Procurement of Production and Post-­‐Production Services in Australia Introduction This document has been developed by The Communications Council in conjunction with the Commercial Producers Council subcommittee (CPC) to recognise and address the key issues facing today’s marketers in the area of procurement of production and post-­‐production services. There has been mounting media debate in recent months around the movement towards preferred supplier lists for production and post-­‐production companies in Australia. As any move affects a number of stakeholders, a collaborative and consultative approach is required to achieve the best business outcomes. The Communications Council has therefore been consulting with advertisers, as well as agencies and production companies, to analyse the benefits and disadvantages of adopting the proposed move, and has also developed recommendations to assist marketers in procurement decision making. Key client needs and challenges Today’s advertising clients have genuine and real issues that need to be addressed in a rapidly evolving communications landscape: •
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With increasing pressure on client budgets, there is a growing desire for greater transparency on how and where money is being spent, and to find efficiencies of scale. Cost savings and improved process and management efficiencies would allow clients to reinvest in new mediums and ways. The current landscape is complex requiring diverse, multi faceted and sophisticated communications strategies with a broad and growing range of agencies and production companies. There is a desire to simplify the process and engage on a more continuous basis with production and post production companies, in order to preserve learnings and have improved continuity on brands. Customer demands and evolution of the media landscape mean that, in addition to traditional television production, clients desire more timely and regular branded content. The want greater interaction and deeper immersion with customers. With the industry moving towards more content-­‐based strategies, there is a need for more video, editing, storage of content, reediting and reusing material. Clients want improved management of brand assets and IP and ideally housing content in one place. 1 Current market structure and preferred processes In Australia, there exists an oversupply of production and post production companies creating a buyers market, where clients have production companies compete on treatment and price to get the best value. The current open market production and post-­‐production landscape is highly competitive and offers clients a diverse choice of companies that can deliver a broad range of expertise and specialist services. Production in Australia is of recognised world class quality and cost effective relative to comparable international markets. A range of other systems have been introduced in other parts of the world, but there is little evidence to suggest that there is a system which will deliver better value than the current buyers market that exists. The majority of creative work currently goes through a 3-­‐way production pitch process managed by the agency and involving the client in decision making. Given the market structure, the 3-­‐way pitch is highly competitive allowing the agency to secure the best director, treatment, expertise and cost on specific projects. Directors normally partner with preferred production companies and hence an open market allows for a greater breadth of options depending on the creative concept. From a client perspective, reducing choice is not ideal. This approach suits project work and where there is strong brand management by the client and agency. There are also many successful cases on an increasing basis in Australia of longer term strategic projects or partnerships between client, agency, production and post production companies. These cases are predominantly around specific briefs or campaigns that require specialised expertise or continuity. Depending on the situation, they have been either entered into on a 3-­‐way pitch basis or on referral from the agency due to a specialist capability or technology. In these cases, the open market offers the ability to negotiate competitive long term partnerships on a bespoke basis. For bespoke creative projects, post production is primarily organised and managed by the production companies with the agencies input based on agreed treatment and pricing. This ensures accountability and efficient management to agreed quality, cost and timing outcomes. In situations where there is high volume and more standardised forms of post production work required, either the agency may manage in-­‐house or a rostered post production house may be contracted to resource and manage the scope of work on an ongoing basis to agreed terms. The most effective systems are usually hybrid ones where the client has both an option for high volume, best cost production, as well as the flexibility for specialist capability. 2 Recently advocated procurement approach to production rosters Several large advertisers are considering using preferred supplier rosters for the selection of production and post-­‐production companies, as a perceived solution to addressing the issues previously outlined. The emerging process involves: •
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Pitching to be on a roster without a specific brief or scope of work No guaranteed scope of work Decoupling of production and post production from agencies A primary/single post production company to manage all post work In some cases, Involvement of a 3rd party consultant to vet all roster work, pricing, communications with client, and in some cases production process. The Communications Council has a genuine concern that the current preferred supplier roster system that is being advocated has clear watchouts and is at high risk of not addressing the issues raised in practice. In turn, it can create process inefficiencies, compromise open market trade and disadvantage specialist companies. The grid below illustrates some of the learnings from the recent procurement process for production and post-­‐production rostering. Objective/Issue Early learnings Production roster Potential of achieving •
process efficiencies and savings based on a •
potentially larger volume of work. There is no guarantee of increased work volume or cash flow to incentivise market participation. Advertisers risk compromising on creative quality due to: o Inherent reduced access to the creative market place – 90% of CPC members (representing the top production companies in Australia) are actively NOT participating in the current preferred supplier roster initiatives. o Availability of Directors on the preferred supplier list (availability is not guaranteed nor contracted up front) o Exclusivity based on market structure is unsustainable and director exclusivity cost prohibitive. In turn, the rostered companies may not be able to deliver to expectations limiting options further. o Directors and production companies do not want to become creatively pigeon-­‐holed and consequently lose appeal to the broader marketplace, as seen in European markets using preferred supplier roster systems. This compromises their ability to evolve creatively and technologically. 3 •
