Disney has spoiled the summer holiday for some media agency folk as it has scheduled pitch meetings in the middle of August for its estimated $4bn (£3.3bn) global media-buying review – the biggest of the year.
The entertainment giant, which is consolidating its adspend after acquiring Fox’s TV and film assets, is a prized client worth many tens of millions of dollars in annual fee income, although the company could end up picking multiple agencies in different regions, rather than one network.
Winning accounts worth more than $100m a year in fee income is a priority for many of the world’s biggest agency holding companies and for newer entrants such as Accenture Interactive.
Tim Andree, executive chairman and chief executive of Dentsu Aegis Network, recently disclosed it has no $100m clients and he wants to change that. By contrast, WPP, Omnicom and Publicis Groupe are thought to have about 50 such accounts between them.
The pursuit of $100m clients is forcing agency groups to choose their partners more carefully because the stakes are higher.
WPP has declined to take part in the Disney review except in Asia to avoid a conflict with a major client, Comcast, the owner of NBCUniversal and Sky.
WPP and Omnicom were in a similar bind in 2017 when they did not pitch for Amazon’s media account for fear of upsetting existing clients – Comcast, Google and Target at WPP and Apple, AT&T and Disney at Omnicom.
Winning big-spending clients – or, more likely, selling extra services to existing clients – is important. The large agency groups have used such accounts, chiefly in media, to turn local agencies into global networks with trading scale over the past two decades.
However, big clients also bring risk. Margins are often thinner and there is relentless pressure, particularly from embattled, "legacy" advertisers, for lower pricing and longer payment terms such as 120 days.
Arthur Sadoun, chief executive of Publicis Groupe, told investors its organic revenue suffered a 0.75% hit in the first half of this year from one unnamed client – most likely an FMCG brand. While the client was "very satisfied", it slashed its fee as part of an ongoing "cost reduction plan", according to Sadoun, who said 1% of organic revenue is worth about €20m ($22m) a quarter.
It means this client cost Publicis Groupe as much as $33m in lost fee income in six months. What’s more, the same brand made similar cuts last year.
No wonder Sadoun’s team has been off-shoring some media operations in India, where it has a Global Distributed Delivery hub to serve large clients such as GlaxoSmithKline more cheaply.
Traditional advertisers may be feeling the squeeze but "new economy" brands are increasing marketing spend to drive growth. ITV said at its half-year results: "The make-up of TV advertisers is changing as new categories and markets are being disrupted by insurgent brands." NBCUniversal reported "digital-native" companies such as the FAANGs – Facebook, Amazon, Apple, Netflix and Google – were the top-spending category of advertiser at its recent upfronts.
All of this disruption is why nearly every big brand has been rethinking its marketing operation, if not its entire business model.
Clients are right to challenge their agencies to simplify their offering and increase integration between different disciplines. However, it is ironic that some of the brands that have been most vocal about the future of the agency model – think Procter & Gamble or Centrica – are among those struggling the most with their own structural problems.
It will be fascinating to see how the "new economy" brands mature because many of them are used to managing their marketing services in-house and aren’t so reliant on agencies. Despite this, some agency leaders are betting there will be more $100m clients, not fewer, in future.
Smaller brands will wonder about the service they’ll receive if agencies focus too much on the top clients – getting that balance right is a perennial challenge.
Bill Bernbach, a co-founder of DDB, wrote in an internal memo in 1947 about how he was "worried we’re going to fall into the trap of bigness".
The $100m client may not be a trap, but it comes with risks attached.