A hotel’s in-house AV provider is like a Starbucks coffee stand inside a Safeway grocery store. When you buy your grocery, you don’t necessarily need to or must purchase a Starbucks coffee.
One of the first steps in planning an event is securing a venue, and along with it comes one of the most common mistakes I see event organizers make, which is using the hotel’s in-house AV contractor without understanding the potential challenges it may cause. They make this decision either because they want to avoid hotel penalties from using an outside vendor or they prefer the “convenience and security” that an in-house AV contractor can seemingly provide.
Before I continue, I should clarify that this article is not about assessing the service quality one might receive from a hotel’s in-house AV provider. All reputable AV companies generally operate in making sure that your event is executed well, and a hotel’s in-house AV contractor is no exemption. Rather, my goal here is to share with you the reasons why agreeing to an exclusivity clause when signing a hotel agreement can have planning and budgetary consequences that you may not have realized. As an event production planner for over 10 years, I see this costly mistake happen often and my goal is that by sharing my knowledge in this article, you will be equipped to recognize and make an informed decision when you plan your next event.
Why hotels insist on you choosing their in-house Audio-Visual Contractor?
Financial incentives and maximizing revenue. Rightly so since hotels and convention centres are in the business of making a profit. I think it is important to know that it is almost always for certain that a hotel’s in-house AV provider is not part of and is a separate business from the hotel. They are business partners. Their relationship can be likened to a Starbucks coffee stall inside a Safeway grocery store; when you buy your grocery, you don’t necessarily need to or must purchase a Starbucks coffee.
Hotels and their in-house AV company are in partnership agreement that allows them to receive financial incentives from your business. Typically, a hotel’s audio-visual contractor will pay roughly 50% of all their gross budgets to the hotel, and maybe an additional signing bonus to get the sole access of the venue. This is the reason why the audio-visual rental and service price you receive from a hotel’s in-house AV provider is much higher than an outside vendor.
Despite of the fees that an in-house AV provider pay the hotel, one can argue that the cost outweighs the benefits that they receive in return. By becoming the sole contractor for anyone using the venue, the hotel’s in-house audio-visual contractor:
From the perspective of the in-house AV company, these all sound convenient, doesn’t it? But what does this mean for your event? By conceding to use the hotel’s in-house AV, you are conceding your leverage to receive an equitable pricing and quality of service for your event. More on this below.
Why using the hotel’s in-house AV provider is optional, not a requirement in your hotel agreement.
In my opinion this is the number one misconception that many clients have when negotiating a hotel agreement. A hotel, unless in the case of a union contract (more on this later), cannot legally prohibit you as a client from choosing who you want to work with for your event. Doing so would be in direct violation of the Competition Act. It is only when you sign the hotel agreement containing an exclusivity clause that you become tied to work with their in-house AV contractor. This may sound obvious but unfortunately, many people still think they don’t have a choice but to work with the in-house AV if they want to host their event at the hotel. But why is this so?
Most would attribute it towards the confusing language used in the agreement coupled with the heavy-handed tied selling tactics involving additional fees and penalties during the negotiation process. This maybe true but in my experience, this is only addressing a surface level issue. I believe a deeper reason why most clients feel they have no choice but to work with the hotel’s in-house AV is because they are not empowered with the correct information that would allow them to make confident decision in tipping the negotiation scale more in their favor.
For example, most clients enter the negotiation process without a clear breakdown of their event budget. As human beings, we are generally risk averse, we prefer a for sure outcome over a gamble with a higher or equal expected value. For majority of clients, hiring an outside audio-visual vendor feels like a gamble because of the additional hotel fees and penalties they might incur. This perception of risk often comes from lack of information or sometimes misinformation. Without seeing a breakdown of projected cost, hiring an outside AV provider will always feel like a risky gamble.
Having a clear breakdown of your event budget means really working out the numbers. It involves asking the hotel to fully disclose all cost for your event in the agreement from the start, including additional fees and penalties for bringing in an outside vendor. It involves collecting a price quotation from several audio-visual contractors and comparing them with the hotel’s in-house AV contractor. Having a clear understanding of your event costs should empower you as a client to gain confidence in deciding whether hiring an in-house or outside AV provider makes the most sense from a financial and service value perspective.