There is no guarantee of cost savings based on work. Savings are theoretically made on production company fees, however this is not guaranteed in practice on overall scope of work. A continuous roster •
relationship creates a better understanding of advertisers’ brands. •
Longer term relationships do support better brand management but need to be in the context of being able to deliver on results required and expectations. As a specific scope of work is not briefed, production companies may not have the capability required to deliver on the quality of work required. Currently clear brand guidelines by marketing and close agency management help ensure continuity and consistency of brand identity. A 3-­‐way pitch on a bespoke longer term project or campaign is more likely to get the best results as the capability, cost and resourcing is secured in open market. •
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3rd party production •
auditing throughout process. This can be useful for clients for risk management/audit •
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Disclosure by production companies of business financials for procurement purposes •
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3rd party consultant involvement throughout the production process adds a layer of cost and complexity and currently little expert value add, undermining the agency’s efficiency and expertise. It is essential that the marketing team works closely with the agency and production company as custodians of the brands and having ultimate accountability of results. Outsourcing to 3rd party consultants creates risk and loss of accountability. 3rd party consultation may be useful to partner in specific areas throughout process eg production estimates, where an external view may be useful. Currently, full financials are disclosed to the 3rd party consultant who is also negotiating remuneration terms based on margins, creating a clear conflict of interest. Detailed financials apart from any ASIC requirements, should be confidential in nature to ensure fair and equitable competitiveness and minimize risk of abuse. De coupled/ single Post-­‐Production Perceived benefit of being able to house the client’s digital assets in one place, making it easily accessible for •
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Housing digital assets centrally would be very useful for all parties involved for more efficient handling and better governance of brand assets. Digital asset management for brands has not been an area of focus or expertise for post production companies. At this stage, there is 4 repurposing content. •
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Possibility of a negotiated preferred supplier rate card •
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Preferred suppliers have existing brand knowledge •
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no proven capability by a post production company to deliver on this in Australia. If a post company’s primary contract with client is post work and the asset management is not an independent solution, a change in client roster may require transfer of digital assets, which is a costly process. Both post production capability and asset management are important, but it is a risk if the calibre of the post creative is subordinated to storage solutions. Cost savings are not guaranteed without clear scope of work. There have been multiple examples of agencies securing cheaper quotes outside of preferred supplier rate card companies, which can disadvantage client with a preferred supplier commitment. Likewise, if the capability of a preferred roster company is inadequate, this results in longer sessions to execute work thereby negating lower upfront rates. Existing brand knowledge should not be considered an advantage over post production capability. Suppliers outside of preferred supplier lists can be briefed and delivered brand guidelines upfront (standard practice in US & UK markets). Agencies are responsible for up to date Brand knowledge and have the benefit of a close partnering relationship across a broad remit. Services such as Vision Vault allow for instant access to Brand knowledge / elements. Trust in the quality and standards of recommended suppliers •
There has been a lack of transparency on how post-­‐production companies have met recent preferred supplier requirements e.g. particular concern is selection with lack of agency recommendation. Other countries are already operating in a decoupled market •
The USA has a decoupled market, and post-­‐production costs are significantly higher and often 200% more than Australian post-­‐
production costs. Comment reported in AdNews from a European post-­‐production executive, stated: ‘Decoupling has been in Germany for the past 10 years and it has been the demise of the German creative industry. They are trying to get back to an open supplier approach again. Clients want this as well. BMW and Mercedes-­‐Benz want to go back to an open marketplace. One of the biggest concerns from those against preferred supplier programs are the limitations of using directors and post houses who are best suited to particular briefs.’ •
5 Clients are able to manage the production and post-­‐production companies directly, offering potential for creating process efficiencies •
With decoupling of post production, production companies lose creative and financial responsibility for post-­‐production services, an intricate and intertwined component of any production. Some directors/producers are paid on a percentage of the budget; if post-­‐
production is not included in the budget, the director/producer is not being paid to supervise. Creative responsibility for what is often a highly specialised process shifts to the agency creatives or the client. Creatives and Clients are not experienced in post-­‐production or in the way the director shot the spot. Costs are therefore likely to increase with constant changes / back tracking etc. Client doubles up paying for additional supervision by Editor and post companies (as in US system) during Prep and the Shoot to facilitate necessary handover. Recommendations Responding to the key challenges facing today’s marketers, The Communications Council has drawn up the following recommendations to help advise clients on procurement decision making, with the aim of achieving cost savings, process efficiencies, greater transparency, clarity and better management of assets/IP: Three-­‐way Engagement •
