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.

What's holding mobile advertising back?

A version of this piece was published in Marketing in 2008


In the digital world as we all know, every year is going to be the year of the mobile. The networks haven’t forgotten the £22 billion spent on 3G licences, and they’d love to see the mobile ad market take off like the web did – growing almost 14,000% since 1998.

With estimates of the current market varying between £10m and £20m, if there’s one thing most people agree, it’s that there’s not a lot to go around.

But with flat-rate data tariffs and usable devices like the iPhone well established, it looks like some of the key obstacles are starting to disappear. Though whilst many observers feel mobile is set to take off at last, their optimism may still be premature.

Because whilst the industry’s focus remains on the high-level reasons why mobile has been slow to take off (consumer understanding, technology uptake) there are five simple hygiene factors that are blocking progress right now – exactly as they blocked progress ten years ago for web advertising. Fix these, and the market could be ready to go – fail to address them, and it’ll be pushing water uphill for the foreseeable future.

First, standardising banner ads. Before the IAB standardised banner sizes for the web, production costs often outstripped media – often making online campaigns uneconomic. Resolving this helped online advertising become a manageable proposition, rather than a production black hole – and mobile really needs to fix this. Although the Mobile Marketing Association published some standards in April, uptake has been very slow, and this area is still confusing and expensive.

Second, audience size. The lack of critical mass in the mobile market continues to be an obstacle, with mobile campaigns remaining too small for many agencies to be able to work on them. On the web, this was cured by networks forming to aggregate media sales into buyably large chunks. In mobile, we’ve seen some progress recently with Nokia forming its own sales network, but the market is still too fragmented and will benefit from further consolidation of sales channels.

Third, pricing. If you’re selling media in mobile you’re not going to like this, and you’ll probably say that I would say this. So here goes anyway. You’re too expensive. Right now, cost per thousands in mobile are absurdly high – supported more by ‘experimentation’ budgets than by real commercial demand. Coupled with high production costs, mobile advertising struggles to be cost-effective – certainly next to the web.

There’s every reason to believe that rates should be high in the future (quality of audience, interaction, location) – but right now there’s no research to justify it, and rates are going to have to come down before they can go up.

Fourth, and this is just the order they spring to mind, third party adserving. It’s hard to overemphasise how important this is. For web advertising it is fundamental to agencies’ ability to do their jobs. It enables them to distribute advertising copy (without needing to check manually that it’s running correctly), to target it at individuals and to measure success.

Without it, web advertising would never have proved the case for its cost-effectiveness to advertisers – and just as fundamentally, agencies would never be able to manage the administration that derives from running billions of banners every month.

But adserving still doesn’t exist in any meaningful sense in mobile. And until it does, mobile advertising will remain a largely manual process – restricted both in scale and transparency.

Finally, surely the easiest to fix. Just as with web advertising ten years ago, delivery is terrible. Campaigns start late, finish late and fail to deliver. Without these basics, the marketing community is never going to take mobile up – no matter how attractive the audience.

There isn’t one of these five factors that couldn’t be fixed. But if the mobile business is going to enjoy the boom it’s been looking forward to for so long, it needs to get the basics right first.

Will all media be digital eventually?

A version of this piece was published in Marketing in 2008


For the last eleven years, I’ve sought out my respite from the digital maelstrom on a small Greek island.

Just a few years ago, there was no cellphone coverage, getting on the internet required you to dismantle the phone socket, twisting the wires together and holding them in place with sellotape (or band-aid on one occasion), and the one internet café on the island offered two computers sharing one ponderous dialup connection.

It was charming, idiosyncratic, picturesque. After a few days, it was pretty annoying.

But arriving there last week, it’s all change. Instead of upgrading the phone system (still rather antiquated), they’ve gone straight to wifi. Across the island, laptops can be used pretty much anywhere (though the sand remains a problem) and it’s brought the global media village crashing in.

Islanders who have spent their lives getting the papers a day late (a week late in winter) are now keeping facebook profiles. They’re downloading episodes of Lost. They’re video conferencing on Skype. They’re more online than we are.

Their media world has changed beyond recognition, and it’s not been a gradual process.

It was a reminder of what we’ve been through in the last ten years, as email, instant messenger, online shopping, Google, eBay, iPlayer have reshaped our access to information, to media and to each other.

But it was also a reminder that this change continues unabated in lead markets like the UK just as less developed countries catch up.

Last week’s Washington Post carried an interview with Steve Ballmer, Microsoft’s ever ebullient CEO, who predicted that by 2018, all media would be delivered via the internet. “There will be no newspapers, no magazines that are delivered in paper form. Everything gets delivered in an electronic form.”

