www.marketingmagazine.com.my
ISSUE #250 JUNE 2020
popculture
WEEKENDER
Death by Client! THE ART OF STALLING PAYMENTS IS A NO-BRAINER
WEEKENDER
popculture
EDITOR'S NOTE
Will the truth set Ivan Omar free? Death by client!
While government tenders are always tricky, most people say it is about who you know...
Weaponising cashflow is rearing its ugly head.
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07 20
The tale of a falling Star
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Number crunchers are running riot in an industry they know nothing about.
21 Carnival Of Hypocrisy
MARKETING WEEKENDER is published by Sledgehammer Communications (M) Sdn Bhd 22B, Jalan Tun Mohd Fuad 1, Taman Tun Dr. Ismail 60000 Kuala Lumpur, Malaysia. Tel: 603-7726 2588 ham@adoimagazine.com. www.marketingmagazine.com.my Š All Rights Reserved By: Sledgehammer Communications (M) Sdn Bhd (289967-W) No part of this magazine may be reproduced in any form without prior permission in writing from the publisher. While every effort has been made to ensure the accuracy of the information in this publication, the publisher assumes no responsibility for errors, omissions and/ or for any consequences of reliance upon information in this publication. The opinions expressed in this publication do not necessarily represent the views of the publisher or editor. Advertisements are the sole responsibility of the advertisers.
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DO NOT TAKE LIFE TOO SERIOUSLY. YOU GOOGLE TAX, WILL NEVER GET OUT ALSO KNOWN AS A OF IT ALIVE.
Elbert Hubbard
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DO ONE THING EVERY DAY THAT SCARES YOU. Eleanor Roosevelt
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DIVERTED PROFITS TAX, REFERS TO ANTI-AVOIDANCE TAX PROVISIONS THAT HAVE BEEN INTRODUCED IN SEVERAL JURISDICTIONS TO DEAL WITH THE PRACTICE OF PROFITS OR ROYALTIES BEING DIVERTED TO OTHER JURISDICTIONS THAT HAVE LOWER OR ZERO TAX RATES.
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EDITOR’S NOTE
Will the truth set Ivan Omar free?
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hile government tenders are always tricky, most people say it is about who you know, not what you know. And Ivan Omar knew quite a few people. After all, his company had already worked on other government-related projects like the Northern Corridor Economic Region (NCER), Kedah and Perak state governments, and the Mindanao Development Authority. But this time, it was a different ball game altogether.
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EDITOR’S NOTE
Even after being awarded almost RM90 million of Tourism Malaysia advertising business, and the ink hadn’t even dried on his contract, probing questions started swirling gathering a storm too to difficult to contain. The government changed, and what initially appeared as an advertising industry power play, morphed into a tailspin as the MACC (Malaysian AntiCorruption Commission) moved in. After three company directors of The I/O Movement were
arrested last week, the MACC are now hot on the trail of an aide of a former federal minister to assist in the investigation. The directors were suspected by the MACC of bribing as yet unnamed officials at Tourism Malaysia to secure a promotional contract worth almost RM90 million. It is believed the company involved also did not meet technical and financial requirements to qualify for the contract. According to the MACC, the hunted man is 29-year-old Mohd Saifullah Mohd Minggu @ Mohd Hisham listed as a principle private secretary for Datuk Mohammadin Ketapi, ex Tourism Minister. Ivan once Tweeted: “Hold on to the truth, for the truth will set you free.” As of now, matters are still under investigation. So we will leave it at that for the time being.
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NOTES TO EDITOR
“Last week’s issue of WEEKENDER played up past memories…here are my random thoughts… When I was in Swaziland, I saw lots of prominent posters and billboards of Limkokwing Uni. Students there connected Malaysia through Limkokwing (Tourism Malaysia take note). The Indian Petronas ads also resonate well with Indians; what Yasmin’s portrait of Malaysia is DTT Rajay’s portrait of India, the one shot in Gujarat. And finally, standing next to the Broken Chair across the street from the Palace of Nations in Geneva is a reminder of the responsibilities of our leaders.” Bharat Avalani Storyteller & Memory Collector
“Love your WEEKENDER editions… simply catchy, punchy, techy and more. In a world where the ability to speak and the freedom to do so have become rare, WEEKENDER is clear proof that voice matters. 2020 is a game changer for marketers and the marketing world. With the virus movement controls, political pendulum, black stigma, judiciary volatility and a host of big stuff redefining consumerism today. Looking forward to your next issue.” Datin Kala Sethu - Founder & MD, Compass Insights compassinsights.com “I have worked at Limkokwing and my lessons have been equally sharp. While he pays very high salaries, he is a 25hour businessman. My job was to lobby official registrations for lucrative assets he could deploy for his business, specifically MSCstatus approvals. I think my team engineered more than 20 MSCstatus shell and existing companies his way. This allowed him tax exemptions within the MSC licence code. Even though these benefits were not in perpetuity and all legitimate, I quit when he wanted me to find a way to ‘resell’ the same approvals for his ridiculously massive financial gain.” Ex-CEO
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COVER STORY
Death by client!
