Andrew Walmsley on Digital: Media agency meltdown

Andrew Walmsley
Andrew Walmsley

The industry's business model is about to implode, and the agencies have only themselves to blame.

The media industry has been through a lot recently. Assailed by digital, hunted by procurement, squeezed by the recession, media agencies have had their fair share of these problems.

However, a recent development spells the end for the model and, far from seizing on the opportunity digital presents to reinvent its business, the industry seems bent on applying a discredited system to the new world, too.

To understand why, we need to turn back the clock. When the great schism between media and creative agencies occurred 20 years ago, the key sales proposition of the newly created media agencies was value. They focused on screwing down rates and delivering them with cheaper staff. On the client side, fuelled by media auditors, procurement was given renewed focus on this newly accountable sector.

The media guys made big promises, and got less for them. Somebody had to pay, and media owners stepped up to the plate. Agency deals were honed and sharpened, and the market shifted around to accommodate their power.

An agency deal works like this: an amount of money, or a level of share is granted to a media owner. In return, an amount of media value is granted. The agency then divides this up among its clients. However, that division isn't even and it isn't complete.

For every client that's getting pricing below the average, there has to be another or others that are overpaying. Even matching clients' complementary requirements to balance the books isn't enough, with a rumoured £300m overtraded last year in TV alone.

Nonetheless, the agency tries not to give it all away. If it doesn't commit the whole dealbase, it can keep the difference - substantial sums that make up for the uneconomic fees its clients pay.

Some clients wear this because being able to report a cheap fee to the board is enough; they prefer the agency to make money on the side. Others calculate that by making heavy demands in their appointment negotiations, they can get on the benefit side of the deal book, and are therefore ahead of the game. Some are simply being mercilessly exploited.

So even though advertisers get media to fit the agency's deal rather than their marketing objectives, enough will wear it to make it work, and this has enabled agencies to respond to procurement pressure by steadily reducing their fees. Two things have changed.

First, fees have hit a new low. One global media account is rumoured to have changed hands recently for 0.5%. Nobody on the board of that client is asking what they get for that amount, but the answer is simple - junior people and simple media solutions, stacked high and looking cheap. Agencies hope that, by defining the service tightly, they can make extra by charging for out-of-scope work. Yet, inexperienced staff don't know how to spot business development opportunities, the out-of-scope rarely appears, and, of course, there's the slush fund in the media dealbase to subsidise the fee.

The final nail in the coffin is that big advertisers have started to abandon the media pitch, instead auctioning the media to the lowest bidder. In effect, these advertisers have twigged that the multi-round auction process will cause agencies to cannibalise the slush fund until there's nothing left.

A few pioneers see digital as the way out of this mess. By focusing on value outputs rather than cost inputs, both advertisers and agencies benefit. Yet, on both sides, many have simply imported the old model.

Rock-bottom fees, no out-of-scope work, no subsidisation from the deal base, dumbed-down staffing. What's left for the media industry, or for GSK's last-to-the-party media review?

Andrew Walmsley is co-founder of i-level

30 SECONDS ON ... RECENT FMCG GROUP MEDIA REVIEWS

- GlaxoSmithKline announced last week that it would be reviewing its international media and planning account, outside the US, which is worth an estimated £100m. In the UK the account is held by WPP's MediaCom. A result is expected by the middle of the year.

- Last July, Unilever also conducted a procurement-led review of its £700m media account in Western Europe. The process took seven months and the business ended up staying with MindShare, also a WPP agency. MindShare also picked up the Unilever business in North America from PHD.

- In November, Reckitt Benckiser concluded a six-month review of its £800m media account. The company split the business between Havas Media, which owns MPG, and Publicis Groupe, which owns Starcom MediaVest and ZenithOptimedia. Both holding companies had parts of the business around the world. In the UK, the business moved from Omnicom's OMD to ZenithOptimedia. WPP was also involved in the pitch process.

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