Last week saw the great and the good of the advertising world trundle to New York City for Advertising Week – four days of talks, events, awards and general navel-gazing. If you have been to any advertising event you can imagine how it generally went down: the usual ongoing orgy of ‘disruptive digital purpose’ and ‘purpose-driven digital disruption’, and of course the big keynote on ‘the digital disruption of purpose’. Take your pick.
But nestled among the ‘Sturm und Drang’ of 21st-century advertising cliché were some genuinely fascinating sessions. This being New York City, it was a top-tier crowd and occasionally there were moments of genuine clarity.
The prize for the show-stopping talk of the event goes to Thursday’s session: ‘Radically transparent: It’s time for ad tech to get serious about transparency’. Chaired by former Marketing Week journalist Lara O’Reilly (now at the Wall Street Journal, big step down obviously), the session promised to be interesting given it featured Jason Fairchild, the chief revenue officer at the advertising exchange OpenX, and Scott Gifis, the North America managing director of AdRoll.
But it was the third speaker who made the biggest impact. Martin Cass, the CEO of MDC Media Partners and Assembly, may not be a familiar name in the UK anymore but he started life as a media planner herebefore spending 18 years at media giant Carat, ultimately as president of its American operations.
At one point in the 60-minute session O’Reilly joked that, given his former role at the top of the American media food chain, Cass knew “where all the bodies were buried”. He smiled and played down the comment, but not in the manner that suggested he was unable to pull a map out of his pocket at any moment and start drawing big, bloody red crosses all over the New Jersey Turnpike.
Cass is a rare beast in that he knows how the business has worked, sees where it is going and can see the rabid implications of the shifts that are now taking place as the media industry transitions from A to B. He has clarity, in other words. Clarity in an industry bedevilled by murkiness, in further words. Last Thursday, whenever he spoke from the stage there was the distinct and very curious sensation of the whole media jungle starting to make sense again.
Maybe I am overstating his insights. In his new role he certainly has a strategic reason for grinding an axe. But, hand on heart, I found everything he said to be implacably free of bullshit and agenda. I want to pull out six or seven big themes that I took from Cass and his comments. I should add that the themes are mine, not his. The quotes come directly from the man himself at last week’s session, the interpretations and predictions come from me.
A common theme in the current ad tech world is that no one knows what is going on, a sentiment Cass echoed last week. When asked about clients and their grasp of ad tech, Cass was clear: “They don’t understand it. We have become experts on the top of a pinhead and there are probably 1,000 people operating on the top of that pinhead. It’s so utterly bewildering and confusing. If you sat down with a CMO and asked him what most ad tech does he would not have a clue.”
It’s an important and – for many marketers – relieving statement. Anyone that tells you they have a solid grasp of the current state of automation, or digital, or programmatic, or any of it is certainly lying to you. The recurring metaphor of ad tech as the ‘Wild West’ is an accurate one; not only is this the new frontier of advertising but everyone inhabiting it has very little clue what is taking place or what will happen next.
At a client level, despite the billions of dollars involved, three or four steps back from the ad tech frontline the confusion and ignorance is even more concentrated. It’s ok to be confused – everyone on the client side is.
There isn’t any quick fix for this confusion. For now the best advice for any client investing their money into digital marketing remains to apply a ‘trust but verify’ mentality. It’s ok to ask dumb questions. It’s ok to ask for evidence. It’s healthy to challenge all the numbers. The very best CMOs may not have a perfect grasp of all things digital but they do have an almost childlike ability to keep it simple and ask questions in a supportive but fundamentally suspicious manner.
Trust has evaporated
Like two venereal diseases that have separate origins but manifest in the same unfortunate host, the presence of confusion among clients inevitably invites the comorbidity of distrust.
“Maybe three or four years ago clients were starting to say ‘there is something going on, I don’t know what it is’,” Cass confirmed last week. “Now they know what it is, or they think they know what it is, that has created a larger degree of angst. And that angst is manifesting itself in clients marching with their feet.”
Unfortunately, it’s clear that clients are correct to aim their distrust at almost every level of the media supply chain. There is a murky and corrupt set of intermediaries between publishers and clients who are maximising the opportunities that confusion and technology confer.
The transparency movement that began in response to programmatic and walled gardens will ultimately expand and engulf any and all media buying.
When asked where in the spectrum between “criminal and cutting corners” the current intermediaries operate, Cass nominated “somewhere in the middle”. It’s important to make a distinction between classic bot-driven ad fraud with its illegal Russian hackers and big headlines, and this softer, greyer form of sub-optimal activity.