Number crunchers are running riot in an industry they know nothing about. BY THE HAMMER
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eaponising cashflow to rude advantage is rearing its ugly head. Nobody is talking about it, but this is going to hurt… Before that, let me get some shit off my liver. I need to correct a massive misconception we are all guilty of. When an agency wins a RM100 million piece of advertising business, it does not get to put RM100 million into its bank account. On the contrary, the agency probably has to look for an escrow facility to offset the spend the client will make
in the hope that they will pay. Ridiculous you say? That’s the dark reality. So the agency is a bank and absorbs a lot of risks hoping clients will pay. Of course there is a contract in place. Yawn. On top of that, advertising is sadly treated as a supply chain to be trodden upon, where procurement gymnasts play a zero sum game at will. We know the dynamics have changed with Covid-19, yet the guardians of budgets are playing God. Are they drunk in some celestial righteousness we don’t know about?
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COVER STORY
Moneybags are the new storytellers (albeit boring) in a scheme to deprive the very industry that keeps them in employ. Shielded by curtains of bureaucracy, well orchestrated by dumbfounded storylines of lies and delaying tactics, accountants with bad haircuts are dictating the destinies of livelihoods of thousands by keeping them in line. Devaluing an ideas industry that makes or breaks the creative economy is beyond their comprehension, let alone intelligence.
Hanging by a thread, the advertising industry’s dedicated workers are victims of an ecosystem fine-tuned over decades of subservience. Slaves to cheque signatories. Who do you pay first? The creator of your brand’s image or the order of office stationery that becomes a 5-year stockpile. In our story this time we talk to 6 heads of large multinational and local agencies to bring you a sense of the desperation that makes the business so fragile. Stories you’ll never hear in the boardroom, lest a paymaster gets “offended”. All of those we spoke to refused to allow their names to be published except for one. But believe you me, all these
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COVER STORY
stories are TRUE. When clients don’t pay their bills it results in massive agency losses and even closures. It is a shallow way to show tough love, if that is the intent. Anway, brace yourself for some blunt truths now…
It takes only one delinquent client to kill you. “My first experience of a client playing God set us back close to the tune of RM1 million. The agency was promised and reassured by this client that all will be reimbursed once the paperwork for additional budget was approved by the Ministry of Finance (MOF).” (Ed’s comment: It is an unspoken truth that government or government-linked advertisers are notorious paymasters and their game begins the moment the contract is signed. Yawn.) “We were working on a campaign with a Government Ministry in accordance to the terms of contract, following Purchase Orders (PO), approved creatives all pitched and won under a competitive open tender process, etc. Playing by the book with no back door entrance.
... All was going very well until the Deputy Secretary-General (TKSU) of the Ministry steps in and wanted to increase airtime slots…
Most of the budget allocated was utilised for airing of TVCs besides production, outdoor and print media placements. All was going very well until the Deputy Secretary-General (TKSU) of the Ministry steps in and wanted to increase airtime slots…
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COVER STORY
... Month after month, agency was told that the additional media budget application was under process, etc. The amount was substantial...
The client asked the agency to book additional TVC spots during prime time which was above their allocated budget to ensure there was enhanced key messaging of the campaign (maybe that’s the only time the Minister watches TV). Although agency cautioned the client that it would blow the budget, agency was repeatedly assured that an application has been made to MoF (Finance Ministry) for approval of additional budget and that it was being processed.
Based on previous experiences, the agency more often than not gets approvals for additional budget requests. Based on precedence, we proceeded to book the additional spots. The campaign ended successfully and payment as per contract was made to the agency with the exception of the additional media budget. Month after month, agency was told that the additional media budget application was under process, etc. The amount was substantial.
