Turning the Advertising Agency Business on Its Ear

By Mike Drexler

What I’m writing about today, some in our business may consider blasphemy. But I don’t think so, because we see a trend emerging that suggests things aren’t going as well as they might be for advertising agencies. Clients are showing more disappointment and agencies are complaining about being financially squeezed. So what’s wrong?

To begin with, clients are asking agencies to do more for less money. The old shibboleth about agency media “clout” never really was entirely accurate because most media deals were based on client spend not agency spend and most clients established a base with the media that served as a benchmark for increases unless considerably more money was invested with the particular media company. Yes, agency “bank accounts” have something to do with it as they “threaten” the media, but media companies aren’t going to lose money and give away inventory either. And the really big advertisers aren’t happy about using their leverage for the smaller accounts at the agency.

Now that digital media companies are doing overall agency deals and trading desks are set up to negotiate in real time, the push for media efficiency gets more acute. Even so, clients are keeping agency servicing fees front and center and agency operating costs are getting tighter. So what’s an agency to do?

Let’s get back to agency compensation. Most media agencies are building their offerings beyond just traditional and digital media planning and buying. They are adding Account Directors and new divisions specializing in such areas as sports, healthcare, entertainment, PR, retail and other categories. Media agencies are also creating content divisions and branding units and now taking the “ownership” lead with clients with account handling. Most of these functions are fee based with incentives or performance metrics attached to them. It’s now less about billings and more about income, profits and costs. Yes, cost management and cost control are critical. Clients demand lower servicing fees and agencies must focus on operational efficiency. So where does the creative function come into play? Here’s where it gets interesting.

As holding companies have grown bigger and have been on a spree to add all sorts of digital expertise to their assets, creative boutiques have also increased. Really top notch creative people who decided they had enough of the corporate money game and want to reach out on their own to do great, unusual, breakthrough creative work. Taking on assignments from all brand advertisers. Often when they are asked to pitch and a client wants “full service” they need a media agency to go along. So they look for a media agency either with a holding company or an independent because it’s not likely they would hire a staff of their own media people. Here’s where the blasphemy part comes in!

What if the full service media agency becomes the lead? What if media agencies start adding “creatives” to their organizations as employees or strategic partners? Interesting isn’t it? And not so far fetched because the digital world has also made media and creative almost inextricable. Creatives reporting into media agencies? Wow. Media agencies today have more data resources and consequently more consumer insights available to guide creative — and more media channel opportunities to explore than ever before. I’ve been asked about this from media agencies and creative people. Will creative people even think about it let alone embrace it? I don’t know. But it sure seems possible and will definitely turn the agency business on its ear.