Agency Deals - how the industry has failed to grasp the digital opportunity

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; but a new development in recent months spells the end for the model. And far from seizing on the opportunity digital presents to reinvent their business, the industry seems bent on applying a discredited system to the new world too.

To understand why, we need to turn the clock back.

When the great schism between media and creative agencies occurred twenty 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.

And on the client side, fuelled by media auditors, procurement were given renewed focus on this newly accountable sector.

The media guys were making big promises, and getting paid 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.

Broadly 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 amongst its clients.

But that division isn’t even. And it isn’t everything.

Some clients get more than others. For every client who’s getting pricing below the average, there has to be another who’s overpaying (or two smaller ones). Even matching clients’ complementary requirements to balance the books isn’t enough, with a rumoured £300m overtraded last year in TV alone.

But the agency tries not to give it all away. If they don’t commit the whole dealbase, they can keep the difference – substantial sums that make up for the uneconomic fees their clients pay.

So why do clients wear this?

For some, being able to report a cheap fee to the board is enough; they’d prefer it if the agency was making money on the side. Others calculate that because they’ve made heavy demands in their appointment negotiation, they’re on the benefit side of the deal book, and therefore ahead on 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 over the years to respond to procurement pressure by steadily reducing their fees.

What’s changed?

Two things.

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. They get junior people. 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. But inexperienced staff don’t know how to spot business development opportunities, and the out of scope rarely appears. And of course there’s the slush fund in the media dealbase to subsidize the fee.

And here’s the final nail in the coffin. Big advertisers have started to abandon the media pitch, instead auctioning the media to 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. But 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, and what’s left for GSK’s last-to-the-party media review?

Cross media deals, and the absence of the free lunch

A version of this piece was published in Marketing in 2008


As economic belts tighten, advertisers are looking with renewed vigour at getting the best from their media deals. Since the last recession, online has become a major medium – expected to overtake TV this year – and budgets are now substantial.

Encouraged by some agencies, advertisers are looking more closely at how cross-media dealing might create greater pricing efficiencies (procurement speak for cheaper) as increasingly, media groups own properties which span both the traditional and the digital worlds.

But amidst all this hype about synergies and leverage there are some real bear-traps for the unwary here, and some agendas that aren’t altogether straightforward…

Let’s look first at some of the bear-traps.

First, this isn’t a big market opportunity. There’s actually little crossover between the Top 10 traditional media operators and the top 10 in digital – the top ranking traditional media owner in traffic terms is the Daily Mail in July, and that scrapes in at number 10.

The online display market is dominated by the big portals – MSN, Yahoo and AOL, the smallest of which delivers twice the audience of the Mail’s site. Sky might be a 500lb gorilla in the TV market, but it’s at number 14 online. And this raises a further consideration.

When a media owner is selected to meet planning criteria arrived at for the offline property, there’s often a mismatch online. The Telegraph’s audience online is much younger, Channel 4’s is more upmarket and most of the Guardian’s audience is in the US. So plans created for one medium can struggle to translate effectively to the other.

Then there’s measurement. Whilst TV is traded in share and ratings, online is traded in impressions, clicks and outcomes.  Smart operators have been using rating points in online for years – it’s a useful way of creating a point of comparison across media, as well as a sense of the scale of a campaign against the audience size. But the danger here is that the tail comes to wag the dog, as lowest common denominator traditional media metrics can replace more business-centric outcome measures in setting objectives.

Of course, there are positives. Editorial teams can be more effectively motivated, and publishers are often more willing to integrate commercial messages into their content. But of course if it’s just running creative on radio and online that you want, arguably that’s possible without a cross-media deal – your online and offline agencies should work together to make this happen for you; it’s their job. And of course if they do, you’re not constrained to using just the properties of that particular media group – you can do anything you like (almost like media planning really).

Where it really gets sticky though is when you try to account for the value. Both agencies and media owners can get into a media version of find the lady – a great price on one medium concealing poor value in others.

This is particularly the case if the agency creating the deal isn’t particularly expert in one of the media channels – they’re keen to show their openness to using that channel (usually digital) but wouldn’t know a good deal if it jumped up and bit them on the nose.

Worse though, since auditors are often employed on a single medium, these deals are often removed from the audit altogether. So a press audit might omit a deal because it has a substantial online component – and it might be tempting for an agency to load the pricing up on that deal in order to demonstrate deeper discounts on that media owner on the parts of their business that are subject to scrutiny.

Heaven forefend, and I’m sure that never happens.

We all want value for money. But as the economic weather gets wetter, it’s wise to remember that nowhere is the free lunch more elusive than in media.