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COVER STORY
There was a cabinet reshuffle and the incumbent Minister was assigned a new portfolio and the TKSU was transferred to another Ministry. The agency was left high and dry! Representations to the new KSU of the said Ministry drew blank responses with the usual line, “It was not sanctioned by us, but the previous guy...” Agency did not file a legal suit against the said Ministry for fear of repercussions since we were doing other government projects too. We did not want to jeopardise our working relationship and hoped that by securing other projects it could help reduce our losses. It was hoping against hope, and it got dimmer by the day. Over the coming months, this shortfall resulted in the agency experiencing serious cashflow problems which affected the viability of the company being unable to meet its overheads, etc. Eventually, the once thriving agency of 35 years had to close shop for good.”
... Agency did not file a legal suit against the said Ministry for fear of repercussions since we were doing other government projects too. We did not want to jeopardise our working relationship and hoped that by securing other projects it could help reduce our losses. It was hoping against hope, and it got dimmer by the day... GLC with no TLC “We secured a very promising GLC account . In fact, it was paying the agency an attractive monthly retainer fee of RM150k. All looked very good on paper. There was no issue of payments. As per the GLC’s mandatory requirement a strong team which included an account planner, account managers and creatives were brought on board.
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COVER STORY
... After one year of paying the RM150k monthly retainer to cover the overheads of a full-fledged and dedicated team, our services were abruptly terminated with the excuse “factors beyond their control”. The GLC was unable commit...
The challenge was that the client was very indecisive and hesitant in embarking on the advertising campaign due to internal politics. The agency’s team were given the task of attending to a series of BTL collaterals but not implementation of the campaign proper. After one year of paying the RM150k monthly retainer to cover the overheads of a full-
fledged and dedicated team, our services were abruptly terminated with the excuse “factors beyond their control”. The GLC was unable to commit to the execution of the campaign. We had no choice but to walk away and a highly talented senior team had to walk out the agency.”
Painful lessons 1. Clients can make all kinds of promises but when it comes to due dates for payments, but the agency must be vocal without fearing repercussion to future business. 2. Contracts must be watertight and agencies must take great pain to ensure that their rights are protected. 3. Agencies must stop getting overly excited and overconfident when winning new business. All it takes is just one delinquent client to screw you up for life. 4. Take everything with a pinch of salt. 5. Agencies must never take overdraft (OD) facilities for it gives a false sense of financial confidence.
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COVER STORY
A short story on the death of a Malaysian ad agency. “My agency was called Earth, Wind & Fire and was incorporated in 1999. We had a good run for 10 years and were proud to be a home-grown full-service agency – creative, strategy planning, media planning and buying. Within a
year of incorporation, we were accepted as a member of the 4As. We had a mixed bag of clients, with a total annual billing of around RM10 million. This was about the time when the industry was still in the early days of trending towards specialist media agencies. So it still made sense then to provide media services, although the writing was on the wall. Trouble started from 2009 onwards, rolling over from the recession of the global financial crisis. Margins were thinning, with clients pushing for discounts on creative fees as well as rebates on media commissions. The larger
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... The credit crunch started to hit in when clients were stretching payment cycles. 30-day terms stretched to 60 days. But things went awry when it went past 100 days, and even more... agencies were tapping on our panel of clients. A phenomenon affecting other mid-size and small agencies at the same time. The big boys were throwing prices to reel in smaller clients to make up for their own declining revenues. The credit crunch started to hit in when clients were stretching payment cycles. 30-day terms stretched to 60 days. But things went awry when it went past 100 days, and even more. Prevalent credit control and collection methods were not working anymore. Some new clients, that passed the initial credit rating tests, became problematic after several months when billings started to grow. In a tough market environment, we