One example given during the session was when a client bids for media on an exchange with a range of up to $50 per buy, but assumes the actual purchase will take place at around the $2 level. Thanks to multiple players, arbitrage and general confusion the client very often ends up paying the $50 price, or even $100, as each intermediary and agency adds their fees, commissions and other justifications. Such activity is not illegal, it’s just unsustainable for ad tech, media agencies and ultimately for the clients paying for all of this. But it’s happening and no-one is pretending it’s not out of control.
More important than the actions of these dodgy intermediaries is a growing suspicion on the part of clients that this is going on. As Cass notes, many of the bigger clients are moving to internal or hybrid systems for automated buying. Very soon, I’ll bet, even the word ‘programmatic’ will be jettisoned from the marketing lexicon because it has become too tarnished.
Certainly Cass, like many senior marketers I have spoken with recently, prefers not to use the term any more. It’s a mark of just how fucked up our industry is that the concept of programmatic has transitioned from panacea to pariah in five short years. Well done, everyone.
Something has to change. It is simply untenable for large multinationals with eight- or nine-figure media budgets to continue to operate in the current digital media climate.
On the one hand, consumers’ shift to digital media impels brands to move their money that way. On the other hand, many of the exchanges and agents handling those increasing investments are clearly not fit for purpose.
Clients will bring it all in-house to realise significant savings, to safeguard against external players taking advantage of them and, to ensure that managing automated planning and buying can become an internal competency – then, eventually, a source of differentiation. The shift to digital is simply a pit stop on this journey.
Digital is the tip of the fraud iceberg
The whole issue of media transparency has been largely tied to digital media, and specifically to programmatic buying over the past few years. That’s probably because of three factors. First, the more measurable and explicit nature of digital media has led to more transparency issues emerging. Second, the degree of advantage that some of the intermediary firms within digital media have taken has forced the issue to a head in this area. Third, the digital duopoly of Google and Facebook has hardly helped alleviate the murky image with their walled gardens and secretive corporate agendas.
Time and again senior media figures have hinted that there is a transparency problem with digital media, but certainly not suggested that transparency is exclusively a digital problem or that traditional media is innocent by comparison.
In fact, there is a strong argument that the transparency movement that began in response to programmatic and walled gardens will ultimately expand from the digital silo and engulf any and all media buying.
That’s a big issue according to Cass. “I think programmatic and digital are the top of the iceberg,” he explained. “You wait until it gets to TV and people start digging into that.”
If his prediction is correct, the ultimate end game for large clients (and why not mid-sized ones too) is not only to take digital media in-house through internal automation and direct dealings with Google and Facebook, but also to take that internal approach to the rest of their media activities.
As this trend continues clients will expand their internal capability for automated buying into all media channels. In that scenario there will be room for only three players: clients, a limited number of ad exchanges (perhaps even a single entity) and publishers. All other intermediaries and media agencies become industry gooseberries.
As a side-note you can now see why the big advisory firms like PwC, EY, Accenture, Deloitte and KPMG are making a big play in the marketing space. They have each spotted the trends and see a direct link to their core competences of big clients, big budgets, in-house technology, digital transformation, compliance, supply chain rationalisation, cost reductions and price optimisation. If KPMG did not exist you would invent it now to help big global companies take ad buying in-house.
The holding companies are complicit
And what of the big media agencies and the holding companies that manage them? Perhaps the biggest insight from Cass – and one that he is uniquely positioned to comment on, given his extensive time running Carat in the US – is the role of the big five holding companies.
This could have been a defining moment for WPP, Publicis, Dentsu, Interpublic and Omnicom. With clients confused about the process and uncertain who to trust, their media agency partners, rather than the big audit firms, could have stepped forward and won the day. Instead, Cass sees the big five as being just as complicit in the situation as all the murky advertising vendors that they could have policed – perhaps more so.
The most electric part of last week’s session was when O’Reilly pointed out that, despite all the talk of transparency and shining a light on the situation, nobody in the industry ever actually points out who the “bad actors” are.
“How about the top five holding companies in the world?” Cass replied without missing a beat. The mood in the theatre darkened perceptibly as he argued that the big five need to “get their act cleaned up” and solve the trust problem created by “arbitrage” – the much-debated issue of media agencies receiving surcommissions when they buy on the behalf of their clients. The practice was “endemic” in 2016, according to the Association of National Advertisers’ report on media transparency.
