It is no secret, that media agencies have been under fire in 2017. They are being criticised for lack of transparency, they are being challenged by publishers’ own Native Ad Studios and they are being squeezed by tech companies.
A cease-fire is not likely to happen in the foreseeable future, says Tom Denford, Chief Strategy Officer of ID Comms, a media change consultancy specialising in advising advertisers such as Mars, IKEA and L’Oréal about how to work with external partners.
In May 2017, ID Comms conducted the fifth in a series of investigations into the seven critical media behaviours of successful marketers. 40% of respondents say that they think it is unlikely that terms of business between advertisers and media agencies will become fairer overall in the next 12 months.
The criticism has been underway for years, according to Tom Denford.
“We saw the beginning of the current criticism of agencies eight years ago with clients not being convinced that their agencies worked solely for their best interests. At the same time, we were observing that the way marketers were working with agencies was changing. Media was getting more complex — with native advertising as a good example of something making marketers life more complicated — and media companies began selling their inventory themselves. That was the beginning of where we are now.”
What are advertisers most critical of when it comes to agencies according to your latest Global Media Terms of Business Report?
“Advertisers are critical about the general lack of transparency in media agencies. They rely on them to manage hundreds of millions — sometimes billions — of pounds on their behalf, but how they manage the money is a black box. It needs to be more transparent or marketers will take back control of their media decisions and may even eventually consider buying some media themselves.”
The underlying business model of agencies is not designed wholly in the interest of the advertiser.
It’s not all criticism though, the marketers that ID Comms speak with, generally say that the individuals they work with are doing a good job.
“But the underlying business model of agencies is not designed wholly in the interest of the advertiser. It serves their own interest when they get commissions for recommending certain media solutions. Then clients can rightfully ask how objective they actually are?”
In a recent gated Financial Times piece about the Cannes Lions the yearly advertising festival was seen as an exemplification of the demise of big agencies:
“The waterfront along the Plage de la Croisette, the stretch of golden beach made famous by decades of cinematic glamour, used to be dominated by the once all-powerful media agencies, such as WPP and Publicis. Yet in a sign of the industry’s shifting sands, a host of Silicon Valley names have been ruling the roost during the Cannes Lions festival.”
“The piece certainly sums up the challenges well,” says Tom Denford commenting on the quote.
“It’s a perfect storm for media agencies and advertising agencies. Technology has changed the game. In the past, an agency was helpful to a marketer because agencies served as a simplifier that managed media. Publishers also liked agencies, because they reduced individual buys and negotiations. But that’s only a problem when humans are selling the inventory. Machines can sell to much more people than an agency can reach and publishers can sell directly as well. This development will only increase, so agencies have to figure out how to add value in other ways, otherwise, they will disappear.”
What is the solution?
“For years, media agencies have been trying to do two things: to be strategic and to be objective consultants, while at the same time being deeply invested in buying and selling media. Advertisers don’t need them to do both, so media agencies have to change their business model from being strategic to being more about consulting and give up buying and selling media. The more probable outcome is, I think, that media agencies will become more practical and executional than they are today.”
Thousands of media vendors have been controlled by a handful of media agencies. That is breaking up now.
To Tom Denford this is a good development that can help ‘democratise’ the marketplace.
“For the last ten years, it has been a very asymmetrical marketplace. Thousands of media vendors have been controlled by a handful of media agencies such as WPP that have handled a market of five to six hundred billion dollars worldwide. That is breaking up now because being able to negotiate big discounts is not what advertisers are looking for anymore. Simply providing cheaper advertising is not the answer. Advertisers are asking for effectiveness, not cost-effectiveness. Media agencies today are basically designed like a giant hammer that is supposed to beat the market down. That model no longer works, because programmatic services can automatically do the job of finding the cheapest way to reach a target audience.“
What is the role of publishers’ native advertising or custom content business in all this?
“More publishers will act like agencies. Does it mean agencies will disappear? No, not quickly, they can play a role but it has to be more clear. A brand might work with many different agencies but most of they have about two to three valuable publishing relations that are more important to them.
For example, L’Oréal has a relationship with Condé Nast that goes back 50 years or more and goes way beyond buying pages. Condé Nast already acts like an agency to L’Oréal selling advertising directly. The idea that a media agency can create incremental value to that relationship is far-fetched. If you asked L’Oréal to choose between Condé Nast and a media agency, it would not take them long to choose. And globally, they got several relationships like that.”
“Either agencies adopt new skills and change the way the work so they can work more effectively with publishers and find proper solutions. If not, they have to get out of the way. As it is now, they risk preventing advertisers from working directly with publishers, content owners and influencers. But why would you need an intermediary, a middle man, if the person doesn’t have the skills and the knowledge to add value? Then media agencies become the weak point in the supply chain.”
So between publishers acting like agencies, tech companies stealing their business, advertisers calling for transparency (and lower fees), 2017 will perhaps be an annus horribilis for media agencies — or the beginning of a revival.
Are you associated with an agency? And would you like to add your point of view to the discussion? Then please reach out.