fell to the temptation of taking on new work, expanding the portfolio, but the price to be paid was bad credit. It was a vicious cycle. Bills had to be paid – salaries and overheads, printers, production houses, the media. We did our best to hold the fort for around 2 years, draining out all savings - business and personal, borrowings from family, rolling payments to creditors, burning out bank guarantees…. Progressively, I had to start putting into effect the most painful act of all, which was to start letting staff go. The bleeding, once it started, became difficult to plug. Up to a point where I realised it was no longer tenable, and there was no choice but to fold. The current situation of the industry brings back memories of that awful period from 10 years ago. ”
Playing with other people’s money “There is a rare breed of client, unfortunately not extinct, who believe themselves to be above the law (or at least the legalities of a mutually agreed contract)
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COVER STORY
and that agencies are either banks or charities. This client, an internet startup, was four months new when they pitched out their account. Although there was a rush of hungry aspirants, they invited six well known agencies to participate in their quest to build a paying audience. For a start-up, the pitch process was disproportionately extensive and therefore gruelling. Eventually we were selected congratulations and celebrations all round with many backs slapped. A contract was duly signed, which had uncommonly generous payment terms due to the gradual accumulation of an anticipated audience. Three months after the campaign started the first tranche of payment came due…only to be delayed by mutual agreement for 30 days. Not a good sign, but surprisingly 30 days later the first bill was paid. Many sighs of relief especially from the media group head and the Finance Director. This kind extension was taken by the client’s Marketing Director as fiscal freedom from the contractually agreed payment schedule. And so every time payment was due, a month’s
... 18 months after their acquisition the now not-sonew start-up was shut down and our client contact, the marketing director, laid off. He’s still around… extension was expected…and given…by the media group head and the Finance Director – except that each time the month’s delay was eating into cashflow. By the end of nine months, only two of six payments had been made. Having made the most urgent list at the weekly debtors review, senior management were now informed and involved. There was pressure to pay. The contract was invoked. Letters and e-mails of demand were sent. Lawyers found employment. We were then immediately told the client was in the midst of being acquired by a well-known global player. And that during this process no payments, debts or liabilities could be settled.
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COVER STORY
Our lawyers advised us to wait. We did. When the acquisition was completed we asked to be paid only to be notified that our client no longer existed as a legal entity and due to the nature of the deal structure no debts would be recognised and paid. Our lawyers would have got rich contesting this in court. So we ‘absorbed’ the loss. A post mortem highlighted the roles of media group head and the Finance Director in the debacle. Blame, it was decided, lay ultimately with the Finance Director who, after 12 years with the company, was fired. We did not make our annual financial target. Some bonuses were reduced and many were not paid. Ironic justice: 18 months after their acquisition the now not-so-new start-up was shut down and our client contact, the marketing director, laid off. He’s still around…somewhere. ” Many advertisers have also been using the MCO ruse to delay payments. “Cannot go into the office to make payments”. Yawn.
As a parting shot, check out this blurb, “My GLC client approved the creative and budget and signed off on the contract. We ran the campaign and when it came to payment they suddenly told us they don’t like the campaign and will only pay 70%”
A salute to responsible advertisers Some agency CEOs we spoke to also highlighted the case of amazing clients who have come forward in these trying times to help agencies’ cashflow situation by paying early. Some also deferred their review of agencies to next year by retaining the incumbent thus offsetting unpredictability in an unpredictable environment. Understandably, for most marketers the priority is to sustain their supply chain of materials for product, without which everything else is irrelevant. But until most advertisers do not see the error of their ways, the industry will remain in free fall. I call this the God-complex.
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EXCLUSIVE
The tale of a falling Star THE HAMMER
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e have done an extensive story about the state of affairs at Star Media Group (SMG) in last week’s WEEKENDER. I have never met SMG Chairman Datuk Fu Ah Kiow, so I’ll give him the benefit of the doubt when it comes to charting the future of the media group. Somebody asked me yesterday what were the woes at SMG in one sentence, so I share here: challenges of digitalization, legacy thinking and bloated workforce. I left political affiliation out the equation because I respect this man’s thinking: click here.
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EXCLUSIVE
... freedom of expression since its humble days 50 years ago in a building along Pitt Street, Penang?
