Goldsack: TVNZ is putting its cash flow at risk

Ross Goldsack, former executive chairman, Y&R New Zealand has this to say about the TVNZ decision to reduce agency commission…

Everyone seems to be overlooking the fact that the commission rate is 15% and always has been. Five percent has been always added on for prompt payment. TVNZ, like other media, has benefitted from agencies paying them on time even on occasions when the agency has not been paid by the client.

That said, the commission system is archaic in today’s business climate. However the way TVNZ has approached a possible change is both clueless and a gross insult to the NZ advertising community (including advertisers).

For a start they (TVNZ) are putting their cash flow at risk – now there is no incentive for them to be paid by the 20th of the month. Agencies can now delay payment.

The NZ industry has always performed well and remained strong because all participants have worked together. TVNZ have now decided to act in a blatantly arbitrary manner against the interests of the wider industry. They (and the industry) will pay a big price for this.

Advertisers will end up paying the 10% cut. They won’t raise their TV budget by a similar amount. The most likely outcome is that they will adjust their budgets down and TVNZ will be hurt. How dumb can you be?

They have decided off their own back to cut agency income (from TVNZ media placement) effectively by half. How arrogant. Perhaps Rick Ellis should cut his income by half?

The commission system needs change and ad agencies need to get their heads out of the sand and recognise this.

But a smarter approach (by TVNZ and the wider industry) would have been to lower the commission rate by 1 or 2 points a year over time to allow for advertisers to adjust their budgets in a measured way. And it would have been a lot smarter to act in a collaborative manner. TVNZ through their actions have done the NZ ad industry a major disservice.

The biggest mistake of all though is that they have looked at agency commission as a cost to them rather than viewing it as an investment. An investment in a vibrant, creative and profitable industry of which they are a major beneficiary.