AICP's Miller Sees Pitfalls of P&G's Prod Co List

The US ad trade magazine Adweek broke a story earlier this week reporting that Procter & Gamble has created a short-list of approved production company vendors for its agencies to use when shooting its TV commercials. According to the story, the marketer is “rewriting the rules for the hiring of production houses, with an eye towards exerting more control and reducing costs.”  The story also indicates that UK-based Reckitt Benckiser is considering a similar move.  To gain more of an understanding about what this can mean for the production industry, SourceEcreative recently spoke with Matt Miller, President and CEO of the Association of Independent Commercial Producers.

The use of corporate procurement departments in the purchase of marketing communications services on the part of major advertisers has been on the rise. What role is this trend playing in this most development? 

From a big-picture perspective, client involvement in understanding the production process isn’t necessarily a bad thing. But we believe that when the solution to clients getting involved is bringing in procurement and thinking they can develop purchasing practices that find efficiencies in the current system, this is an ill-conceived approach. Therein lies the problem. If you consider what P&G is doing, they’re not trying to change the system. All they’re trying to do is cut down on the number of production companies they work with and have the exact same procedures and processes for doing work in place, yet get that work for less.

The other side of the coin would be if they said that they understand there are issues with cash flow and guarantees and production companies not getting paid on time for a myriad of reasons, and they want to try and bring some value to the client side of this issue in exchange for some cost considerations. That would be creative thinking brought about from the position of them being a client.  Instead it’s just, ‘let’s just tell people, these will now be your rates, and if you accept this, you’ll continue to work the same old way.’ 

Seems a little one sided? 

And unrealistic. What ends up happening is that you get business buzzwords. I spoke this year at the Association of National Advertisers Financial Management Conference, and most of the people in the audience were client-side procurement professionals. And the big idea there was the term ‘decoupling.’  As in, ‘let’s decouple the production process,’ the idea being that they can buy the services of a production company ‘decoupled,’ or separated, from the creative process.  Their thinking is that they can buy creativity from agencies, and then buy production from production companies, and they don’t really need the two to intertwine. It was an interesting idea, mostly floated, we think, by cost consultants.

Is this an idea that seems seeped in the mindset of manufacturers? That is, we can get anyone to build our little widgets, since they’re all the same and we just want someone to follow our specifications?

I think a lot of it has to do with that. There’s the belief that in the volume of dollars spent lies the ability to find efficiencies. And that may be the case in a manufacturing process, but not in a custom process. There seems to be a disconnect in the understanding of building an idea, and creating a custom product each and every time you produce something, versus other types of purchasing.

You talked about this idea of commercials being custom made each and every time back when we were discussing the issue of sequential liability.  Has that idea sunk in on the procurement community?

I think they sort of understand that. I don’t believe they understand the effect that this type of thinking can have on the end product.  I think there’s a true disconnect in the mindset of how purchasing approaches ideas and the value of the creative process.  Somewhere in their mindset they believe that creativity is over here, and execution is over here. And execution is made up of lumber and nails and lights, and all those things have costs and there’s no reason why we can’t figure out what those costs are and come up with some best practices concerning how to manage them.  So you start to get all of the manufacturing buzzwords, things like total quality management, all these expressions that suggest that they can find a way to benchmark production costs and purchase them just like they purchase everything else.  But I do believe that they’re starting to understand the players in this equation.

When you say players, who do you mean?

There are various entities involved in the production process. There’s the engagement of production companies, there’s the role of the agency, both with creative development and the production, and now you have players like consultants who are very much ensconced in the process and in the industry, and now you have procurement people along with brand people—all of these various players are in there.  And I think there’s a lack of understanding on how the creative side of that element actually works together, versus just being siloed.  The thinking seems to be on the part of clients that they’ve already dealt with their agency compensation models, and now it’s time to apply procurement practices to production to see if they can purchase that differently.

To the best of your knowledge, are these moves by P&G and Reckitt Benckiser, which was reported by Adweek, the first times that major marketers have tried to set up pre-approved or preferred lists of vendors for TV commercial production?

I haven’t heard anything about the Reckitt effort, so I can’t comment on it at all.  I do know that certain advertisers have in the past made offers to production companies that, if they were to give them a certain volume of work and if they were to work solely with a handful of companies, would they give them consideration.  I believe that PepsiCo tried it a while ago, and it didn’t work. Whether or not there are deals made for volume with certain production companies, that could be. But again, that’s a two way street. This isn’t a two way street.

Based on your conversations with P&G executives close to the situation, what are the criteria they used to choose which companies are on the list? And can a production company apply for this list if they wanted to be on it?

They can’t.  I’ve been speaking with the P&G person who’s been leading the charge on this, Patrick Tewksbury, for months, and he’s been explaining his process to me.  Last year they tried to do a similar thing. They sent out a sample storyboard and asked production companies around the world to bid on it.  What they wanted to do was create a standard rate card based on the information they got back.  As we understand it, they got very few, if any responses, even though they sent it to production houses around the world.  What they came out with was very bad data, especially in the US.  And we were very vocal about our concerns with P&G.  We had several meetings with them and tried to explain the process and why the approach they were taking wouldn’t work.  And clearly it didn’t.

