so your getting screwed for the value of your work regardless).
When the SL clause is exercised, you do get put in touch with the client, but by that time, us and our development projects will take a number in the collections line along with our agency partner right in line with us.

Craig A. Elimeliah said...

Thank you so much for your insight! That was a great way to explain the process that I myself only know from the vendor end and what experience I have had with agencies.

I would love to know what kind of solution you would propose that would make everyone comfortable in this situation?