Of course, we can all see why Microsoft would like it to be so. But how realistic is this?

Already, cinema is transitioning to digital, fundamentally changing the distribution economics of the medium and enabling more choice in cinemas, as well as altering the way advertising can be delivered and targeted.

Internet radio has been around for years, but ironically it’s wireless that’s causing a new surge in popularity as portable internet radios that connect through a domestic wifi network become common.

Viacom is wiring the London Underground for digital advertising, launching cross-track HD projection later this year, and anyone who’s ever visited Japan or South Korea will have seen the explosion in massive digital billboards there.

But it’s print and TV that are the biggest prizes. Ballmer complains that TV is insufficiently interactive (his son plays Xbox games through the night with people around the world, and TV just isn’t that engaging), and that it fails to offer sufficiently personalised content – he’d like to watch his high-school football matches from back in Detroit – he knows they’re videoed, but he’d love to watch them online.

He’s right. The internet is raising the bar; changing consumers’ expectations of what other media will deliver. In time, it will be consumer demand, not technological change, that will make TV an internet delivered medium. Technology is the enabler, but it will be consumers that will decide – and no matter what the current establishment might hope for, TV will be a massively more attractive medium when consumers can control their consumption (as PVRs show).

Which leaves print. Whilst the convenience and indestructability of paper will ensure it’s around for a long time yet, the economics of printing relies on volume. But as electronic media eat away at that volume, offering up-to-date news, searchability and multimedia, there will come a tipping point where it simply becomes uneconomic to use paper.

Even on a small Greek island, the media world now is almost unrecognisable from ten years ago. As Ballmer cautions, it’s not really important whether digital will dominate in 10, 8 or 14 years, the point is that it is inexorably replacing other media as the means of distribution – and that process isn’t slowing down, it’s accelerating.

Is digital advertising recession-proof?

A version of this piece was published in Marketing in 2008


News from the sharp end of the financial sector informs us that UK banking lunch budgets are slashed to £54 a head, whilst their German counterparts are barred from expensing trips to brothels. There are probably no more indicative measures for the climate in the city, so it’s safe to assume that it’s tough out there right now.

And whilst everybody’s assiduously avoiding mentioning the ‘R’ word, there’s no doubt that retailers are starting to worry as the credit crunch starts to bite. Share prices in many of the major high street retailers have halved over the last year as the city factors in expected consumer belt-tightening, and retail sales have only been propped up on the high street by deep discounting, with non-food prices falling at their fastest rate for 20 years.

Last time there was a recession, the internet took the full brunt of it. There was carnage as the dotcom bust ripped through the economy, taking hundreds of flaky web companies (and some good ones) with it.

So this time around, is the internet recession-proof, are stock market woes going to hit digital too?

Back in 2001, many internet businesses were still in the pre-profit stages of development. Their markets lacked scale, many of the management teams lacked the experience to weather a storm, and the online advertising market (a key revenue stream for many businesses today) that year was worth just £166m.

Online retail has been the key driver of growth in online advertising, and online retail is a capital intensive business, requiring heavy upfront investment to create a service. This means that scale is critical to businesses online, whether they’re selling airline tickets or insurance policies, because there’s a very low marginal cost of sales.

As the business scales, volume efficiencies develop much faster than in traditional retail where staff and premises are forced to grow in line with expansion.

The pre-profit phase of an online business is a scary place to be. You could be down a lot of money and still waiting for that tipping point to be hit. No wonder many investors pulled the plug back in 2001 – it looked then that the world had lost confidence in the web, and there were real concerns about whether that tipping point could ever be reached.

But this is 2008, and a lot has changed.

For a start, the audience is bigger. 32m people are now online compared to just 18m back in 2001. So any online business now has access to a potential customer base that’s 75% bigger – a crucial scale element that’s driving scale economies into web companies.

And those people now transact more online, 74% agreeing that credit card use is safe online (60% did in 2001). So they’re spending more – the average online shopper’s six monthly spend is now £628, up 37% on 2001.

So there’s a bigger, more economically active audience online now, and they’re spending much more time online than before, driven by broadband penetration that ranks the UK 11th in the world.

All this has created a vigorous online ad market that’s grown 1600% since 2001, reaching £2.8bn last year. For online businesses this is a double benefit. It’s a substantial revenue stream for many, but it’s also a key sales driver.

Advertising in traditional media is (wrongly) often regarded as a cost. But the accountability that comes with both display and search advertising online has caused it to be regarded differently. Whether this is formally reflected in their P&L or not, many enterprises now see online advertising as a cost of sale – which means they can directly gauge the impact on revenue that cutting ad budgets will have.

