Agency Bankruptcies Hurt Entire Industry
The effect these bankruptcies have on the industry is enormous, but for some reason, people in the direct response industry are not taking this issue seriously.
I recently attended an industry function where I had a conversation with a media buyer from an agency in Los Angeles. We were discussing a particular company that filed for bankruptcy protection not long ago. She said, "All I know is that more companies need to file bankruptcy because I've been getting lots of fire sales lately!"
My initial reaction was to educate this short-term thinker by explaining that stations must meet their sales goals. If they reduce the rates today in order to move inventory quickly, tomorrow they will increase rates to make annual budget goals.
As an industry, we must take a big- picture look at the long-term effects that bankruptcies have on all of us. As a media buyer, I have seen the direct impact on my clients' profitability because of the following factors:
• Rising Rates. While I can negotiate low rates when a station is hit with the news that one of their advertisers is going under, rates eventually must increase for the station to survive.
A salesperson from a national cable network recently told me the network experienced huge losses during the past year because several major direct-response media buyers did not pay their bills and filed for bankruptcy. The salesperson admitted that more than 80 percent of the money owed is never recovered, which means the network has to increase future rates to make up for the loss.
• Fewer new time slots. I have been successful at working with station personnel on opening new time periods for paid programming. Unfortunately, stations have been less agreeable to making additional half-hour time slots available because they would prefer to sell their inventory to short-form advertisers that are not as likely as infomercial marketers to go bankrupt. If we can't create new long-form opportunities, we are limited to late-night and weekend availabilities.
• Diminished client cash flow. As more telemarketing companies, dub houses, fulfillment centers and other vendors get stuck with large unpaid bills, these companies require their current and new client base to pay larger deposits to protect themselves from nonpayment.
Even stations are taking a hard stand on pre-empting media for payments not received in advance. These required payments can translate into hundreds of thousands of dollars that clients must shell out up front, which can dramatically limit the amount of cash available for exploring other marketing channels.
People in our industry have complained about dwindling returns for some time. They often attribute those diminished returns to increases in media rates. The explanation for the rise in media rates includes the entry of well-financed Fortune 500 companies into the market, the inexperience of media buyers paying too much for time, the greed of TV stations and clients who buy media from multiple agencies, which creates a false demand for time.
The truth is that as more companies go bankrupt, more stations and vendors look to the surviving clients and newcomers to foot the bill. When we hear that a company has filed Chapter 11, we should not take a position that it is good for the industry when the reality is that it has a negative effect on us all.