Last week’s report that M&C Saatchi’s profits are heavily – possibly overly – dependent on its Walker Media subsidiary raises the wider question of whether media buying has become the dominant marketing discipline to which all creative disciplines are subordinate and upon which most marketing services groups have become dependent for sustainable profitability. Is the media planning and buying business a more durable source of profits than traditional creative advertising agencies? And, if so, are traditional creative agencies in terminal decline, caught in a pincer movement between media buyers and digital technology?
According to last week’s Marketing Services Financial Intelligence research report, Walker Media made more money than the entire M&C Saatchi group and therefore has been subsidising under-performances elsewhere. Be that as it may, there are plenty of other examples of media agencies increasing profits at a faster rate than traditional creative agencies.
In last year’s annual profitability survey produced by Willott Kingston Smith, operating profits of media agencies grew by 13.3% with profit margins of 18% (and that’s before income earned from clients’ cash that flows through the business). Compare this with the growth in advertising agencies’ operating profits of just 1.5% with profit margins of 11%.
Bartle Bogle Hegarty suffered a 37% fall in operating profit in 2005 while JWT’s profit fell by 67%, Publicis’ profit fell by 78% and TBWA’s profit fell by 29%. There may be exceptional reasons for these massive declines, but it is hard to ignore the possibility that beneath them lies a more permanent, if less dramatic, decline in the demand for traditional advertising throughout the industry.
Was this trend one of the factors that encouraged The Engine Group to seek its abortive merger with media buying group BLM after it had bought back the WCRS advertising agency from Havas? Even a traditional quality agency like WCRS has been finding it much harder to grow its business than in its heyday, with turnover and profits falling in 2005.
Meanwhile many media agencies have been enjoying notable increases in profit, although there are signs that some of these improvements stem from group reorganisations and rationalisations rather than business growth. Indeed, although traditional agencies may be watching their share of client spend decrease, it does not follow that media buying should be the beneficiary. The less the client spends on the creation of traditional advertising, the less it will spend on buying traditional media. And there perhaps lies the rub.
No one doubts that the biggest single influence for change has been the arrival of digital technology and its role in expanding the number of routes to market. The technology may not be a medium in itself but it is certainly the means by which marketing messages are being communicated across a more diverse range of traditional and new media. So, in theory, a good media buying agency will have an even more valuable role to play in the future, fighting its way through an ever-expanding jungle of fertile and infertile media opportunities. But there is a catch. Because new media marketing messages are so intertwined with the technology that transmits them, it is becoming increasingly important that the transmission technology and creative inputs are brought together in an integrated manner. Ironically in the new world of new media, media independence is the opposite of what is required.
Maybe Aegis anticipated this evolutionary trend better than most by building a multi-disciplined digital resource that embraces planning, creative execution, ad-serving and buying in the shape of Isobar – assuming it can move beyond the current fragmented assortment of acquired businesses. If other media agencies follow suit, they may be able to orchestrate a takeover of the high ground, delivering the central planning role, developing marketing ideas and even overseeing the creative execution in all forms of media. But if media agencies are eyeing up the conductor’s rostrum in this way, most of them have a long way to go before they can claim it with any legitimacy, not least because they lack any of the in-house creative expertise that an integrated digital campaign requires.
It would be ironic indeed if the time were to arrive when media agencies not only employed their own in-house digital creative resources but also commissioned creative executions for traditional media from agencies that decades ago were their superiors – agencies that may soon have metamorphosed into little more than specialist boutiques.
Certainly there are increasing doubts that any of the traditional marketing disciplines will retain a dominant role in the digital era. And the historic model of an agency network led by a high-profile creative director is self-evidently creaking at the joints. There must at least be a possibility that a combination of media planning and digital technology expertise will become the centre of the marketing universe. If and when that time comes, the stars from the traditional creative disciplines will be found circling around in the stratosphere, offering the occasional flash of illumination and colour before burning out for ever.
Bob Willott is editor of Marketing Week Services Financial Intelligence