The death of the campaign

A version of this piece was published in Marketing in 2008
  On March 21st 1918, Erich Luderndorff launched the Spring Offensive, the massive attack that was Germany’s bid to end the First World War. In just five hours, the Germans fired over one million shells, and lightly-equipped stormtroopers cut deep swathes into British lines.

But the very speed with which the Germans advanced proved to be their undoing, as they outran their supply lines and ended up eating the very horses on which their progress depended.

Pace is everything, and a firm but flexible plan for how to deploy resources over a period of time to achieve a goal is vital. Using different assets to support each other (as Luderndorff failed to do) was as important then as it is to today’s marketer as a campaign develops.

The need to achieve cut-through from the cluttered media environment leads marketers to concentrate their resources – to focus them on a target group or time of year where their message is most likely to resonate – and accept that at other times of year and to other people, their message will remain unseen.

The production cost of TV advertising adds fuel to this, with the belief that individual executions ‘wear out’ means they have a finite shelf-life.

So the concept of a campaign is almost hard-wired in to the advertiser’s worldview. We gather our resources, make an assault on the consumer, then retreat, count our costs and regroup before having another go. After all, the advertising trade mag is even called Campaign.

But digital is challenging this approach.

The first place this was felt was search. Volumes of queries ebb and flow, driven by seasonality and publicity, but underlying demand is constant. But even though the number of people searching for ‘swimming pool’ might be lower in autumn than in spring, a pool company would still want to pick up these leads. Early activity in search followed the traditional ‘campaign’ format, but practitioners quickly realised that this was preventing them meeting existing demand from consumers – a missed opportunity.

So search tends now to be budgeted for from the bottom up. Rather than setting an amount to spend on marketing in a year, then dividing it up until an amount is reached for each medium, search volumes are modelled through the year, and the required investment set aside to meet this (allowing for extra demand created when TV activity is run).

Similarly, affiliate marketing doesn’t suit a campaign approach. Continuous activity is needed to build relationships with affiliates, and to reflect their outlay behind your brand – whilst they appreciate the impact of campaign-based activity on their own sales, they find it hard to build transaction volumes without investment over time.

But it’s the rise of Web 2.0 that has provided the most recent challenge to the campaign way of thinking.

Thousands of widgets have been created, alongside chatrooms, forums and even entire branded social networks. Of course if the venture is unsuccessful, its owners will risk little by shutting it down. But in all of these instances, marketers have stepped out of campaign-centred thinking and created entities that are long-term.

In many cases consumers have been asked to contribute their time and creativity to participating in the project. They have introduced their friends, created avatars, uploaded photos. They’ve made playlists, scrapbooks and chipped in with their own recipes, hints and tips – which means of course, that they can’t be turned off when marketing decides to move on, without creating inconvenience and resentment from users – turning a positive brand experience into a negative.

So whilst marketers have in the past taken much of their terminology and thinking from the military, perhaps now it’s time to move on. The campaign approach never really reflected how consumers behave, only the constraints of operationalising marketing in traditional media. Digital changes this – and the consequence of this change could be the death of the campaign.

Media auctions are taking off

A version of this piece was published in Marketing in 2008


Time was, if you wanted to buy space in a particular national newspaper and it was after lunch, you needed the number of the pub in which the sales director did business.  You needed to know him, of course, he wouldn’t have taken your call otherwise, and your rates depended on the strength of your relationship with him – a factor not unconnected with your handicap.

Golf’s perhaps a little less important nowadays (that’s probably going to cause more upset than anything else) but what’s changed almost beyond measure is the buying environment, which has become more professional but has perhaps lost some of its vigorous trader culture.

Better research, international competition and increased shareholder and client scrutiny have pulled media’s socks up – but despite all this, it’s still a business that runs on relationships.

It’s not surprising then, that people brought up in this environment struggled with the bare logic of the Google auction.  Google challenged the industry because it required a fundamentally different approach - a real-time process that needed continuous input – not the ‘set it and forget it’ approach of traditional media.  Pricing is governed not by leveraging scale, but by skill at managing the auction and by quality of technical input through SEO.  And the outcome is measured in terms of sales, not discounts.

But if some investors are right, these skills aren’t going to remain the province of search – they’re coming to media itself, as media auctions start to gain traction.

Google’s acquisition of Doubleclick was partly driven by the belief that they could drive their successful auction model out into display advertising, a belief that lay behind their earlier deal to buy Dmarc, a radio trading platform, and agreements to sell newspaper advertising.

They’re not alone.  Last year, Yahoo took control of RightMedia, paying $680m for a business that’s expanding out across Europe.

