Puerto Rico: Shrinking Economy, Network TV economies of scale, need for changes in the Ad Business – – – All gains for the US Hispanic Market

Over the last couple of years, Puerto Rico has been caught in an economic recession that has not only regulatory and financial institutions worrying about the financial stability of the island’s economy, but also the average islander is looking to leave the island for better opportunities on the US mainland.

Once gain, the economy in Puerto Rico is not growing, but has been contracting according to all international and national sources.

This has not only impacted the quality of life on the island for its inhabitants and the crime rate, but has also affected the advertising industry on the island as a whole.

The cost of entry into purchasing traditional media entity on the island is high, compounded by a media purchasing system that is based on Volume Discount practice.

Volume Discount is a relationship were as the advertising agency places media dollars on media entities on the island and is able to negotiate based on volume placed annually by the agency a higher commission percentage than is some cases ranges between 15% to 25% above the traditional 15%.

This practice over the years has made many advertising executives multi-millionaires, rightfully so, but has also thwarted the media performance negotiation between client/agency/media entity.

Is performance a key factor when placing a media buy or is the commission or kickback back to the agency more important?

This is a marketing question that at some point must be addressed by not only the advertising agencies and media, but also the Association of Puerto Rico Advertising Agencies.  They have been reluctant in the past to even talk about this issue openly.

The Volume Discount practice also does not create a level playing field for up and coming media companies in multiple platforms to thrive and grow due to the inherent high cost of doing business with the advertising agencies.  Many bypass the advertising agencies and go direct to clients.

Who loses here – the customer, the client or the agency?

There are many anecdotes about the use of the Volume Discount practice to win new clients in a competitive agency review, a major media company tried to not take part in the practice and was blackballed, the practice impacted the viability of another major media company from selling their assets on the island in the last decade and speculation abounds that individuals on the marketing/client side are also enjoying the benefits of this practice.

Other speculate that advertising agencies can more than thrive just on the Volume Discount dollars without having or requiring any additional fees from their clients.

This has also fueled the interest of current up and coming advertising, marketing, media and public relations professionals to leave the island to the mainland due to the lack of growth and upward mobility.  This is an opportunity for the US Hispanic Market to attract bilingual and bicultural talent with extensive experice working for international and mainland advertising agency affiliates.

The Volume Discount practice plays havoc on the profit and loss statements for individual media companies on the island.  Thus, prompting current speculation that at one point, that both Telemundo’s and Univision’s island TV properties will completely join their respective mainland programming network feeds and sales packaging to mayor mainland clients.

This possible movement towards adding the ability to purchase ads in Puerto Rico through a network buy on the US mainland will have major implications and could put up to 35% of the island ad buys in jeopardy of being purchase stateside.

Both Telemundo and Univision have in the past researched the possibility of this happening.  This would bring down programming cost dramatically, just requiring them to produce a local news program.  It would also add more revenues to the bottom line, including the reduction of the commission paid to agencies due to the Volume Discount practice on a local basis.

Healthier P&Ls anyone?

The decision to move to join the networks will not be made locally, but from corporate headquarter on the mainland.  DO NOT chastise the local management.  It’s the ad industry’s doing should the shift occur and only Telemundo or Univision needs to make the move and both will make the jump.

In the past advertising and media executives that have attempted to shed light on the negative impact of the Volume Discount practice have been criticized and ostracized by their peers.

At some point, someone has to call a spade a spade, the industry needs to self evaluate.  The drums of discontent are heard loud and clear on the US mainland.

The question at hand: will the ad agency industry realize their predicament and eliminate the Volume Discount practice or continue to conscientiously drive the industry into a downward spiral?

By Gene Bryan / CEO of HispanicAd.com

Full Disclosure:  In the past through one of our company interest ADnotas, Inc., published an advertising, marketing and media trade journal in Puerto Rico called ADnotas.com which has ceased operations.