When Patrick took over this project—he was not involved, to my knowledge, with the previous effort—we had several meetings, and he asked me why they were not successful the first time around.  And we went through a lot of things with him and explained why.  So he then went at this in two ways.  First, P&G’s agencies were very resistant to that previous approach; they were very vocal about this, from what I understood, and really resisted it. 

This time, however, they went to all their agencies and asked for a list of the companies they like working with. And they created the RFP list for distribution based on the list of production companies their agencies provided. The feeling was that, they’ve gotten through the initial hurdle, which was agencies’ resistance, since their agencies didn’t want to see companies on the preferred vendor list that they didn’t want to work with, and they also didn’t want to feel limited.  I believe their thinking was that if they only send the RFP to companies that their agencies recommend, they’re starting with one leg up.

The other piece of the process that they went at differently was asking each company that got the RFP what their rates are for different aspects of production. The thinking here, we believe is that they were saying, ‘we’re not going to try and manufacture a rate based on averages. Rather, we’ll have companies fill out a form, and if it corresponds to what we want to see, then they’ll make it on our list.’

So that was their criteria?  Whether or not a production company would do a job for the price that they wanted to pay?

Right. So this time around, the concept was, ‘the companies will tell us what their price points are, rather than us doing a survey in order to create a price point, which we’ll then tell people that’s what it’s going to be.’  They came at it from the other way, but still arrived at the same place.

Is this list available anywhere?  Or it is confidential?

It's confidential. I don’t even know who’s on it. And their process was very interesting. Each company that received the RFP—reportedly there are about 70—had to first sign a non-disclosure agreement. So before you could even get the RFP to fill out, you had to sign an NDA saying that you would not share any information that was a part of it. 

P&G has been making an effort to raise the creative quality of its advertising, and doing this in demonstrable ways, such as sending delegations to Cannes, etc.  Do you feel this move is consistent what that effort?  What message does it send to the production community, and by inference to the ad agency creative community?

Well, I think they’re obviously working at odds, both of those concepts.  Remember, that mission to improve the creative quality of the work was started by P&G’s former advertising chief Jim Stengel, who’s left the company.  So I don’t know if you can pin this to one person, but he had the vision of truly turning around P&G’s creative. Whether or not this will have an impact on that, I don’t know. We’ll have to see how this gets implemented.  Potentially, you can see the pitfalls of limiting the way agencies can access production resources in order to get the best creative product. Right there, it doesn’t seem to really make sense.  I understand from a procurement point of view that they like the idea of getting a contract price from production companies. But it also seems to be a little bit at odds with the fact that creative work is usually bid in a competitive manner. And people desire creative work.  Yet here you’re limiting the number of people who can go after it.  You’re  already bringing down the competitive factor that usually keeps prices in check. So to me, the whole thing doesn’t really make sense. 

All that being said, you don’t know what the new administration over there is thinking about.  We do know that this is a procurement practice, not necessarily a creative practice.

What advantage is there for a production company to agree to be on the P&G and Reckitt preferred vendor lists, especially if they're not being guaranteed a specified volume of work as part of the deal? 

You get to work for P&G. And that’s great, if you want to work for P&G, you’re willing to lock into prices and you believe you can make that a viable business model for yourself.  There may be companies that feel that, by being on that list, they can get a volume of work and that it might work for them.  I guess that’s one way to go.  Personally, I don’t see how that can work.  I don’t see how you can lock yourself into those pieces—we talk about how production is custom made each and every time, and that customized approach is what’s important.  Even if everyone was paying the same prices and had a rate card that was exactly the same, the costs are going to be all over the map when different production companies and different directors apply their vision. Everything changes then. How many cameras, how many lights, where you’re going to shoot it, how you’re going to shoot it, etc.

Does the AICP have an official position on this trend at the present time? Have you communicated anything to members about this?

No.  All we were able to do was, through some hearsay, get a sense of what was going on from members that were trying to fill out the RFPs. Again, most of them were very careful not to give any specifics because of the NDA, and you can’t blame them for that. And I believe there are some members out there that, especially in this economy, who might not mind being involved in a smaller pool of companies to bid on work.  You can see where there might be a bit of an impetus for that.  I think there are dangers and pitfalls into locking yourself into certain prices, when you’re not really sure how that’s going to work or what the future holds.

Do you think any other major advertisers will attempt to duplicate this move? 

I don’t know how this is going to be successful.  I know that many major advertisers are constantly looking at the price of production, and I think there are going to be efforts to limit those costs, to control them and to find efficiencies.  I don’t believe this move will result in real cost efficiencies, however.  I don’t think any other advertisers will try and duplicate this specifically, because it’s going to have very limited success.  Will others try similar efforts?  Maybe.  Again, if there were an upside for the production community on this, you might see people giving real concessions in such a negotiation.  But at this point in time, it seems to be working the other way.  With things like sequential liability and the like, it seems that the direction that advertisers are going is just creating more liability for production companies. And liability and risk should equal compensation.  This is sort of going in the wrong direction. 

What long-term impact could it have on the vitality and diversity of the production community?

Again, if the entire idea here is to lower profitability of production companies, well, many are working right now at three and four percent profit margins, if they’re lucky, in a risky environment.  In the end, it’s going to have the impact of having less creative resources to go to; that’s the bottom line, and that’s a problem for everyone. .