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Any partnering arrangements that work efficiently and effectively are based on mutual engagement, shared objectives and clear constructive communication. It is critical that senior marketing leaders set the agenda and involve the senior agency leaders and in turn production companies to work through how objectives can be achieved. Given the fluid quickly evolving nature of communications, how the process is managed is key. 3rd party consultants may play a helpful role in facilitating the process however it is not something that can be outsourced. All three parties, marketing, agency and production companies, must have a vested interest and shared accountability. Three-­‐way pitch system •
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For significant projects, retain the current, highly competitive, three-­‐way production pitch process, allowing the agency to secure the best director, treatment, expertise and costs. The current three-­‐way production pitch provides for further cost transparency via cost controllers. It also retains the ability to develop long term, ongoing relationships, working with negotiated rates for increased, specific volume of work while giving the agency the freedom to recommend the best and most-­‐suited Director and Production Company for the project in consultation with the client. 6 Longer-­‐term projects •
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Longer-­‐term projects or partnerships between agencies, clients, production and post-­‐production companies can provide for greater innovation in communication, improved brand consistency and ongoing, timely branded content development. There are many successful examples in Australia of agencies and clients engaging production companies as strategic partners. This is an area that many production companies have invested heavily into developing a broad range of expertise and experience. The core of a successful partnership is being clear on what the objectives are and then working collaboratively with agencies and production companies to a mutually beneficial outcome. The Open Market can and already does offer the ability to negotiate competitive long term partnerships between Clients, Agencies and Production Companies. This is best achieved when there is a clear brief and scope so as to source the best quality, capability and value for money. Production Bidding Sheet •
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In cases, where there is a cost savings required, it is imperative that these objectives are clear and stated upfront in briefs. A Production Bidding Sheet from the agency is a very helpful tool to detailing client-­‐approved project requirements, deliverables and budget. This process is used successfully by some Australian agencies and across the board by agencies in the US. It ensures the most efficient and cost effective scenario is in play from the commencement of the project, and sets defined parameters. The more client approvals and sign-­‐off given in advance, the less additional expenses a project will incur, providing savings up front. Brand Specification Sheets/ Guidelines •
Client & agency provide up front Brand Specification Sheets, to ensure all relevant parties are across brand standards. These are used successfully by some Australian agencies and across the board by agencies in the US. CPC Production Education Workshops •
Increase transparency and understanding across the board by inviting all parties to attend CPC-­‐
run Production Education Workshops. Offered to clients and agencies, these workshops are designed to help all parties better understand the production process, and for production companies to better understand client and agency requirements. These workshops allow attendees to up-­‐skill on process improvements implemented by CPC, including the Standard Production Agreement and Mediation Process Terms & Conditions, which were released last year, as well as developing further process improvements in consultation with Clients and Agencies. Digital Asset Management •
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Recommendation is for an independent, expert organization to store and manage digital assets on behalf of the client. Digital assets are highly valuable client property, requiring secure and efficient management across the client agency network on a long term basis. In Australia, the options are limited but a recently formed company specializing in this area is VisionVault. VisionVault is a complete digital asset management solution. It works as a secure 7 private cloud, purpose built for businesses to store, manage, collaborate, repurpose and deliver film and video assets. It enables businesses to bring existing rich media assets to bear on social media channels, VOD portals like YouTube, and all manner of mobile, online, portal and blog channels. Financial Disclosure •
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Where requested, production companies should provide a letter from their auditors outlining financial sustainability for clients to meet client procurement needs. In some circumstances, clients may still require detailed financials as part of their internal procurement processes. Companies need to make their own decision as to their internal practices in this area and should seek their own advice. In any circumstance, they should not issue financials to a 3rd party consultant but rather forward directly to the client representative responsible with a written understanding that they are confidential and should not be used for other purposes and should not be disclosed to any parties without express written permission. Summary The Australian production landscape is highly competitive coupled with world-­‐class leading creative and professional standards. Given the small size of the sector (consisting of fewer than 20 visible production companies), Australian production boxes well above its weight, ranked number two in the world across the major award ceremonies, and our production company fees are already the lowest of nearly all western countries (USA 25-­‐30%). It is in the interests of the broader industry -­‐ advertisers, agencies and production and post-­‐
production companies -­‐ that production in Australia continues to operate in an open and competitive market and has the opportunity to build specialist expertise to a world-­‐class level. There is also scope to improve partnering between clients, agencies and production companies to enable efficient and effective management of the evolving communication landscape and client needs. This is best managed by leveraging the market strengths and having direct and open industry discussion. This paper is intended to provide guidance for advertisers, agencies and production companies in identifying the key issues impacting services procurement, and through ongoing consultation, find effective and sustainable solutions for business. Through the Communications Council, agencies and production companies welcome the opportunity to continue discussions with clients to ensure these business needs are addressed. Building brands sustainably and profitably through world class creativity and effectiveness is the fundamental goal of our members’ businesses. This is supported by working in partnership with clients to deliver cost effective solutions within professional and reliable processes. 8