What you need to know: 

• Environmental and social governance positions from media owners has suddenly become a core part of the annual rate and volume deals for 2022.
• Media owners and agency groups confirmed to Mi3 it was a priority in the current negotiations.
• Seven West Media’s revenue boss, Kurt Burnette, said it was taking “25 per cent of the response” to agency group briefings
• A booming ad market is set to push ad pricing up an average of 10 per cent next year - BVOD could rise 40 per cent. 
• Some media owners question whether the new ESG focus will last in the annual rate negotiations. 

New net zero world 

Sustainability, net zero emission targets and diversity and inclusion policies have suddenly landed in the annual negotiations between advertisers, agencies and media owners for year-long spending pre-commitments in exchange for a basket of favourable rate deals, rebates and bonus advertising inventory. 

No ESG mandates from advertisers and media agencies have been forced on media companies to shore-up their 2022 budget pre-commitments but some told Mi3 it was a future inevitability. 

GroupM’s Global CEO Christian Juhl told Mi3 in September that GroupM would “absolutely recommend” brands pull ad spend from publishers that do not demonstrably decarbonise.   

“We’re spending 25 per cent of our response in that ESG, and DE&I area,” Seven West Media Chief Revenue Officer Kurt Burnette said of the briefings coming from agency groups in the current negotiations. “There’s quite a bit on. Every agency group has a component of ESG in there. We aren't telling our story as well and as often as we would like to. I'm glad this is a focus. As an industry we can help drive change and it's the business sector that will really drive that change." Burnette cited Seven West's efforts raising $90 million for charity and trials to carbon offset productions on TV shows like Farmer Wants a Wife as examples.

This week’s announcement by the Federal government for an inquiry into the toxic affects of social media on mental health and online bullying also creates new ESG compliance challenges for advertisers – the debate had started in October on the social responsibilities of brands after the latest US Facebook whistleblower Frances Haugen testified before US lawmakers. Haugen, a data scientist who previously worked at Google and Pinterest, has alleged Facebook is making “disastrous” choices in tackling the harms its algorithms can cause – such as Facebook’s own research showing Instagram causes anxiety and depression in teenage girls, that misinformation spread on the platform has directly contributed to genocide and displacement in Myanmar, and that Facebook has deliberately misled regulators. The company, she claimed, is “choosing to grow at all costs, becoming an almost trillion-dollar company by buying its profits with our safety”.

Complex challenges

These themes are all part of a growing and complex line-up of challenges that brands have to navigate on their ESG and purpose positions and beyond. 

Locally, the annual rate and volume negotiations between advertisers and media groups are a crucial period, particularly for TV broadcasters, where budget share allocations are locked-in for the following year. 

The deals were once only about hard-nosed price negotiations based on the level of pre-commitments in advertising volume for the year ahead. Agency groups also often negotiate bonus advertising inventory from media companies based on their pooled client spending, which are then used as sweeteners to lure new agency business or arbitrage it back to clients to offset low margin or loss-leading remuneration contracts. 

The practice still exists and some agency groups today are said to be leveraging those arrangements harder than others.

Industry insiders told Mi3 that some independent agencies were also advanced in the “dark arts” of negotiating bonus media inventory and rebates. 

New twist

This year though has seen a new twist in the annual dealmaking: media owners and agency groups approached by Mi3 confirmed a widespread shift was underway in how negotiations were landing as ESG, CSR (Corporate Social Responsibility) and Diversity, Equity & Inclusion (DE&I) policies take a more prominent role.

GroupM Chief Investment Officer Seb Rennie said the company had put forward to media owners its “five pillars to make ads better for people”, part of a global GroupM initiative. They were: 

• Brand safety and suitability
• Data ethics
• Diversity and inclusion
• Responsible journalism
• Sustainability 

Rennie said “we’re more advanced in some areas” like brand safety while others were at “an earlier stage but we want to identify and work with partners on that. We’re trying to put some structure around those key pillars. There’s heightened awareness at corporate and government levels on sustainability.” 

