In House Production Company Engagements – Safety Check

Posted on  |   by MCA Editor

This is a simple guide for clients who have, or are considering, relationships with in- house production companies (i.e. those that are owned and managed by their agency)

As experts in dealing with all types of production approaches and vendors, we believe that every client should follow some simple rules, to minimise the potential for conflict, or worse, ethically/ commercially dubious behaviour. We outline these below.

An advertiser might wish to use an agency’s in-house production company for two main purposes:

  1. i)  For versioning an existing ad which has been created elsewhere
  2. ii)  For creating original content

The approach to both of these is different, but the reasoning is the same – to get the best price with the most efficient process. Of course, for the latter, creative quality is hugely important too, and if shooting creative content through the in-house prod co, the advertiser will have to satisfy him or herself that the in-house company can properly match what they would get elsewhere from the huge range of independent prod cos.

The important thing to recognise though, is that the agency is doing this for one reason only: – to retain as much of the revenue spent on production as possible. They have seen independent versioning and content houses do very well at managing clients’ global production fulfilment processes and with perennial pressure on fees, this is an obvious way to make up the difference.

So does this mean a client should NOT consider working with an in-house production co??

Not at all. BUT it is important for an advertiser to ask the right questions (and be satisfied with the answers!) before diving into a relationship.

If you approach your agency about the topic (or they are proactively selling it to you,) you will hear a lot about lower cost, more control, and greater streamlining (and thus, in theory, better speed to market)

There may be some truth in all of this, but buyer beware – it’s much less straightforward than just “it’ll be quicker/cheaper/better…honest guv!” Make sure you go beyond the PowerPoint platitudes.

Challenge their benchmarks, ask how transparent they are willing to be, push them on their preparedness to competitively bid, reassure yourself about the calibre of the talent they can access. Be clear about the benefits, and the trade offs (and there will be trade offs). Use your procurement department and/ or external consultants to help you make these judgements.

So here goes. First up, The 10 “rules” for using an agency in-house production company for adaptation/versioning

Versioning

  1. Have you asked external companies to tender, as well as the agency’s in house unit?
  2. Did you do a proper RFI and RFP process? How many did you include and what was the scorecard for the shortlist?
  3. How has your RFP been constructed? Does it have qualitative measures as well as quantitative?
  4. Are you looking at flat rates for deliverables, to remove the issue of time burn? (Offering a seemingly more competitive hourly ratecard, then compensating by boosting the hours worked) Have you considered this model as part of the RFP? You need to be comparing apples with apples.
  5. Does your ratecard include everything? When you see invoices there should be nothing that isn’t on the pre-agreed ratecard. Late working, weekend working, production fees, mark-ups etc. are all illegitimate unless pre-agreed.
  6. Is all the work being done in-house or is there subcontracting to external companies? How transparent is this?
  7. How well does the in-house prod co get on with your agency? Agency teams often don’t want to work with their in-house prod co no matter what the holding co or pitch process promises.
  8. Does your contract with agency (and any associated companies) include clauses for rebates and discounts from external providers such as a digital distributor? Not necessarily as a sole client discount but also as a bundle with other clients during the year.
  1. Don’t forget the small markets. Have you checked the final rates against what you are currently charged in some of the minor markets? There will be potential issues if some local markets are already paying less than the new ratecard.
  2. What is your escape plan? If for some reason you find that the service doesn’t meet their SLA’s, how will you decide to migrate? Do you have assets under management and what have you done to ensure that this can be transitioned quickly and without financial penalty.

Original Content

This is the area for more concern. The requirement for an ethical and transparent process is obvious, because the budgets are bigger, and the quality of work will have a greater impact on the client’s ability to build their business. There should be no possibility of even the appearance of conflict of interest. If the agency recommends this route, the client has to exercise the greatest caution that it is indeed in their best creative and commercial interest to do so.

It’s a very simple question: are you 100% certain that the in-house production company can produce outstanding creative work at better value than an independent supplier. Otherwise why do it?

The reason for choosing to use your agency’s in-house production company might well be because of a modest budget for a particular shoot; the in-house prod co tells you they can sort it despite your limited funds.

But they won’t be multiple bidding it, so you miss out on knowing whether an independent prod co would have been able to deliver for even less than the in- house team. Their choice of talent will be restricted (whatever the in-house people say, many talented and good-but-inexpensive directors will not work through in- house units)

Having agency producers that are still independent and not pressurised into using an in house production co. is, in our view, still probably the most reliable way of achieving the best balance of quality and cost, unless you have a very well- established or formulaic advertising approach.

Note that in certain holding companies, there have been moves for the agency producers to become employees of the in-house production units, and this will create even more questions over the validity of the bidding process.

So here are some clear watch outs.

  1. Ask yourself why you are doing it? Do you have a good reason with tangible benefits? Are you being pressurised by your agency or have they even implemented it without your knowledge?
  2. Have you included your marketing procurement team to manage the process?
  3. How are you going to ensure transparency and honesty in the bidding? If there are external companies involved who is doing the bidding process? and how do you know they won’t receive the bids prior to the in house unit doing theirs?
  4. Have you thought about using your production consultant to manage the bidding process? Then there’s 100% separation, and a proper creative and financially competitive situation.
  5. Has the in-house prod co managed to attract the level of talent you expect? Remember that most external production houses will not loan out their top talent
  6. If they are an in-house production co, then what is your policy regarding mark-ups and contingencies? Remember independent co markups also have to cover their pitches that often they may not win. This is not the case for in- house companies.
  7. Have you managed the capture of any IP, and has a proper Production Briefing Spec been done?
  8. Have they bid against a strict list of deliverables and proper Pre-Bid meeting been done?
  9. Have you competitively bid or at least analysed the breakdown for ‘high ticket’ items such as post production, audio and music.
  10. Using an in-house production company that belongs to your agency just by definition has potential to create conflict. It is critical that you do whatever you can remove this, no matter how well you get on with your team. If you can do this then you can spend time building the relationship and doing great work rather than worrying about the process.

The easiest solution to No 10 is for you to ask your production consultant to be your neutral, external advisor to manage the best practice process and bidding.

In our experience in-house production companies often have poor process, with less experience than your production consultant in managing pre bids, negotiating, and designing a production. Keeping your production clean and fair is an additional benefit of your production consultants involvement as well as driving great value which should be a given anyway on any jobs that your agency choose to manage in house.

One final thing, although this is our rough guide, you should also seek legal counsel with regard to any agreements/ contracts you have or about to make.

If your agency truly desire to use their in-house production companies and believe they can compete both on a creative and financial level then they would not mind being in an open and fair competitive situation.

Pat Murphy

 

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