But buying media at auction isn’t for the faint-hearted.  Predicting volume is often unreliable, and there are no guaranteed deliveries.  The web interfaces of some auction businesses are fiercely complex – revealing the level of sophistication available in targeting, but at the same time providing a training and skills challenge for customers.

For auctions of online media, every individual impression is sold separately, meaning that publishers can set rules within their own adservers to prioritise customers based on yield – the system will serve a high-yielding direct-sold ad if one is available, followed by a lower-yield run of site ad, a network ad and finally an ad from the auction if none of the above is available or the auction yields a better return for that ad impression.

Adding behavioural targeting into the mix makes auctions more effective still for online media – improving yields for publishers and performance for advertisers.

So the auction is an efficient way of trading remaindered inventory – sellers get what the market will bear for their surplus advertising, buyers get cheap media with no guarantees, and market liquidity improves for both.

The system is attractive, and is likely to make headway in media markets – but it’s not going to take over the world.

Auctions work best when the value of a commodity can’t readily be established, and whilst this is true of remaindered inventory, the majority of value will continue to be traded where planners want to specify the location, timing and delivery of advertising.

And far from reducing transaction costs, auctions are likely to increase agency overheads, as greater monitoring, complexity and new skills are required.  These were the very factors that held many agencies back from investing in online media in the first place, and they’re significant obstacles for success here too.

To thrive in these new marketplaces, advertisers and agencies will need to fuse competencies from search (auction markets), data (behavioural targeting and predictive modelling) and financial markets (real-time dealing). It’s going to make media more complex – but it could be a revitalising force for the sector.

The agency deal: poor value for advertisers

A version of this piece was published in Marketing in 2008

See also this later post from 2010 - nothing changes!.

Media folk are hitting the slopes or heading south for the sun right now – the year’s work is done, and it’s time to hand over the reigns to the enforcers, those beleaguered media buyers who will spend the rest of the year chasing media owners and winkling the delivery out of the deals their masters struck in December and January.

The Agency Deal has been a feature of media trading right back to the mid-eighties, when Media Independents wrested control of the budget from full-service agencies.

The theory is, an agency’s advertisers all gain. By lumping their budgets together and trading as one, the argument goes, greater leverage is exercised over media owners – and that translates into better value.

But balancing the books becomes a constant challenge for the agency – particularly as the year-end approaches. If trading has been mismanaged, the agency may have to play catchup – and it could be you that’s funding that shortfall, finding your ads in less appropriate environments.

It’s a prix-fixe menu for media. You know you don’t get the best dishes and the portions are going to be smaller, but you do know what it’s going to cost.

Except of course, you don’t. Because once a deal has been struck over an agency’s entire trading book it becomes very hard to tell who’s getting what, and the agency is often taking a rake off the top as undeclared ‘volume’ discounts.

But all of this relates to traditional media right? Wrong.

The two staples of the agency deal, the ‘volume discount’ and the limited menu are alive and well in digital advertising too.

You might ask why in a world of super-diverse media options, with thousands of websites to choose from and tools that allow management of advertising across hundreds of sites, do agencies use the agency deal model?

Surely, you’d think, it’s a model best applied to media where supply is limited, and share is one of the few levers you’ve got to play with? Surely when a media market is changing constantly, it’s disadvantageous to tie yourself into year-long deals?

You’d be forgetting one important factor.

Aside from the extra income it can generate, an agency deal is cheap for the agency to run. A month or two’s running around, and you can tie up the whole agency’s trading for the year, fixing prices, quality and delivery parameters for the enforcers to work to until next Christmas. Buyers don’t need to buy, and planners don’t need to plan – the menu’s there for them, and the decisions have been made.

Put 80% of your trading into just a few sites, and you’ve got a dealbase that’s easy to administer, and you’ve maximised your leverage against those sites by offering them the bulk of your trading. Using the diversity of the medium to reflect the nuance of a brand’s requirements is subjugated to the prime aim of getting away the media at the lowest administrative cost.

This model has been letting advertisers down for years in traditional media, and it has been enthusiastically imported wholesale into the online advertising business.

The problem as ever, is one of money. All this non-standardisation costs. If you ever asked yourself; how come no matter what my brief says, I always get the same three sites on the media plan, then this is probably the answer.

Digital media gives us accountability. It’s amazingly adaptable and enables us to react quickly – pumping investment into stuff that works, diverting funds away from areas that underperform. Stick an agency deal on the front of that, and you’ve just limited your options. Growth is slower, performance weaker, flexibility hampered.

It’s time for the agency deal to die. And the best way to kill it is to evaluate agencies on the value they bring, rather than how cheap the media is, or how low their fees are.