There’s no leap of faith here – spending less generates less. So whilst the rest of the economy may be in for a torrid time over the coming months, scale, accountability and attitudes are likely to mean digital’s unlikely to share the pain.

Newspapers - adapt or die?

A version of this piece was published in Marketing in 2008


Every medium that’s ever been invented is always expected to replace those media that went before. So TV was expected to kill cinema, radio to kill newspapers, newspapers to kill town criers (probably).

And for no medium has this been more true than for the internet, which has been touted as the killer of pretty much anything you can think of.

The reality though is more nuanced, and provides at least as much opportunity as it does threat.

In this context, Charles Darwin had it right:

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

Newspapers adapted to the popularity of television news by changing their approach – either focusing on gossip and features, or bringing depth and consideration to stories that TV couldn’t give time to.

And the success of cinema chains like Vue is testament to how investing in the value proposition can bring audiences flocking to a medium that if we believed pundits in the ‘50s and ‘60s, would be dead by now.

But for the Capital Times newspaper in Madison, Wisconsin, last week was a landmark in their history as the company closed its afternoon-published newspaper, becoming an exclusively online proposition.

"Today marks our last edition as a traditional daily newspaper of the sort Americans knew in the 19th and 20th centuries," an editorial read. "Starting tomorrow, The Capital Times will be a daily newspaper of the sort Americans will know in the 21st century.”

So are they right? Is the future exclusively online, or is it likely to remain a mixed economy?

Of course, there is no ‘right’ answer. Whilst it is still economic to distribute newspapers in physical format and consumers demand them, there will still be a business – but this is obvious.

It seems likely that at some stage in the future, demand may shift to the consumption of media on portable devices. Units with roll-out colour screens that allow a highly portable but easily viewable experience are already in prototype, and with the ongoing desire of mobile networks to find a use for 3G we might not have long to wait.

Newspapers as diverse as the Sun and the Guardian have recognised this – building audiences to their online product. Their objective is to move the brand from being a ‘newspaper’ to a ‘media’ play – with the newspaper, website and mobile services being the outward manifestations of this brand.

This is smart, because it develops secondary revenue, constructs a successor to the primary vehicle should that market start to fall, and widens consumers’ expectations of the brand.

It isn’t just newspapers that face this challenge though – TV companies too are investing in their web presence with a view to achieving the same goal. Channel 4 are now regularly commissioning multimedia projects – the Big Art Mob, a four-part TV series comes with a community website and a mobile site that let users upload images of civic art, whilst the recent Embarrassing Bodies series is accompanied by a website and online games. All this content is merged in around their 4OD online video site, where you can catch up on shows you missed.


But the Capital Times isn’t completely abandoning its print past. It is hedging its bets, continuing every week to publish free an entertainment guide and a news digest.

Because in the past when newspapers and TV stations lost audience, they closed for ever. Now though, a future exists for these brands on the web and in mobile, and for stronger brands in building further value in their relationships with audiences – through enriching their output with content in these other channels.

So far from killing other media, the internet is creating new opportunities for them to evolve – and it’s their adaptability to change that will determine their success in meeting this challenge.

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.

We haven't yet scratched the surface of digital

A version of this piece was published in Marketing in 2008


About this time of year, it’s traditional to gasp in amazement as online continues to absorb a still greater share of the UK’s advertising spend. The Internet Advertising Bureau announce another notch on their bedpost, analysts start trying to identify the winners and losers, and the advertising community continues to polarise into those who are seizing the opportunity with both hands, and those who are sticking their fingers in their ears, closing their eyes and humming loudly to themselves.

In the US, where internet advertising grew 18.9% in 2007 (the overall ad market grew 0.6%), publishers are looking to the UK to understand our experience here. Share of total advertising spend here is double what it is in the US, and relative to population, the UK online advertising market is the biggest in the world.

So given the strong base built over the past five years, it’s all the more remarkable that the new figures published this week by the IAB have shown yet another substantial rise in online budgets.

The market grew by 38% in 2007, only slightly behind its 2006 growth of 41%. But this hides the fact that in volume terms the market actually expanded faster – by £797m in 2007 compared to £649m in 2006.

Search held its share of online, increasing 38%, and the IAB’s numbers show that market to have reached £1.6bn. Google makes up 79% of that, their growth surging ahead of the market and continuing to consolidate the lead that they’ve successfully established in Europe.

The big success story is display advertising, which grew 31% in the year – boosted by the continued boom in ecommerce.

The online market has continued to confound the ability of the industry’s Nostradamus wannabees – with both the major media agencies and the big analysts once again significantly underestimating the real rate of growth.


So what’s driving this unparalleled expansion?

It’s easy to look at the micro here. Automotive up, recruitment up, FMCG up. But these are symptoms rather than causes of this extraordinary growth – there are two, more fundamental, factors at play.

