Creative kickbacks: Marketers enforce checks but corruption rampant

Even though marketers are telling exchange4media that they have put in place mechanisms to prevent kickbacks to ad agencies from production houses, corruption appears to be as rampant as ever.

by Neeta Nair
Published - August 18, 2022
7 minutes To Read
Creative kickbacks: Marketers enforce checks but corruption rampant

exchange4media got a volley of responses after its first story on ‘creative kickbacks’, mostly from marketers, some of who spoke about how rampant the corruption is, others said that they have oft heard of it even though it hasn’t affected them directly. For the rest it was a case of once bitten twice shy, where over time they have devised ways to deal with this menace. But even though checks seem to be in place to prevent such kickbacks, corruption in the agency ecosystem appears to be as rampant as ever.

Sanjeev Shukla, a marketer with close to 30 years of experience of working with auto majors said, “Most marketers are aware of these dealings, and whenever I was in charge, I have personally selected the director and production house and paid the charges directly to them. But from my understanding, the agency still got a commission.” 

Elaborating further, Shukla says, “Let's say I'm one client, I'll do one or two films a year. But the agency will have 10 clients, so, they would be in a position to do 20 films a year with them. I would call it a ‘relationship’ fee, not a kickback. If a client has negotiated really hard, maybe there's not enough margin in that amount for the agency to get paid reasonably well. But in some other projects, there is more money, so they may get paid belatedly. The commission doesn’t have to be given on one transaction immediately, it could well happen collectively at the end of the year. It is impossible to find out details because it is an informal sector, there are no fixed costs to many things and also, a pitch from one production house might not be comparable with the other. One company may do the film in Rs 15 lakh and the same film with a high-profile director may cost you Rs 1 crore. Director’s fees and/or talent’s fees aren't really fixed in any way. There is a similar logic for the agency commission rate, it is hardly fixed and unknown whether in a said case the deal was struck in cash or kind or like more work in the same costs. It is essentially about a long-term relationship between agencies and the ecosystem around." 

Another brand head we spoke to admitted that the clients have squeezed the agencies enough and have cut costs so much that they don’t really care how the money flows between the production house and the agencies as long as it is within the given slashed budget. 

On the other hand, Shashank Srivastava, Executive Director, Maruti Suzuki, told exchange4media that they follow the below process for prevention of such malpractices. “After finalization of the creative route with an agency, 3-4 production houses are shortlisted for participation in the selection process, recommended by both the brand and the agency. They are invited on the basis of their experience in the automobile category, quality of work (adjudged through their show reels) and their experience of working with renowned directors (both national & international). They are asked to share the treatment note, suggested directors, location, and the costing which is made known through sealed bidding. This is followed by a detailed technical evaluation by a panel of agency & company executives. And on the costing front, the evaluation is done by checking various components at line-item level. After the internal evaluation by Maruti Suzuki, an independent 3rd party audit team carries out the detailed cost evaluation by comparing each element with benchmarks available for the industry. To ensure the best quality of work, the list of production houses, previously engaged by the Maruti Suzuki, is periodically reviewed and updated through scanning of the advertisement ecosystem in terms of latest award-winning works.” Srivastava is certain that the above process ensures that the best-suited production house is engaged for a project without selection bias. 

A similar thought also came from a marketer with an e-commerce platform who said, "We directly deal with production houses. My team and I regularly meet production houses and directors and keep a database of who can execute what kind of creative best. When the script is locked by the agency, we directly approach the producer and lock the budgets and deliverables. The agency is reintroduced to the producer and director after that process for the execution."

He claims that with such an approach they manage to cut down production costs by at least 20% as compared to what it would have been, had they gone through the agency. He adds that he is well aware that agencies charge kickbacks from the producers and that brand heads who don't have a good team or don't understand the production process have no other option but to go through the agency.

"Fortunately, my team and I are pretty experienced in content creation, so it's tough to fool us. Because we ask for detailed budgets and our commercial team also knows which equipment/service costs how much. Even for celebs, we negotiate directly and not through the agency. Brand marketing is a balance of art and science. Good teams should ideally understand the art part as well, and not blindly depend on external agencies," he stated.

Arjun Mohan, CEO - India, upGrad, shared his company's standpoint. "We don't really encourage agencies to get us the standard “3 production house quotes” but we directly choose the right director for the ad film as per the brand/story requirements, and also go ahead with the production house they are associated with. Given that we have cherry-picked a director/team to work with us, the chances of influencing an activity or contract through such kickbacks get eliminated. Being in the education space, quality is of prime importance for us as we are creating offerings that have the potential of impacting the lives and careers of millions. You either have the directorial talent or you don’t, there's barely anything money can do."

Another marketer said that sometimes this messy business also has created award-winning work. “Sometimes agencies may not directly take kickbacks but may have an understanding with the production house that if they recommend them to a client who has a big budget for the film, the production house will work at a discounted rate for a smaller client on the agency’s roster. The idea is that a multinational client may be safer in their creative approach but a smaller local brand will be more open to earth-shattering or dramatic ideas which are more likely to win awards. So, it is not all bad.”

Meanwhile, B Krishna Rao, Category Head, Parle Products, says he hasn’t personally encountered such deals. “A few audit agencies have pitched that they can give good savings on account of eliminating kickbacks, if any, and also on account of technical knowledge like the number of shifts required, location charges, DOP charges, director fees and many more such aspects of film making. We believe in fair play. If you want the best outcome, keep your agency partners happy. Thus, we pay a sound retainer/project fee to our creative partners. On the film production costs, upon thorough negotiations with the agency and the production house, we ask the production house to raise a bill directly in an effort to eliminate the possibility of kickbacks.”