Promotion 445
brought with it more businesslike practices.
Advertisers and agencies entering a working
relationship today can reduce the likelihood of
arguments later by adopting Some Suggested
Provisions for Use in Agency/Client Agreements,
published by the IPA.
Remunerating the working partner
Unless it happens to be an advertising agency,
the chosen working partner will be paid for its
services by the combination of fees and expenses
that is the norm in the professions. In the unique
case of advertising, fees paid by clients make the
smallest contribution to agencies’ total income.
The rest is provided by a paradoxical and
complicated system of remuneration (American
usage prefers ‘compensation’), which has its
roots in the history of the advertising business.
Outsiders have no reason to understand it,
insiders often half-understand it, and com-
mentators usually misunderstand it.
A chapter dealing with the whole of the
promotional mix is not the place for a detailed
explanation of the ‘media commission system of
advertising agency remuneration’ in detail, and
the rest of this section will deal only with the
essentials. Readers who want to follow up on the
details will find them in Crosier (1998b).
In brief, the historical background that
explains the idiosyncrasies of the system is as
follows. As early as the beginning of the
nineteenth century, the proliferation of news-
papers, magazines and poster sites was making
it very difficult for British advertisers to keep
track of the options available, deal efficiently
with the profusion of media owners, monitor
that their advertisements appeared as booked,
and check that they were charged at the correct
rates. This situation was fertile ground for
entrepreneurial initiatives. Duly, the first adver-
tising agentsappeared, charging advertisers for
expert advice and assistance. They were soon
followed by what history has dubbed space
brokers, who bought advertising space spec-
ulatively and resold it to advertisers at a mark-
up, accompanied by ‘free’ advice on campaign
planning. By mid-century, the media owners
had realized that these intermediaries were in
fact the primary customers for their commod-
ity, and were allowing them a routine discount
on the price. They were thus transformed into
commission earning sales agents, whereas the
other group remained feeearning agents to
their clients, the advertisers.
During the second half of the nineteenth
century, the whole system became transparent
when one space broker in the USA negotiated a
fixed-percentage commission discount, and
another published a directory of every media
owner’s pre-discount list prices for space.
Brokers took to charging advertisers the list
price, and advertisers could check that they
were paying exactly what they would if they
had booked the space direct. It took nearly a
century for the rate of media commission
discount to settle to an almost universal 15 per
cent, worldwide.
In 1917, English law established that the
firms which were by now calling themselves
advertising agencies were neither brokers nor
agents, but principals, making the contract with
the media owners in their own right. The result
is that present-day advertising agencies must
pay for all space and time ordered, even if their
client is unwilling or unable to reimburse them.
The risk of suffering from bad debts is therefore
a constant threat. For this whole system to work
properly, media owners must deny the commis-
sion discount to advertisers placing orders
direct. Outsiders typically find it hard to
believe that a media owner could in practice
resist a demand for commission from an adver-
tiser with the buying muscle of BT (British
Telecom), for example, who spent more than
£107 million on advertising in 2000. But adver-
tisers of that type and size invariably use
advertising agencies or media independents
anyway, so they might as well buy media by
that route and benefit from the associated
subsidized services and volume discounts. That