Another example is some clients may not know (or forget) which service components hotels make the most revenue from, so they enter the negotiation process thinking they have no leverage to offer. Hotels will make most of their revenue from the total guestroom bookings and banquet orders (i.e., meeting room rentals and food and beverage orders) of your event, and not from an in-house AV commission. If your event is blocking overnight stays and utilizing catering services, the hotel will be more willing to negotiate on the removal of the exclusivity clause.
And third example is that most clients don’t sit on the negotiation table believing that the hotel ultimately wants their business. Hotels are not in the business of selling audio-visual service and if your event is in a major city where many venues are lined up along a single street, hotels know they can lose your business to a competitor who wont lock you into using an in-house AV contractor. Imagine being required to buy coffee from the Starbucks stall every time you buy groceries at Safeway, you’d probably start looking at buying your groceries somewhere else.
The bottom line is this: knowing your rights and understanding your budget will grant you a better positioning in the negotiation process with the hotel. Having the right information will enable you to clearly gauge whether its worth incurring hotel penalties if you bring in an outside AV vendor of your choice. What I find often is that despite of the additional hotel fees, client’s not only save money but also receive better service from hiring an independent AV vendor. I’ll explain this further below.
Negotiation tactics: reasons you might hear why the hotel’s in-house AV is better.
Hotels will of course never disclose the reason why they want you to choose their in-house AV contractor is financially motivated. Instead, you might hear the following reasons below and I want to clarify why these are not necessarily true.
“Our in-house audio-visual contractor knows our venue best.”
This is not a real advantage. Any reputable and experienced audio-visual contractor can easily acclimate to any venue and room setup.
“Our in-house audio-visual contractor has all the equipment you need ready onsite.”
This is not always true. Their equipment is often shared across the different hotels that they have exclusive contract with. So, they may not always have the equipment readily available onsite. Any reputable outside AV vendor will have just as much equipment as the in-house AV contractor.
“Our in-house AV contractor will provide the least risks of damaging our meeting space.”
Or you will hear similar concerns surrounding security and insurance requirements but again, any reputable and well experienced audio-visual contractor understands the proper handling, transport, installation, and breakdown of equipment for any type of venue, large or small. And they will have an insurance as well, so this isn’t a real advantage either.
“Our in-house audio-visual contractor serves all types of events on a weekly basis; we have seen it all.”
True. In fact, it’s likely that their in-house audio-visual contractor will also be serving other events at the same time as they are servicing yours. Not having a dedicated team can be a huge risk specially when organizing a multiday event. Having the same onsite team involved from start to finish is crucial in running a smooth production.
“We are unionized company and must use our in-house audio-visual contractor.”
True, but even a unionized venue can still bring in a third-party AV contractor. They may require shadow labor, resulting in additional fees, however, there are ways to negotiate around this too.
As I mentioned earlier, the hotel cannot legally prohibit you from bringing in an outside audio-visual and support team so long as they (your chosen vendor) adhere to the safety standard laws and are not modifying the venue’s meeting facilities. The venue will certainly try to discourage you from bringing in an outside audio-visual provider because they have an agreement with their in-house AV contractor, an agreement that you have no obligations to fulfil unless your sign the contract and agree to their exclusivity clause. Everything can and should be negotiated. Ask to have any clause removed that restricts you from bringing in your own vendor of choice.
What are the main event planning challenges resulting from a hotel’s in-house AV exclusivity clause?
There are three critical event planning challenges that every client should keep in mind before agreeing to an in-house AV exclusivity clause with the venue. They are critical because I think these challenges are often overlooked and hard to discern without having a clear breakdown of costs, including hidden fees. What’s more is that these challenges almost certainly lead to a negative event experience overall for both the client and their audience.
Unplanned expenditure that adds no value to your event.
