AI Costs Reshape Principal Media Deals

AI costs are quietly reshaping principal media deals, forcing advertisers and agencies to renegotiate the terms of traditional advertising agreements. The ad industry does not yet possess a standardized price for AI, yet this lack of a defined rate does not prevent the costs from being absorbed into media contracts. A chief marketing officer recently experienced this dynamic during a renewal for a media account. Deep into negotiations with a holdco, they received an offer not previously presented. The holdco agreed to cover the entire AI infrastructure bill provided 70% of the media budget ran through principal inventory. This structure did not introduce a separate line item for the client; rather, the markup on the principal inventory funds the AI commitment.

The New Negotiation Lever

Principal media serves as a significant chip on the table during these discussions. The mechanism operates by having the client agree to run a fixed share of spend through inventory the holdco buys in bulk at a wholesale rate. This inventory is then resold to the client bundled with targeting, data, and guaranteed placement at a markup. The larger the allocation through principal inventory, the larger and more predictable the pool becomes, enabling the holdco to cover more AI costs. Commercial deals at this level have historically been built on “efficiencies” and the necessary trade-offs to achieve them. Principal media functions as the newest mechanism in a line that already includes offshoring and contract length adjustments.

Agencies have absorbed AI costs for two years rather than charging clients directly because the latter expected them to deliver more for less. This assumption has compounded as AI usage has widened and total costs have soared. Agencies were already investing in principal inventory well before AI became a cost worth worrying about, specifically because it represents the most profitable aspect of their operations. AI is now simply another expense that these established deals are being asked to cover. Two other ad executives confirmed that such deals are actively being discussed between CMOs and holdcos. In one instance, a CMO offered a zero fee if they ran all their spend through principal media. The terms were eventually negotiated back toward the “middle,” illustrating the give-and-take required to reach an agreement.

“Principal media is absolutely a negotiation lever in more conversations like this now,” said an ad executive. These negotiations function similarly to futures-market-style models holdcos have run for years, though the commodity has shifted to AI tokens. Transparency in these deals is negotiated rather than guaranteed. Clients without the leverage to demand audit rights are layering new opacity onto a practice they already struggled to fully trust. Robert Webster, former WPP executive and founder of TAU, believes this practice is often done in bad faith, suggesting agencies manufacture investments to justify skimming money out of media budgets.

Waiting for a Fair Price

However, Daniel Knapp, chief economist at IAB Europe, offers a contrasting perspective. He views the current situation as a natural evolution of the futures-market model. Agencies possess the capability to assess risk and the financial engineering skills to manage it. Applying this model to the AI or token world sits within their “natural DNA,” provided they can successfully price the outcome. Outcome-based pricing has been the industry’s stated destination for years, yet it remains largely that—a destination rather than a reality. Where it has taken hold is in isolated pockets involving larger brands with the budget and internal alignment to anchor spend to a revenue number.

AI was expected to widen this aperture, but so far it has not moved the needle as much as the framing suggests. Most conversations still center on the same old ask for faster, cheaper, and better results. Until the industry develops a durable, transparent billing model, principal media will continue to be treated as the symptom of a deeper issue. Because the industry moves quickly, these evolutionary billing models often lack clarity. By the time five years have passed, few of these models make sense, leading to the “this isn’t transparent” backlash Ana Milicevic, co-founder of consultancy Sparrow Advisers, describes. Compute costs are already appearing on P&Ls, and capex decisions are already being made. Clients demand a number immediately rather than waiting three years for the industry to establish a cleaner standard.