Magazine article Marketing

Andrew Walmsley on Digital: Media Agency Meltdown

Magazine article Marketing

Andrew Walmsley on Digital: Media Agency Meltdown

Article excerpt

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 pounds 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. …

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