After my article last month (“Are media agencies heading in the right direction?” MW October 16), one or two media chiefs told me I was being much too gloomy. They gave me several reasons why.
That media agencies are now overwhelmingly the most significant profit generators of their parent agency groups – and the key media people have the salaries and significant incentives to illustrate this.
That procurement departments are not always the enemy: they inject objectivity into arguments that are getting emotional.
That media agencies have access to great data these days: a combination of generating their own proprietary surveys and utilising media owners’ information.
They also said the huge cashflows generated by these businesses provide significant leverage in this time of ultra tight credit. And that a significant proportion of media agencies’ revenue is already being generated outside conventional media.
That’s good to hear and I’m not surprised that media agencies are underpinning the agency group’s profits these days. The question is, as a result, are they regarded as cash cows or vibrant businesses which attract high internal investment in order to lead their groups in new strategic directions?
The high profit incentives received by executives; the disproportionate importance of procurement departments in agreeing performance incentives, as well as the agencies’ huge importance to their holding companies’ financial results, is sure to create a highly risk-averse climate – even in the good times.
The largest media agencies have turnovers of over $20bn apiece – apart from bank debts, that’s big by almost any standards. If they were free from their holding companies and could throw away their cash cow status, would they be a lot more innovative in their business strategy?
Highly successful as the media agencies have been, they have allowed themselves to be turned into commodities. Recent research among major clients shows them unable to differentiate between agencies.
So where might the media agencies head if they were given their freedom?
If I were running a media agency today, I would be tempted to turn it into four separate businesses: creating media (content); planning media; buying media; owning media.
As I mentioned last month, developing/ owning content gives the media agency the best opportunity to break out of the “commodity” problem. For companies of their size, media agencies possess remarkably little intellectual property so, not surprisingly, they are already pursuing this route.
Content can inform, educate or entertain. Most of what we hear is in the “entertainment” category but, less sexy though it may be, it is the “information” category of IP creation that is better suited to media agencies.
As for planning, my business would be briefed to act as a high class communications channel planning consultant that would be comfortable talking all aspects of business to its clients. Its pay scale would attract the very best graduates and MBAs. Executive rewards would be based on its reputation; client satisfaction scores; and profits. Every encounter with a procurement department would incur a penalty.
My buying business would concentrate solely on trading. This merely recognises a split between advising and negotiating that has existed for many years. With $20bn of volume you need the best systems and processes to maximise economies of scale and buying efficiency – combined with great negotiating skills. In this case, working with client procurement departments is, understandably, an intrinsic part of the job.
The next part of my business would concern owning media. Ad agencies were originally agents for the media owners and not the clients, hence the 15% commission. This antiquated system still survives despite the fact that it is the client who hires and fires the agencies and not the media owners.
With media owners controlling the agency purse strings, it is no surprise they didn’t want the agencies (their suppliers) to set up in competition with them.
Apart from the swing towards the client as the paymaster, there has also been an explosion in media choice driven by technology, government deregulation and rising affluence. This means that if an agency now wants to set up as a media owner, there is little stopping it. Developing content and selling messages within it – through branded content or creating websites, for example – would all be ways of easing into the sector. Bolder steps involving acquisitions could be taken later.
The media developed in this way would have access to decision-makers and budgets on a sizeable scale – in their sister buying agency. The stuff of most media owners’ dreams.
Wouldn’t there be a huge furore over “conflict of interests”? Of course, but it would be manageable. Clients would be told when a medium appeared on their schedule that was owned by the media agency group. They could then decide for themselves if what was offered was relevant and good value. People today are much more pragmatic – particularly in business. They are not interested in theoretical arguments: they want good value and they want it fast and sure. If the media agencies could deliver that, few clients would be overly concerned with the ownership issue.
So, amid this gloom, there’s a nice, new business to be built – it just needs $20bn to get it started…