“We won’t have a case where one party pays and another party benefits,” says Brian Pottinger. “And we can’t have tens of millions of rands pumping through a system without strict controls.”
That’s about the sum of it: the explosive recent past, delicately balanced present, and dicey-looking future of the South African Advertising Research Foundation (SAARF) and the institution that oversees its funding requirements, the Marketing Industry Trust (MIT).
Pottinger, managing director of BDFM (the company that publishes Business Day and Financial Mail), has been a pivotal figure in the events that have brought on this sustained bout of institutional soul searching. He sits on the SAARF board and heads up the Print Media South Africa (PMSA) task group assigned to evaluate MIT’s role. At an emergency summit called by MIT in October last year attended by key representatives across the media, advertising and marketing industries he stood firm on print media’s unilateral decision, made in September, to reduce the payments handed over to the trust. It was the catalyst that forced a fundamental reassessment of the manner in which South Africa’s ‘common currency’ research is funded and governed.
Of course, the status quo that print media finds so problematic has its roots in history, which renders a brief overview of the relevant structures necessary.
Simply put, SAARF commenced formal operations in January 1975, the realisation of a vision to establish a body to co-ordinate joint research for marketers, advertising agencies and media owners. Importantly a detail that has provoked global envy since inception this research has faithfully delivered on its promise and has served advertisers and their agencies (by providing a mechanism for targeted marketing and the selection of media) as well as media owners (by providing the tools to sell products and sharpen content strategies).
At first SAARF was funded by a levy collected by agencies. Then, with the signing of the MIT deeds of trust in 1997, the responsibility for the collection of funds fell to media owners. In terms of the deeds, MIT funds SAARF via an annual endowment. MIT also supports two other industry bodies, the Advertising Standards Authority (ASA) and Freedom of Commercial Speech Trust (FOCS). The finances themselves come from an industry levy on advertising revenue, which is collected by media owner bodies representing television, radio, print, cinema and outdoor. The levy, which is calculated after all discounts and agency commissions have been deducted, is currently fixed at 1 percent of advertising revenue. (Under the original ‘SAARF levy’ collected by the agencies it was set at 0,5 percent of revenue, and later rose to 0,65 percent to accommodate the rising cost of research).
So print media’s problem with the set up is firstly a question of value: they feel they’re not getting out what they put in. As the 1 percent levy applies to all media groups equally, and as print has consistently paid more per year than any other medium [see table], the view is that they’re left financing an inordinate percentage of the research.
Whose Money Is It?
The PMSA’s initial solution, tabled at their own meeting on September 12th last year, was to reduce their contribution to the MIT levy to 0,8 percent for the last three months of 2002, and then take it down to 0,5 percent in 2003. Consequently, the October summit was a hurried attempt by MIT to address what was essentially an inherent threat to their authority and mandate. Aside from the PMSA’s maverick stance being a breach of protocol, it posed a serious risk to MIT’s ability to meet the short-term budgetary requirements of SAARF, the ASA and FOCS. (A 0,5 percent reduction would result in around a R10 million loss to a total budget of over R40 million).
At the summit the PMSA relented somewhat. It agreed to pay the required 1 percent for the remainder of 2002, but 2003 would see a 0,8 percent payment kicking in, and 2004 a possible withdrawal from the process altogether if the anticipated changes to the governance structures [see below] were not satisfactory.
“We have done the sums and believe the institutions can survive on a 0,8 percent levy,” Pottinger informed the summit delegates on behalf of the PMSA, “and because we reduce our responsibility, it doesn’t compel any other media sector to do the same.”
Pottinger’s next statement was a reiteration of the PMSA’s right to make the call in the first place. As such, it was also the most controversial.
“The last thing I need to deal with to try and avoid going down that road is there are marketers who passionately believe it is their money. The one thing that is demonstrable is that when the levy was increased from 0,65 percent to 1 percent effectively media owners paid 0,35 percent of that levy out of their own pockets.”
But that wasn’t how the marketers’ representative Howard Gabriels saw it. Previously executive director of the Association of Marketers (ASOM), Gabriels had been commissioned by the newly constituted Marketers Federation of Southern Africa (MFSA) to make submissions on its behalf. He responded to Pottinger with a ‘simple solution’: “we just deduct the 1 percent off our print bill and collapse the system and continue with television and radio in the way we have in the past, and there will be no currency to buy print and every media owner can come to us every week to negotiate the price of the advertisements he wants to place in print”
Luckily, Gabriels was simply making a point and the threat never materialised. But an impasse, yet to be resolved, had been reached. The issue of the source of the money that pays for the research is crucial in at least one respect: ownership of the funds implies the right to determine whether there’s value in the money spent. It’s an issue that throws MIT’s role into stark focus.
