Slow payment continues to significantly compromise the health of the commercial production house community, as reflected in the results of the fourth annual Association of Independent Commercial Producers (AICP) membership survey, which was conducted and analyzed independently by Los Angeles-based firm Goodwin Simon Victoria Research. The study covers calendar year 2005.
On a scale of one to five, with five being the greatest impact, survey respondents were asked to rate dynamics affecting the financial wellbeing of production houses. The lack of timely payment finished first with a four-plus average, easily surpassing such factors as cost consultants, client guidelines and wrap-up insurance, which all registered in the three-to-four range.
Indeed there’s been little movement in a positive direction on the cash flow front. In the study of two years ago, on average 13 percent of jobs, for example, were 46 days or more past due. That dipped to 11 percent the following year but bumped back up to 12 percent in this latest survey.
According to the recently released AICP survey, production companies reported that the most frequent explanation given to them for late payment was that the client has not yet paid the agency. That number one reason was cited by a whopping 82 percent of survey respondents.
Indeed when an agency client pays late outside of the terms of what is contracted, it makes it difficult for a production company to work in a way where it can project to its next job and handle cash flow properly. Furthermore, a busy month followed by a slow month can be a curse for a production house trying to cope with past-due payments. Even being awarded a major job can turn out to be the death knell–rather than the savior–for a production company already facing cash flow problems. For example, SHOOT became privy to a situation in which a production house, which was already struggling with poor cash flow, went out of business after wrapping a job in which some $1 million went unpaid for more than 90 days. The delay of the final payment on this project pushed the house–which was financing this and prior jobs–over the edge.
Payment guidelines
While it doesn’t rectify the late payment quandary, the AICP’s recent revision of payment guidelines can lessen the impact of a past-due payment on the final installment of a project. As earlier reported (SHOOT, 12/15/06), the AICP board of directors decided to replace the longstanding 50-50 and 50-40-10 plans with a 75-25 arrangement whereby the first billing will be 75 percent of the contract price on a job.
According to AICP president/CEO Matt Miller, ad agencies have generally been receptive to the new guidelines since their introduction three months ago. “There’s an understanding among many agencies of the problems that production companies face when having to bankroll productions for inordinate periods of time,” said Miller. “When agencies comply with the guidelines, it decreases the effect of late final payments. Still, though, the late payment situation needs to be corrected.”
Non-traditional content
Another key survey finding was that commercial producers are deeply involved in creating non-traditional advertising. Sixty-nine percent of respondents produced “non-traditional advertising projects” in ’05. By far the most common format for such projects was an Internet or broadband viral, followed by original content (branded entertainment). This feedback reflects that agencies and/or advertisers are indeed turning to the commercial production community for non-traditional or new media projects. This business, according to the study, is almost as likely to entail a production company partnering directly with an advertiser as it is partnering with an agency.
A handful of production houses reported that non-traditional projects represented the majority of their business in ’05. Sixteen percent of respondents estimated that non-traditional fare accounted for 26 to 50 percent of their biz that year. Twenty percent pegged non-traditional ad projects as representing between 11 and 25 percent of their business. These survey tallies underscore the importance and relevance of the work being done by the AICP.next committee (SHOOT, 3/9), which includes coming up with new compensation models for the creation and development of content, going beyond traditional commercialmaking’s work-for-hire model.
Part two For the very first time, the annual AICP membership study contained a special optional section asking direct questions about production house deals with directors, in-house reps and independent rep firms, as well as inquiries regarding overhead and other aspects of running a production house. The findings from this second part of the survey were only released to those companies who participated in this portion of the study. “It gives those members a way to benchmark their own company against the industry averages,” said Miller. “It should prove to be a valuable business tool.”
Miller additionally noted it’s likely that future installments of this second part of the survey would encompass questions regarding non-traditional advertising projects, an area for which standard business practices are still evolving. Seeing how companies deal with this work could be most helpful to respondents looking to get a better handle on different approaches and models.
Big Picture
The fourth annual AICP survey measures industry trends and activity in the $5 billion-plus commercial production industry. As in years past, the core AICP study provided an overview of spot filming trends, which are cited in this week’s story on the upcoming AFCI Locations Trade Show.
Miller related that AICP members benefit from the independently conducted research on several fronts. “In some respects it tells people what they anecdotally know. But to be able to put numbers to it can prove useful as a business planning tool. Also, quantifying the business in a recognized methodical way gives us vital figures and information to present to legislators and public officials about the positive economic impact of our business. This leads to filming incentives and other policies that are industry friendly.”
