Principal media buying (also: principal-based media buying) refers to a media buying method, when an advertising agency purchases inventory from supply vendors, then resells it to their brand/advertiser clients.
The Story Behind & the Basics of Principal Media
In brief, the term “principal media” comes from the notion that an ad agency, which first buys media inventory (usually in bulk quantities), then acts as a vendor (“principal”), reselling it to advertising clients at a higher price.
Quite predictably, the key prerequisites of the acceleration of principal media in the past years were the advertisers’ agency cost cuts, in tandem with their increasing requests of the paying terms extension, which forced ad agencies and holding companies to seek new, effective revenue streams.
Benefits vs. Challenges for Advertisers
While agencies’ benefits from principal media sales are obvious, from an advertiser’s perspective things might get trickier.
On the positive side, one of the most notable benefits of working with principal media is the possibility to reduce agency costs, reallocating them to media buys. While this doesn’t drastically reduce the overall spend, the effectiveness of spending marketing/advertising budgets on the so-to-speak “working media” is potentially higher.
Another possible benefit is a brand’s ability to negotiate the more comfortable (read: extended) payment terms with the agency, which acts as a media vendor, hence has more control over the financial aspect.
In addition, buying principal media may also help advertisers get access to somewhat exclusive and otherwise unattainable inventory, however, the jury is still out on whether this is a frequent case, or not.
Meanwhile, on the negative side, principal-based media buys usually imply somewhat an uncertainty on whether advertisers actually obtain the best possible quality/value in the purchased inventory, e.g. often risking the loss of placement quality. More importantly, they’re usually losing some/most of inventory auditing rights, too, likewise as the clear understanding of the actual inventory price/agency profits.
Effective Advertiser Strategies regarding Principal Media
Given the described challenges, related to principal media buys, the experts from ANA, for example, recommend to implement the following practices, while negotiating & collaborating with ad agencies:
- peruse the contract language to ensure it clearly and comprehensively addresses principal media buying terms;
- require cost v. benefit analysis regarding the use of principal media from the ad agency prior to making the decision, which should also include the alternative (non-principal) options to select from;
- consider adding somewhat a cap for principal media buys (e.g. set it at an N% of the total ad budget);
- require access to proof of performance metrics, such as visibility, IVT, ad impressions, CPM, etc.;
- require the comprehensive identification of principal media in flowcharts;
- require auditability of transactions, charged by the agency (since third-party payments are not auditable in principal media buying);
- don’t allow the transfer of costs between the agency buys and principal media buys;
- forbid the agency to automatically reinvest the saved budget from principal media buys into new media purchases, requesting to create somewhat a reserve account for such savings instead.