Rennie said it was “hard to say what the future looks like” but when asked if eventually there would be mandates on media companies to meet ESG benchmarks or be penalised in annual budget allocations he said “probably”. The response from media owners, Rennie said, had been “positive; everyone we’ve spoken to has got a position around most of the pillars.”

No gateways

Omnicom Media Group’s Chief Investment Officer Kristiaan Kroon said “yes absolutely we’re talking to media vendors about elements of that” but discussions were taking place at a client level, rather than OMG being used as a “gateway to media before seeing clients. ESG is complicated for everyone. We’re saying this a conversation, not a mandate.”      

Mediabrands CEO Mark Coad said there was no group-level engagement with media owners on ESG for this year but said the company was “definitely working on the ability to assess channel mix and media vendors, media plans on sustainability criteria.”

One media owner who did not want to be named, said this year was heaving with ESG conversations but was yet unsure whether the attention around it would last in the annual negotiations or whether it was a temporary fad that the industry has form on for chasing short-term.

"Is it a moment in a time?" the executive said. "Is it more the European-based agency groups driving this or is it going to build to become an important part of media?" Some were also warning that the territory was fraught with danger - agency groups and advertisers demanding ESG compliance from media companies could also set themselves up for being challenged on their own policies, behaviour and authenticity.     

Globally major brands are queuing up to commit to cut emissions. In Australia, Telstra and the likes of Commbank, IAG, Suncorp, Westpac and Woolworths have all set significant decarbonisation targets, which will have implications for their supply chains: When companies commit to reduce what are called 'scope 3 emissions', it includes all of their upstream and downstream emissions. That means they will run the rule over all of their suppliers, ultimately working with those with the smallest carbon footprints.

Some publishers and agency holding groups have grasped the nettle:

• The Guardian last year committed to reach ‘net zero’ emissions by 2030, eliminating two thirds of its carbon footprint and offsetting the rest. 
• News Corp has pledged to reduce its carbon footprint 60 per cent by 2030 and to be net zero carbon by 2050.
• Publicis has set out plans to be net zero carbon by 2030, and use 100 per cent renewable power by the same date.
• WPP in April committed to achieve net zero carbon emissions from its own operations by 2025, and net zero emissions across its entire supply chain by 2030. 
• IPG in June signed up to reach net zero carbon by 2040 and 100 per cent renewable power by 2030.
• Dentsu has already switched to 100 per cent renewable power and pledged to reach net zero emissions by 2030.

Omnicom is yet to go that far.

“We are currently establishing new goals and commitments to reduce the carbon emissions produced by our operations,” said CEO John Wren on a quarterly earnings call in July.

While Omnicom has just hired a new Chief Environmental Sustainability Officer, who will likely oversee a sharpening of its targets, the group for now has committed to reducing energy consumption per employee by 20 per cent and sourcing 20 per cent of its electricity from renewable sources by 2023.

Internal tension

These local ESG developments around the media supply chain will likely create new tension inside large advertisers between marketing, procurement, corporate affairs and CSR and sustainability teams. Most large companies have public ESG policies and net zero targets but the likelihood of paying more to “walk the talk” on ESG-led media deals and rates will be a new test for those wanting to cap media inflation and pricing. 

“Procurement want inflation mitigation and to drive costs into the ground,” one said. “It’s going to get very interesting.”

Market turns bullish

More broadly, the sentiment for 2022 rate negotiations have turned bullish. Media auditors have told advertisers to expect average advertising rate increases approaching 10 per cent next year. Expectations were for linear TV to rise around 5 per cent but BVOD rates could rise by up to 40 per cent.

“This is probably the most vibrant I have seen the market in five years,” OMG’s Kroon said. “You have a market offering more opportunities to advertisers than ever…this is significant compared to three or four years ago.”