The first challenge is spending an out-of-scope cost that adds no value whatsoever to the event. As I mentioned earlier, a hotel’s audio-visual contractor will pay roughly 50% of all their gross budgets to the hotel, and maybe an additional signing bonus to get the sole access of the venue. Unfortunately to maintain their profit margin, the in-house AV contractor would have to build these internal fees in their service pricing for your event.
On average, an in-house AV contractor will bill customers between 120-200% of the prices charged by an independent AV vendor for the same type of event. This means that you as a customer would need to, on average, double your original AV budget to cover for the internal fees that an in-house AV contractor is liable to pay the hotel. This cost adds no value to enhance your event and, what’s more, it can cripple your event budget from potentially investing in components that would otherwise provide a positive return – components such using an event platform and App, boosting your event marketing tactics, or creating new opportunities for audience engagement.
Decline in service value relative to price.
The second challenge is receiving a service value that does not justify what you pay for. Consider this, if vendor A and vendor B are given equal AV budget of, say $15,000 to service your event, but Vendor A would have to pay half of that budget to the venue, then Vendor A would only have $7,500 to make a profit and still somehow effectively service your event. Vendor B on the other hand will be able to maximize 100% of your AV budget in creating the best possible experience for your event. Because of the hotel commission, vendor A has no choice but to either raise their service price or utilize older AV equipment and less experienced AV technicians to cut cost – regardless, either scenario does not benefit your event.
Let’s see how this plays out in a more realistic scenario that I guarantee you may have already experienced. In your next AV quote, I encourage you to examine how much you are being charge for an AV technician operating onsite. Based on current industry data, an AV technician earns around $60K per year, which comes up to roughly $30 per hour. But if you look at your AV quote, you will probably see a charge anywhere between $100 to $150 hourly rate for an AV tech onsite. At $150 an hour, you should expect an expert and highly experienced senior technician managing your event. However, this is not often the case, and the breakdown of the numbers below should demonstrate why.
|Fee breakdown||Breakdown description|
|$75.00||50% of $150 paid out to hotel by the in-house AV as commission|
|$30.00||20% profit margin on average for the in-house AV company|
|$30.00||AV technician’s hourly rate with an average annual income of $58-60K|
|$15.00||Variable costs, cover’s incidentals etc.|
As the table shows, roughly 20% ($30 per hour) of the $150 hourly rate is spent on an AV technician for your event while half ($75 per hour) is spent towards the hotel commission, which again adds no experiential value for your event. Although the table above only shows a breakdown of cost for an in-house AV tech, it should nonetheless help explain why the AV rental and service price you receive from a hotel’s in-house AV provider is much higher than an independent vendor.
Side note: I should also mention here that an independent vendor will not always provide you with an expert audio-visual engineer for your event. Some do and some don’t. The best way to tell is to gauge the price they are charging you for their service personnel. If the hourly rate works out to be between $60 to $80 or more, don’t hesitate to ask and make sure they are not providing you with an entry level AV technician to manage your event. In some cases, independent AV vendors will enlist specialty labours which could be a reason to drive up their cost.
Hampers creativity in putting on a really great event.
Innovation in event technology and design has exploded in the last 10 years, and the rapid changes in the events industry following the pandemic called for changes in structure, technology, and professional skills. If you are planning events, you should feel every excited and inspired by the possibilities of incorporating new ways of connecting, engaging, and sharing ideas for your event. But this creativity is harder to explore when you do not invest your event budget to components that generate the best possible return. The 50% of your AV budget should be spent on finding creative ways to elevate your event, not as a hotel commission.
At the end of the day, it’s more comforting to make informed decisions when you have the right information in front of you. You as a customer have the right to choose which provider you want to be working with at your event. Do not be afraid to ask questions and explore all your options. Really work out your numbers in your event budget. Be as detailed as possible and gather quotes from other providers to receive the most equitable pricing for the same type of service. Having all the necessary information before you sit on the negotiating table with the hotel (or any service provider for that matter) is a must have, not a nice to have. The person who can communicate his or her needs first in the negotiation table always gains the upper hand because what they put forward sets the tone for the discussions moving forward.