WTF is principal media?

The ad agency world knows it may have a problem on its hands if the Association of National Advertisers issues a report about some practice those agencies are using.

The latest iteration of that reality came out earlier in May when the ANA published the report, “The Acceleration of Principal Media (What Marketers Need to Know),” which tackled the growing practice among agencies of investing in media at non-disclosed prices to then resell to their clients, presumably at a markup to the agency.

The use of principal media is on the rise, notably by the agency holding companies, which are looking for profit wherever they can find it. As Jay Pattisall, vp and senior agency analyst at Forrester puts it, “That’s what’s driving the growth among those agencies that are demonstrating it.”

Surprisingly, the ANA report that examines the practice is surprisingly moderate in its tone, acknowledging that agencies are within their rights to find profit and margins where they can, given that marketers have limited agencies’ compensation and revenue through procurement and longer payment terms, among other factors. Ultimately, the report’s conclusion is to remind marketers to closely monitor their contracts with agencies to ensure as much transparency as possible — although that degree depends on which side of the contract you’re on.

“I think there’s a lot of fear mongering in the industry around proprietary media, and that it can be a win win win for the media owner, for the agency and for the client,” said Cyd Falkson, business director for MediaSense. “So long as everyone is aware of what everyone has to gain and there are governance models in place.”

Not to be confused with the upfront marketplace, or for that matter, the barter trade business (although the two have similarities — more on that below), principal media takes on a variety of forms, from direct investment in ad inventory by agencies of their media vendors, to more indirect commitments to invest at certain rates. The ANA report notes that the practice has been around for at least a decade.

So what does principal media do?
Essentially it’s when an agency (most often a media agency) doesn’t act as an agent but rather as a principal by selling ad inventory it has purchased from a media vendor/publisher to its client and earns some profit margin off of that sale.