Omnicom, in Cash Crunch, to Delay Payments to U.S. TV Producers
Omnicom is requiring that U.S. commercial producers wait until clients pay its agencies before they pay the producers’ bills. The news, reported by Adweek, confirms that Omnicom is doing everything it can to slow down outgoing cash payments as clients slow down their payments to agencies.
BNET first reported this Feb. 18, when we noted a decline in Omnicom’s working capital and a loss on its cash flow statement. (Back story here.) Adweek:
Omnicom is standardizing the language in its contracts to emphasize that production companies will be paid when agencies are paid by marketers.
Previously, Omnicom had advanced producers the money and then waited for clients to reimburse them:
Production houses typically receive 50 percent payment up front from agencies and the rest upon completion of a project or within 30 days afterward.
Adweek notes two other indicators of Omnicom’s bid to hold onto cash as long as possible:
Omnicom is the first to tighten contract terms; reps at Interpublic Group of Companies, WPP Group and Publicis Groupe said the holding companies have not yet demanded sequential liability clauses in commercial production contracts.
Omnicom clients are extending their own payment terms to ad agencies — DDB Worldwide client Anheuser-Busch’s parent InBev is insisting on 120-day terms.
TV producers hate the practice: they want their expenses paid up front and they want the ad agency — not the client — to be liable for unpaid bills. Here’s a selection of comments on Adweek’s boards:
Exiled Abroad
March 09, 2009
The answer is hidden in the article. Production companies should reduce their exposure by demanding 60% up front to cover materials, direct expenses etc. Put the pressure on the agencies to deliver - they have the client relationship, they’ve done the due diligence. What an appalling state of affairs!Don’t Give In
March 09, 2009
It is important that all the AICP production companies stick together and not accept the terms of GM, AB or Omnicom. The AICP companies were successful in breaking Ford a few years ago when they tried to unfairly change the rules. Times are much tougher but production companies will go out of business if they do a few jobs and don’t get paid for 120 plus days. I am an agency producer and I would avoid working with any production company that is taking on multiple GM or AB jobs. I don’t want to see the production company fold up when they are in the middle of shooting my job because they took on more debt than they can handle. Clients need to be educated that cash is king and those clients that pay on time will get the best deals from the production companies.Enzo Ferrari lll
March 09, 2009
Total ****. If you are the best there is or close to the top you receive payment on your terms. If the work can truly be done by many you are simply a commodity. The project going to the lowest bidder with the best terms. Get much get better at what you do.
BNET’s take: U.S. producers might want to take a leaf out of the U.K. producers’ book and protest Omnicom’s contract enforcement policies en masse. Omnicom backed down in the UK after that happened.
However, any commercial producer who thinks that the agency is ultimately liable for the bills is dreaming. The client is ultimately liable. This precedent was set on a de facto basis during the Focus Media scandal, when Tom Rubin’s Santa Monica media buying shop went bankrupt and then claimed that TV stations seeking payment should look to his clients, Sears and NBC, instead of the agency. (Rubin neglected to mention that he had stolen all the money, about $35 million, but whatever.)
Rubin may have been legally obliged to cough up the money he contracted to pass on, but Sears ended up settling with the TV Stations — effectively paying twice — in order to get its ads back on air. You can get bet that agency networks won’t place themselves in Rubin’s position again.
Bottom line for commercial producers: If your agency wants to delay payments in sequential liability, they will do. Faced with a choice of getting no payments or delayed payments, producers will fold like deck chairs and take the latter. The idea that any producer would turn down a GM or AB job on a point of principle is laugh-out-loud ridiculous.
Jim Edwards, a former managing editor of Adweek, has covered drug marketing at Brandweek for four years, and is a former Knight-Bagehot fellow at Columbia University's business and journalism schools. Follow him on Twitter or send him an email.
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