In his now infamous speech in January, Procter & Gamble chief brand officer Marc Pritchard said P&G had discovered one of its media agencies buying digital media with P&G’s money in a deal that saw it receive extra advertising inventory that could then be sold on to other clients at a profit.
It was something that ex-Mediacom CEO Jon Mandel touched on two years ago in an explosive speech at an ANA media conference in Miami, when he noted that media agencies will “recommend or implement media that is off-strategy or off-target if it works for their financial gain”.
It was also at the heart of ISBA director Debbie Morrison’s conclusion that she no longer believes media agencies “have got the best interests of their clients at heart”, and the subsequent creation of a new framework agreement to guide how clients should contract media services.
In principle, surcommissions are a small incentive on top of the initial deal. A sweetener. In practice, they have turned into a shadowy monster because many in the industry now believe agencies are motivated not by clients’ best interests but in the surcommission they will receive in return for the purchase.
“The problem comes when I’m taking client money and then arbitraging that client money to my own benefit and not to the benefit of the client,” Cass explained last week. “That’s where clients get pissed off.”
When your agency is “acting like a bank for the holding company”, he added, “that’s a problem”.
Big five are in big trouble
There is a potentially existential issue coming for the big five because of all this. Since surcommissions have driven the actions and profitability of the holding companies, Cass believes they have put themselves in a dangerous, possibly fatal, position.
They reduced their standard commissions to clients to untenable levels because, over time, it was not their main source of profit. Instead, they generated ‘value banks’ of extra inventory that they could sell on.
Now turn the wheel through 2018 and 2019 and you can see the problem on the horizon. With clients either recontracting media buying at new, more transparent levels or taking it in-house to avoid the issue completely, the big five are staring into the abyss. They will be unable to raise their commissions because they (not client procurement teams) were the main agent in reducing them in the first place, while revenue from surcommissions is drying up fast.
“If the underlying business model relies upon a form of cash flow to generate further cash, agencies don’t have any money. It’s client money. That’s the problem,” said Cass.
He believes the collapse may have already begun and nobody has noticed. The excuse the holding companies are giving for their current declines is that FMCG companies like P&G and Unilever are spending less on advertising and shifting more of it to the digital duopoly. But Cass thinks a more fundamental shift is occurring, where clients are telling them: “I’m not allowing you to do the things you’ve been doing.”
Eight ways media is set to be disrupted
Let me leave you with what I believe are eight inalienable observations about marketing and media as we head into 2018.
1. Confusion will continue in the near future as digital media’s share of the total pie grows, but the systems and subsidiaries assigned to selling it continue to fragment and evolve and disappoint.
2. Trust remains the biggest issue for marketers, particularly because of the large amounts of money involved and the abject lack of vendors along the supply chain that clients can place faith in.
3. Digital media might have lit the spark for media transparency but it would be unfair to single out programmatic exchanges as the only place where non-transparent, counter-client activities are occurring. They represent the most obvious and concerning place where it occurs but their exposure will likely spread to the so-called traditional buying systems.
4. The big five holding companies are in terrible trouble. That is partly because they are likely to be the victims of digital disruption and the consolidation of the media supply chain, but also because they have gradually let their business model shift into a place where it first ran against client interests and now, increasingly, runs against their own too.
It’s hard to envisage a future where all five remain in place. Mergers and acquisitions are highly probable. First, holding companies will consolidate the agency brands within their portfolios to save money. Second, merger activity between the big five will ultimately see them becoming a much smaller number. Third, expect at least some or part of the current holding structures to be acquired by external players.
5. The biggest transformation in media buying is not the shift to digital. That’s merely part of a bigger shift to in-house automated buying that takes place inside each client company.
6. The end of the digital/traditional dichotomy will occur once all media channels are sold through exchange systems that share the same, stable cross-currency metrics.
7. The massive amount of transition and investment required by clients to negotiate this change is catnip for the big audit firms who will buy talent, creative agencies and media people to exploit this new business opportunity.
8. Ultimately media planning and buying will become more effective, transparent and accurate across all major channels. But getting there will be tough. The ‘Wild West’ eventually morphed into the Mid-West – some of the safest, most profitable and most stable parts of America. But it took decades and the battles that were fought to get there remain a legendary and incendiary part of American history.
We might eventually get to the place that programmatic promised us: a real-time, optimised and transparent media buying system. But no one in the industry thinks we will get there any time soon. And most think it will get worse before it gets any better.