Commenting on the dilemma in an article that appeared on industry websites a few days after the October showdown, Starcom managing director Gordon Patterson wrote the following: “Those of us who’ve been in the industry in the days when it was called the SAARF levy will remember that there was no confusion. It was the client’s money and agencies collected it and paid it to SAARF. In hindsight the move to media owners collecting the funds and the more recent inclusion of the levy in media owner rates (rather than an add-on), could be considered a mistake.”
The Governance Problem
MIT itself harbours no doubts as to the origin of the money. It is stated in the deeds that the institution is “structured on the basis that the funds will be sourced from marketers and collected and paid overby the media.” Yet the trouble, as Patterson suggests above, is that the levy is not reflected as a separate item on media owners’ rate cards. This means that the cost of the levy is accounted for under standard expenses on media owners’ balance sheets (given the depressed advertising environment, it’s little wonder that print has taken such drastic action). As importantly, media owners have no legal obligation to pay. In this sense, MIT has more in common with a ‘gentleman’s club’ than an institution that handles close to R50 million annually.
“The MIT deeds of trust are an indictment on all of us,” says Brenda Wortley, representative of the Advertising Media Forum (AMF) on the SAARF board and member of the MIT task team that is currently investigating a new research model. “We need to dissolve MIT and set up a collection mechanism that’s binding.”
While many small media owners don’t contribute to the MIT levy, the matter of non-transparent rate cards and ‘volunteerism’ gets really contentious when it comes to the bigger conglomerates. Caxton’s past refusal to participate, on the basis that they’ve never loaded their rates to cover the 1 percent levy, might not have happened had the structures been different.
When Caxton did finally agree to contribute a couple of months ago, the letter written by managing director Gordon Utian to MIT chairman John Little (published in full in the April 2003 issue of The Media) contained some illuminating references. Amongst other things, Utian committed a R600,000 payment on the basis that the monies be recognised as an “ex gratia payment from Caxton research budgets andin no way be charged to advertisers,” and that the sum be earmarked for SAARF alone. “Caxton recognises the importance of the research,” the letter continued, “and is supportive of the SAARF organisation. Caxton do not support MIT, the MIT definition of leviable advertising, the way in which this definition was arrived at, the MIT constitution and the current ‘levy’ system, which lacks sustainability, fiscal responsibility and transparency.”
On these last three points, vigorously argued by the PMSA at the October summit, there seems to be assent by a majority of the stakeholders. A central concern is that, since the money is sourced and collected at different levels, SAARF employees tend to ascertain research requirements without consideration for the budgetary constraints. As was pointed out at the summit, SAARF’s revenue flow is unpredictable and its deficit budget, which rolls forward, would in other instances count as technical insolvency.
“This is unacceptable,” says Pottinger. “All of us belong to businesses and subscribe to the King Committee principles of corporate governance.”
A Mammoth Task
But, as hinted at above, there is an upside. The October summit gave impetus to a MIT task force designed to investigate the concerns and submit proposals for new structures. This task force is divided into three project teams there’s one focused on the ASA, chaired by John Little; another evaluating further beneficiaries for funding purposes, chaired by Howard Gabriels; and a third, chaired by Mindshare CEO Mike Nussey, looking at a new research model.
Hours of (unpaid) work has been put into these respective teams, and as far as Mike Nussey’s group goes the proposed new research structure is taking shape. It’s set up around a ‘base survey’, with each medium likely to end up with a different ‘fee’ (the ‘levy’ concept, it is envisaged, will fall away). Stakeholders will also be given the option of paying extra for research outside of the common fee. MIT Task Team – Click here for key elements of proposed research model
“The ‘nice-to-haves’,” says Nussey, “which people have been insisting on without understanding the financial imperatives, will fall away.”
And who will collect the funds for this model?
“An elegant solution is the agency,” says Wortley. “Most are internationally aligned and if you captured the top ten, you would probably be capturing between 80 and 90 percent of the revenue. As an agency, your job is to deal with client’s money. You’re a custodian. Is that not the perfect vehicle?”
Such a solution may or may not be implemented, but it is certain that MIT, in its current form, won’t continue operating for much longer. Asked whether the MIT deeds of trust have outlived their ‘sell by’ date, chairman John Little states: “It’s a reasonable hypothesis. Whether it’s a question of rewriting the MIT deeds, or a new organisation with a new charter, hasn’t been finalised by the task force yet. Frankly, that’s the mechanics. More important is getting the industry to agree that it wants a common research currency funded by a common body.”
All indications are that the industry wants both. “If this thing goes pear-shaped, there’ll be a lot of angry people,” says Nussey. “The biggest danger is an irrevocable breakdown in communication between the marketers and the media owners. But there’s nobody that’s disagreed with the basic value of a common currency.”
Up until this point the task force has operated in a Codesa-like manner, and the most contentious points have been ‘parked’ to make way for agreement on easier matters. It’s a strategy that allows the parties to create a sense of mutual goodwill. Now, according to Gabriels, it’s time to address the funding model and the question of the source of the money. For the sake of our world-renowned common currency research, one can only hope the goodwill is enough.