Advertising Commission System
This description is shorthand for the system of remunerating advertising agencies by commission from media owners, which is an anachronism with remarkable powers of survival.
Ignorance of its complicated working would result in a seriously incomplete understanding of the working relationship between advertisers and their agencies.
Nineteenth century media owners, recognizing the ancestors of present day advertising agencies as the primary customers for their advertising space, allowed them a standard discount on the list price.
Agencies could thereby provide their clients with a free service for which they had hitherto charged a fee.
Independent directories soon followed, allowing advertisers to verify that they were indeed being charged no more than they would have had to pay the media owners.
History thus explains the anomalous present day situation that agencies are remunerated by a third party, being actually sales agents to media owners rather than service agents to advertisers.
The full description of the system makes that clear but the usual contracted version does not.
Early agencies absorbed the cost of designing and producing advertisement in their commission.
Increasing sophistication of proliferating advertising media has since obliged advertisers to accept the necessity for separate charges to cover costly items such as as television production, though there is surprisingly little agreement about what should be included on such list.
The media commission system was declared a restrictive practice in Britain in the 1970s, and in America 20 years earlier.
It nevertheless remains the norm in both countries, despite uninformed assertions to the contrary.
A field study in an unspecified number of European countries has shown that commission discounts still account, on average, for 71 percent of an advertising agency’s total income.
This robustness is due to the system’s straightforwardness and consistency, and to vested interests.
Media owners prefer relatively few large and regular customers to very may sporadic smaller ones.
Advertisers can put pressure on agencies to absorb costs and subsidized extra services out of their commission, and suspect that a properly calculated direct fee would cost them more.
Only the agencies at the center of the whole system are disadvantage.
Advertising Commission System