Fu is certainly an unusual Chairman, in that he dabbles in management (hands-on some say!). A non-executive Chairman who meddles with operations says a lot about the people working for him. Or the people he has chosen to do so. HR has already started issuing letters for retrenchments and a Mutual Separation Scheme for over 100 staff, while there are complaints of violation of governance rules. This is on top of the legal letters he has been busy with in recent times, to gag dissenters (mostly shareholders). Is this a lesson in freedom
of speech from the number one newspaper whose ethos is built on freedom of expression since its humble days 50 years ago in a building along Pitt Street, Penang? Incidentally, that building was built in 1906 and once served as a licensed opium farm. It was also a godown and dispensary for the distribution of opium and alcohol. Ah, the heydays… I digress. The fact is there is no shortage of “little birds” telling us what is going on. That spells hate on an industrial scale to me. There is much that needs fixing. Because this does not sit well with the advertising media
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EXCLUSIVE
... a falling star is said to possess a bit of magic, which means positive vibes... industry, especially when you have a product that survives on advertising revenue. One can also argue that what I am saying is hogwash, as media buyers people will look for any excuse to suck a discount out of SMG’s platforms. So now it all boils down to its 48th Annual General Meeting (virtual) on June 22. A viral message doing the rounds, claimed to be written by the “Alumni of The Star Media Group in solidarity with the serving staff against the Chairman”, says that Fu does not even own a single share of The Star. With a reported net loss of RM3.98 million in 1QFY20 versus a net profit of RM3.54 million a year earlier and revenues falling to RM65.76 million from RM82.57 million, many shareholders will be baying for blood. A major pain point is The Star’s video-on-demand service
DimSum, which is believed to remain in the red since its launch in 2016, burning more than RM100 million since. Fu’s earlier plan to have only his supporters “occupy” the AGM fizzled; apparently, he had given instructions that SMG will not accept any more attendees as of June 2, twenty days before the AGM. But Bursa Malaysia stepped in and ordered SMG to conduct a virtual AGM. To be fair to Fu (71), The Star has held on where others have failed. Malaysia largest magazine publisher Blu Inc Media, with titles such as CLEO, Cosmopolitan, Her World, and Female shut down on April 30. Plus Covid-19, the sheer thuggery of global digital walled gardens who are not subject to our tax rules have all played into the destiny of SMG. But I, for one, do not believe it is written in the stars. But if we are, to for punters who believe in anything. Heyday trivia: a falling star is said to possess a bit of magic, which means positive vibes and good luck for anyone who happens to gaze upon one.
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CREATIVE SHOWCASE
In February, Burger King pulled a surprising global, integrated advertising campaign showing its iconic Whopper covered in mould. Instead of featuring its product with the classic flawless and often perfect photographic style commonly used to showcase fast food products, Burger King let its most iconic product get rotten to make a powerful statement: The brand had achieved a milestone by removing artificial preservatives from the Whopper sandwich in most European countries and select markets in the United States.
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www.bobhoffmanswebsite.com
Carnival Of Hypocrisy by Bob Hoffman
“By 2017, American companies had put at least $2.6 trillion into offshore tax shelters...Nike had $12.2 billion.... The company estimates that if its $12.2 billion was repatriated to the U.S., it would owe $4.1 billion in U.S. taxes... Designating its profits this way allows the company to avoid paying even a dime of U.S. income taxes on these profits...” - The Oregonian. More about this in a minute.
The horrible murder of George Floyd was treated by the marketing industry this week as an opportunity to express sincere desire for change. Sadly, it also exposed our talent for hypocrisy. While brand marketers were exhorting us to end practices that cause social damage to black Americans, they were themselves deeply engaged in some of the most pernicious practices.
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www.bobhoffmanswebsite.com
I have my own standard for evaluating a company’s true commitment to social justice. It is this: to what extremes does it go to avoid paying taxes? Taxation may be unpleasant. Tax dollars are often squandered on idiotic schemes. Paying taxes may reduce a corporation’s returns to investors. But taxation is by far the most potent source of resources for societies to redress social ills. Taxation funds education. Taxation funds housing. Taxation funds health initiatives. Taxation funds social services. There is no way around this -- when corporations take extraordinary measures to avoid paying taxes, they are doing extraordinary harm to citizens who have the greatest need for education, housing, health, and social services. If brands really believe that Black Lives Matter they must stop starving our country of the resources to improve black lives by hiding their taxable profits in offshore tax havens. Like it or not, to a substantial degree, taxation is the engine that funds social justice. There will be those who say that these tax dodges are
perfectly legal. In many cases they are. This fact impresses me not one bit. If you’re going to use social media or paid media to pound your chest about social justice, you have a higher responsibility than just to obey the letter of the law. There is little honor in being legally compliant and ethically opportunistic. Dear business colleagues -if you really want to help heal this country here’s step one: Pay your fucking taxes. Until you’re willing to do that, please instruct your marketing departments to spare us the high-minded pieties. Let’s make this so simple that even a ceo can understand it: You can’t be for social justice and against paying taxes.
“If you don’t know who Bob Hoffman is then you really don’t work in advertising. That, or you have not steeped yourself in the wisdom of this man.” MediaPost
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