One of the most worrying trends for big media agencies is that growth in agency revenues has been lagging global advertising expenditure since 2017.
Most estimates suggest global adspend has been running at more than 4% a year while agency revenues have been averaging 2% or lower.
There is a multitude of reasons why media agencies are struggling to stay relevant, although their challenges aren’t as profound as those facing creative agencies, which are suffering from the democratisation of content creation.
Advertisers’ ability to buy directly from tech platforms, such as Google, Facebook, Amazon, Alibaba and Tencent, and to bring some marketing services in-house is a key trend.
Then there is the financial pressure on consumer packaged goods (CPG) companies, which have been the biggest clients of agency holding companies for decades and have slashed fees in the past couple of years.
The upheaval in CPG has been caused, in large part, by digital disruptor and direct-to-consumer (DTC) businesses. They are investing in their brands but are used to managing a lot of their digital media and content in-house.
Marketers are also under pressure to take more control of their data, rather than cede it to agencies – not only because data-driven marketing can improve business performance but also because GDPR in Europe and the prospect of similar legislation in California and other US states is forcing boards to be more vigilant.
Questions about media-buying transparency are another headache that won’t go away in the world’s biggest ad market, the US. Campaign revealed in May that the Federal Bureau of Investigation has been issuing subpoenas, including to a leading advertiser, LVMH, in a bid to expose wrongdoing in the agency sector.
Big media agencies, such as Carat, Mediacom, OMD and Starcom, came of age as global networks at the turn of the millennium. Two decades later, much what of drove their rise – chiefly international scale and buying power on TV – has become a drag as clients demand more flexibility, greater speed and smarter technology.
Sir Martin Sorrell was right when he said agencies were going through the biggest change in a generation as he watched WPP’s revenue numbers hit a brick wall in 2017. "We are at the start of a new era" for media agencies, I wrote in this column in September of that year.
And yet, despite the storm clouds, there are also reasons to believe better days, if not a return to boom times, lie ahead for media agencies – if they are willing to adapt and evolve and clean up the media supply chain.
For a start, we have not yet reached peak media. We talk about screen addiction and ad bombardment but we will likely spend more time interacting with media in the near future and 5G technology will mean faster mobile broadband.
Second, media’s ability to power commerce is only just becoming evident in the age of the smartphone. Now that each of us has access to a shop in our hand, the number of clicks required to go from brand message to ecommerce transaction is shortening rapidly.
China’s Tencent and Alibaba lead the way in this and media agencies must become experts in this fusion of media and commerce.
Third, brands will always need help with navigating the media ecosystem, especially as it has become bigger, more complex and treacherous in a world of digital fraud and brand safety problems. What Mark Read, the WPP chief executive, has called the "industrialisation of media" requires brands to invest more resource, not less, in marketing and technology.
Indeed, there is a powerful argument that when advertisers reduce the scope of their agencies, they cause themselves new problems because an agency group has less clout to negotiate collectively on behalf of a group of clients – a serious issue when a few over-mighty tech giants are now so dominant.
Fourth, there is some evidence that agency services are going through structural change, rather than structural decline, as Read insists. Brian Wieser, the former Wall Street analyst who has joined Group M as global president of business intelligence, made a persuasive case at Media360, Campaign’s annual UK media conference in Brighton in May, that the agency sector is growing at more than 2%. Add the growth of management consultants and IT companies, such as Accenture Interactive, and subtract the one-off decline in CPG fees and organic revenue is probably running at 4% or better, Wieser suggested.
"So the challenge for media agencies now is to get off the back foot and start selling themselves and their sector better"
A fascinating question is whether holding companies have held back their media agencies. It is an open secret that media services have been much more profitable and inventive than the creative side of the business. There is no doubt that some holding companies used media’s strength to mask the problems at their ad agencies for years and put off radical surgery.
Some doom-mongers say media agencies matter less. Facebook’s top 100 advertisers now account for less than 20% of its ad revenue, and millions of small and medium-sized enterprises, from established companies to digital disruptors, are buying ads themselves on a self-serve basis.
And yet the boom in smaller advertisers and DTC companies is good news. Thanks to digital marketing there has never been a better time to launch and scale a business and some of these start-ups will become the Ubers and Ocados of tomorrow. Then they will need support from brilliant agency partners to ensure their brands stand out and command a premium.
So the challenge for media agencies is to get off the back foot and start selling themselves and their sector better. And, as WPP’s Karen Blackett says, it’s not enough to talk about "the agency of the future" while still relying on "the processes of the past".
There are so many opportunities, which is why there has been a profusion of newer, independent agencies in recent years. What marks out many of these agencies is an entrepreneurial hunger to give clients what they want – flexibility, simpler ways of working, a more diverse talent base, speed, innovation, an understanding of new technology and data and a willingness to support an in-house team or work on-site in the client’s office.
In many cases, this new breed of agency is focusing on quality of service and the craft of media planning – two areas that have been neglected by too many of the network agencies in the war of attrition with large clients over procurement and pricing.
It’s worth adding that bringing media and creative closer together in an era of mass personalisation and dynamic content is another growing trend, but the creation and distribution of media demand different skills and there are good reasons why they remain separate.
As the agency holding companies seek to renew themselves, it is significant that a generation of media agency entrepreneurs, including Jerry Buhlmann of Dentsu Aegis Network, Colin Gottlieb of Omnicom Media Group and Phil Georgiadis of Blue 449, has stepped back in the past six months. When Rob Norman retired from front-line duties at Group M in 2017 he talked about making way for "young generals" and it’s not just agencies that should be on a war footing.
Brands themselves are battling fierce competition. Just Eat recently appointed UM to its global media account and the online takeaway delivery company talked about needing an agency with "proper, street-fighting media planning and buying skills" and an ability to "connect our first-party data with your media planning" because it is in a "very competitive, postcode-by-postcode fight".
The future of media agencies requires new leaders with entrepreneurial spirit and a battleground mentality.