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Mondelēz marketer Pete Mitchell: Media agencies need to ‘grow up’ and stop arbitrage

Pete Mitchell

Pete Mitchell

The head of media innovation at one of the world’s largest advertisers has hit out at media agencies for the practice of arbitrage – not disclosing to their clients how much money they are making on programmatic trading deals.

Media agencies need to “grow up” and “think longer term”, otherwise risk losing programmatic buying business to other players, Pete Mitchell, the global media innovations director for Mondelēz International told Mumbrella.

“Programmatic buying is at a crossroads, and media agencies can choose one of two paths,” he said.

“The first is the short-term revenue path, where media agencies charge us [clients] for additional services such as machine-based buying of digital advertising, and there’s an undisclosed margin within that.”

Mitchell said that approach might be acceptable to some direct response advertisers now, which are seeing a massive reduction in cost per conversion through programmatic trading so won’t worry so much about arbitrage.

“But media agencies can’t do this [arbitrage] over the long term, when all media buying is done by machines, and expect clients to accept it. In what other industry does the supplier keep its client in the dark about its margin? It’s ridiculous.”

“Media agencies need to grow up and think about their long term relationships with clients,” said Mitchell, who spent all of his career working for media agencies until joining Mondelēz from Mindshare nine months ago.

The other path is for media agencies to “be upfront” and disclose the margin they are making on programmatic trades, Mitchell said.

“If media agencies say to us [the client]: ‘We’ll make a bigger margin out of you from programmatic than we do for other media channels, because we have the technology and we’re making products and services for you that you don’t have, but we’ll disclose what the margin is – that’s fine,” said Mitchell.

“If media agencies are upfront about their margins, they’ll retain and grow the business over the longer term, since more and more money is being poured into programmatic trading,” he said.

Mitchell said that arbitrage would not push all advertisers away from media agencies and prompt them to take programmatic inhouse or deal directly with demand-side platforms, as a report last week from the World Federation of Advertisers found was happening.

“For big procurement-led companies like Unilever and Kimberly-Clark, taking programmatic inhouse is too difficult. They might make some noise about doing so, but they really need an agency’s help.”

“So do we. We couldn’t take it inhouse. We don’t have the resource,” he said.

“If, however, you’re InterContinental Hotels Group, AirAsia or a finance firm, it does make sense to take programmatic inhouse. Like search, it has become a really lucrative sales channel. These companies are hiring 20 people, putting them in a room and treating the programmatic business like a startup.”

Mitchell said that while a “handful” of advertisers may take programmatic inhouse, most will continue to rely on agencies. The WFA survey found that there had been a 15 per cent fall in the number of big-spending global advertisers who use agency trading desks.

Mondelēz, which in Asia works with Dentsu Aegis Network-owned agency trading desk AmNet, has addressed the arbitrage issue by striking a global deal with ad tech firm TubeMogul for video ad buying.

“By signing a global deal with a DSP, we’re dictating terms,” Mitchell said.

The arbitrage debate is a wake-up call for the way media agencies are remunerated to be completely re-thought, Mitchell concluded.

“Clients need to pay for data, not the buying cycle. Soon all media buying will be machine-based, and there will be no value in buying, only in thought and strategy.”

“Putting data together to create a thought-provoking communications plan – that’s what we should be paying for. The margin on buying should be zero,” he said.

Mitchell’s comments come soon after Grace Liau, the head of media agency Vivaki’s agency trading desk Audience on Demand, said that clients who move their programmatic trading business out of ATDs to work directly with DSPs risk losing their data.

She cautioned: “If the market moves, is that one provider agile enough to move with it? And if you decide to switch, will you be able to take all your data and insights with you? Very often there is a significant cost both financially and in intellectual assets.”

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