Hi everyone. This afternoon I want to talk to you about the death of the global media agency as we know it.
This is a story that is unfolding before our very eyes today
Let’s look at WPP as our case in point. One of the big five holding companies that owns a number of the businesses that I’m referring to in today’s talk. Their share price in the past six months has dropped by roughly one quarter.
That’s forced Martin Sorrell to come out and tell the industry to expect a decline in revenues, due to their FMCG clients dropping ad-spend.
But you will see from my talk today, that their problems are far broader and far deeper than simply FMCG clients spending less on their advertising.
We know this because we can see the structural changes that are starting to take place within these holding companies. A great example being Maxus and MEC, two global media agencies, merging to form Wavemaker recently.
I’ll give you a sense of the scale of the challenge that they face. They employ over 200,000 people. They employ these people across over 200 companies. They are going to have to re-organize something that’s the size of the city of Brighton with 214 individual tribes that all face their own quite deadly headwinds. It’s a big, big ask.
To understand how we got here, you have to go back a little way
I believe in the first instance, these agencies traded away their talent. You have to go back some way to understand the origins of this story. It stems back to a decision to de-couple creative from media planning and buying, where we once had full service agencies.
What’s happened since then is we’ve seen creative agencies, the good ones at least, thrive. Because how do you put a price on an idea? Whereas the media planning and buying activities are really quite easy to commoditise. So what we’ve seen is a race to the bottom in terms of pricing. In many instances, these agencies have been doing deals which at least on contract, or on the headline terms, would probably see them lose money to service.
They have traded away their talent and trust
What we have now is this significant downward pressure on margin, on profitability. This downward pressure has forced them to take the wrong turn on the moral path.
Now, not only have they traded away their talent, they’ve traded away their trust. We know this because we’ve seen the ANA report around a year ago in the States, we’ve seen the whistleblowing here in UK, and we’ve seen the relentless media attention given to this subject. What that means is that transparency is the watch word on the lips of all clients. In turn, these clients have quite naturally audited the activities that these media agencies have composed for them.
The results of these audits have been, in certain instances, a lack of trust or a broken relationship, in certain instances agencies losing clients. But what we most certainly know is that some of these activities have had to stop, and that’s where their margin was coming from. They are under great pressure.
If you wanted to learn a little bit more about the activities, the opaque trading practises that develop this margin for them, you can visit a blog which has a video similar to this one on the link on that slide there. [How media agencies are ripping off clients and media owners]
Media agencies are not aligned to modern advertisers’ needs
But it’s not just as simple as them trading away their talent and trust. If you look at their structures today, and the talent, the way they’re composed, they are not aligned to the needs of a modern advertiser. To understand what I’m saying, you need to think of digital not as a media channel, but as the way in which every advertiser wants to trade all media.
Advertisers today do not want to buy an expensive page in a newspaper at great cost buying their entire audience, leaving them with wastage. They want to buy people in real time. Think about it like this, think about it as data activated media buying across all channels. This is the general trajectory of demand from advertisers. When you start to consider it like this, you can see the misalignment of the current offering of a global media agency, and the needs of today’s advertisers.
The ideal partner for todays CMO is a consultancy, not an agency
Unfortunately for these guys, their problems don’t stop there. They have new competition. The most commonly discussed form of competition in today’s trade press has arrived on the scene as a result of the transformational pressures that digital has placed upon businesses. These transformational pressures have completely revolutionised the role of the CMO.
In years gone by, I can recall debates about whether the CMO should be involved in sales, as well as marketing. We now know that’s redundant, they absolutely must be. But these transformational pressures mean that the CMO is shrouded in data, is concerned with every touch point that a consumer has, and they are involved in the consumer experience. Naturally because of that, they’re now involved in product. The CMO is the agent for change in today’s business.
When they go out to the market looking for a partner to help them with these huge challenges, where do you think they look? They look to the Deloittes and Accentures of this world. Now we have management consultancies having conversations at the C-Suite about marketing activities. They’ve seen money on the table, and they are now taking it.
But clients are their biggest competitors
A less talked about new competitor for these businesses is their very own clients. There is a growing breed of advertiser out there today born in the digital age. Think about a typical e-comm client. These are people that are supremely comfortable owning the data and the customer experience in-house.
They are also now, crucially, using self-serve ad-tech to access the media landscape. Agencies face a real race against time to make themselves relevant to these clients, because it’s not just these digital native advertisers that are heading in this direction, others are following suit right now. As we can see from this study that proves that 65% of brand marketers are recruiting digital and media capabilities internally.
What are my predictions? I think that trend that I’ve just analysed there is going to continue. I think many more of the larger advertisers will start to take specific activities in-house.
We will see a simplification of the models within the big holding companies. We’re already witnessing it with the aforementioned Maxus and MEC, and I think that trend will continue.
I think programmatic, which is taking one hell of a kicking at the moment to the point where it’s a dirty word, will come through that phase. It’s necessary what it’s going through today, but it will come through that phase, and it will reach a position where it transparently enables clients to trade across media channels.
As that happens, what we will see is ad-tech replacing a lot of the heavy lifting that traditionally a global media agency was employed to execute.
As you play this out, you naturally start question how does an agency make a margin? The agency now needs to make a margin around higher value activities, augmenting, if you like, the ad-tech that will sit at the very core of a modern agency.
This involves an agency that sits between an agency and a consultancy. Valued for its thinking as much as its doing, and thoroughly anchored in the overall customer experience that it helps a brand achieve.
Thank you for listening.