First, internet advertising is a global market.

Whereas technologies (HDTV, DAB radio, colour newsprint) in traditional media tend to emerge in single geographies and expand on a territory by territory basis, internet technologies can emerge in any place in the world, and spread overnight across the planet.

This applies as much to applications (skype, BitTorrent) as it does to media properties (YouTube, Craigslist) and hybrids of the two (Facebook) – and it means that the internet market has a global mindset.

It’s often assumed that internet companies regard traditional media businesses as old-fashioned. In fact, they often regard them as parochial – slower, strategically cumbersome and competitively less challenged.

And this is the second factor. This openness, this bigger worldview has led to a hypercompetitive environment, where evolution and revolution happen before our eyes. It’s a business that’s attracted ambitious, creative and driven people whose interest is sparked by the disruptive effect of their businesses – finding new ways to do things, often in ways that firstly undermine and then frontally assault the status quo.

eBay didn’t copy Sothebys, Google didn’t copy Yellow Pages, Craigslist didn’t copy Loot.

So we shouldn’t expect incremental change.

The internet media market has challenged the status quo not least because it is more than just an advertising market. It’s a distribution medium, a channel between people and a consumer research lab, and those who model its revenue potential on the basis of simple advertising end up looking merely parochial.

UK marketers are leading the world in their adoption of digital, both as a marketing channel and as a channel to market. But online advertising reaching £2.8bn in 2007 is a symptom of something much bigger – an indication that perhaps we still haven’t yet really scratched the surface.

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.

Ger your free content here!

A version of this piece was published in Marketing in 2008



In November Rupert Murdoch announced that following News Corp’s acquisition of the Wall Street Journal he “…expected to make it free”. I wasn’t at the announcement but I doubt there were many gasps of surprise from the audience.

More interesting though was the recent u-turn on this decision, Murdoch instead opting for a hybrid model. Content that is relatively easy to find elsewhere will be made free but the specialist content, in other words, what most people buy the subscription for, will still be subscription-based.

So what does this mean for marketers? Is the hybrid model the way forward? No doubt Murdoch’s bean counters created innumerable financial models and decided the best way to maximise profits was to drive more traffic by offering content for free, and hence increasing advertising revenue, but at the same time keeping the crown jewels under lock and key for subscribers only. Perhaps not so surprising given subscription revenues are estimated at around fifty million dollars a year.

But before we all run around implementing hybrid models lets stop and have a think about what’s really driving the digital market - customers. What does the internet offer customers? Well many things, but the overriding driver, and what’s changing market economics the most, is one simple word – choice.

Consider Pirate Bay, a peer to peer file sharing ‘solution’. Or in other words a method for people to download paid for content for nothing. Before the authorities got their way Pirate Bay had 10 million customers. The choice these customers made was not to pay for content.

Take the US hit show, “Lost” as an example. The show could be downloaded in the UK shortly after it had aired on the East coast of the USA and before the West coast had even seen it. It was coming to terrestrial TV in the UK, and therefore was going to be free anyway, so the downloaders didn’t really feel like they were doing anything wrong.

This is of course questionable logic, and I’m not advocating illegal downloads. The lesson though is clear. The internet has given consumers much more choice and what people want is what they don’t have to pay for.

So what does the future hold for the subscription model? It isn’t dead, but the prognosis isn’t healthy.

Consider another huge subscriber model business – online dating. Take a look at your teenager daughter’s FaceBook page and you’ll probably see a profile that states she is single and interested in, “meeting men”. Putting aside the obvious alarm bells this rings as a parent it’s also likely ringing bells at match.com and all the other subscription dating sites.

A more direct attack has been mounted by Plentyoffish.com, the owner of which proudly announces on his site that he is the sole employee, runs the site from his Vancouver apartment and that it is 100% free. A real life cupid? Reports of $10 million a year in advertising revenue suggest not.

So maybe Murdoch will need to re-think his hybrid strategy for the Wall Street Journal. But what he’s probably sweating about more is how the pesky internet might interfere with subscription TV.

Take a look at Kangaroo for example, the joint venture between BBC Worldwide, ITV and Channel 4 purporting to offer over 10,000 hours of programming from kick off. Not all of it is planned to be free, but it seems pretty clear that the Kangaroo concept isn’t built around a revenue model that takes much from the consumer’s pocket.

So will consumers continue to stomach paying £40 a month for 100 channels when you can pay nothing for the ever expanding wealth of free shows available online? For now, probably yes, because the choice isn’t there yet. But choice is something the internet offers in ever increasing levels. And while consumers are of course unique, they share one attribute – everyone buys free.