Yesterday the AICP (Association of Independent Commercial Producers ) revealed that, health concerns aside, one of the most immediate risks to production and post production companies in the US during the coronavirus crisis is the amount of outstanding money owed by brands and agencies for work that has already been done. The report revealed that American production companies were waiting on an estimated $200m combined in late payments.
Meanwhile, across the pond in the UK, where payment terms are generally more rigorously adhered to, the APA (Advertising Producers Association), has said that production companies are worried, and that agencies and clients must not start holding onto payments for recent projects. “It’s their last bit of income for a while and their fear is that agencies might hang onto it because of course they’re under huge financial pressure as well. So that comes from the client paying on time and the agencies paying on time. Production is relying on that last bit of income to pay people, pay the freelancers because that’s critical, and have some money that might help with their overheads during this period.”
Since we last spoke to Matt Miller, the president and CEO of AICP (Association of Independent Commercial Producers) around three weeks ago
, the world - in particular the United States - has changed drastically. At that time companies were figuring out how to conduct business as usual in an unusual time. As the Covid-19 pandemic continued to spread, many governments around the world have enacted restrictions and lockdowns that have restricted travel and most aspects of traditional, live action filmmaking.
In a bid to bring the AICP community together while most of its membership base is hunkered down at home, Matt and the AICP team set about putting together a digital town hall meeting. Unsure of how it would turn out, 520 people ended up showing up and, when it ended over two-and-a-half hours later, more than 400 people were still on the call. Many topics came up during the discussion but the one that presented itself as being a particularly immediate issue was the owed receivables.
During that meeting, the AICP pulled together a series of polls. They found that 28% of companies reported that they are owed in excess of $1 million, while 23% are owed between $500,000-$1 million and 34% are owed between $100,000-$500,000. The members were also polled on how late these payments are: 29% reported that payments are 45 or more days late (per their contracted terms), and one-third are 30-45 days late. Extrapolating across the industry, conservatively, this is well in excess of $200 million. What’s more, a recent study by the ANA (Association of National Advertisers) entitled ‘Payment Terms: Current Practices for Marketing Services’ noted that 21% of marketers have unilaterally extended their payment practices for production in the past year.
Meanwhile, in the UK where payment terms are standardised to 30 days and the market is smaller, the amount outstanding is smaller. “I’d honestly say that in most instances agencies are fairly good with production companies and sticking to the contracts – there are a couple of agencies that have always been bad payers but generally people are pretty clear and straightforward about it,” says Steve. For his members, they’re more worried that clients and agencies will start to slow down payments for recently completed work. “They’re not necessarily late yet but they can just see if the person paying you is themselves under financial pressure it’s likely to cause problems and we want to head that off as far as we can.”
The issue of late payments for production vendors has been a long-standing tension point in the US advertising industry but the difference now, according to Matt, is that it’s possible to look at it through a completely different lens. “Production companies have had to have a lot of ingenuity about how they manage their cash flow,” he tells us. “Not to tar them all with the same brush because there are some that are more reasonable, but brands’ payment terms are unpredictable and chronically late. The system of payment through agencies has certainly added an ‘X factor’ into that also.
“The lens that we get to look at this through right now shines a light on how much is actually owed and how late it is. Companies are looking at little or no work in the near future but they still have overheads and staff, they might be bidding on work or they need to work on contingency plans for work that’s postponed, and they need to be prepared for the future. But without money coming in what are they going to do? Therefore the idea of all this outstanding money and just how late it is becomes one paramount concern - because it’s the one way that some companies can actually stay afloat. People need to pay those bills that are 30 or 40 or even 60 days late. That’s going to be the way that some people can weather this storm.”
Matt hopes that a full understanding of this problem in the midst of a crisis will help explain to relevant parties how important cash flow is to the production industry. “Most of it is salaries, health benefits, the general livelihood of the creative people who you engage on a freelance or staff basis in order to keep the engine running,” he adds.
“And let’s face it. That all comes from the marketer. That’s where all the money is funnelled from. Hopefully the silver lining here is that maybe this will let them understand the importance of being on time and actually understanding what the timeline of production costs actually is.”
Similarly, in the UK Steve is keen to stress where the money goes. Production companies are committed to paying freelancers within seven days. However, he says that he has been having open conversations with the Advertising Association and ISBA (which represents brands), in order to convey the message to end clients. “I said, in terms of what people could do, probably the number one most useful thing that agencies and clients could do is payment per the contract. So hopefully we will get somewhere but I anticipate it will be a struggle in some instances,” he says.
However, both in the UK and in the USA there is some cause for optimism. The AICP town hall also revealed that a number of companies are actively bidding on jobs right now. “Brands and agencies are optimistic that in a time in the foreseeable future they’re going to be jumping back into action. I think that’s a good sign however, again, you need the resources to be doing that,” Matt says. “It’s a tough thing when you’re bidding work now and you don’t know what the certain realities of the bid will be. Are people going to get their director to produce an elaborate treatment for a job if they don’t know what it will look like? It’s expensive and time consuming and it may not be realistic for when they can actually shoot. It could be very wasteful. How do you engage in the process and not be wasteful because some of that work could end up being redundant?”
Looking more broadly to the future, Matt is keen to strike a tone of optimism. He sees the AICP as a community and he and the team are endeavouring to get as much information in the hands of its members so that they can be ready and in the healthiest shape possible when the industry does rebound. With that in mind, last week it launched an open resource
to track relevant coronavirus updates and Matt tells us that it’s been getting an average of 4,000 hits per day.
“There is something about a crisis that can actually make a community stronger,” he adds. “And I mean that in a bigger sense. From production companies, post production companies, agencies and clients, it may give everyone the ability to just look at the process a bit differently and perhaps come out on the other end a bit stronger.”
Steven, too, is looking to the future. “We want to get everyone through it, that’s the plan. If we’re still here and all the companies are still here at the end of it and able to participate in the upturn that will inevitably come, that will count as a success.”