Ad Exec: Wanted — new commercial model for advertising
by Tom Fels (@thomasfels) Advertising is truly getting harder. Timelines are shorter, budgets are lower and expectations are higher. So what’s the end game? Do we all just work longer hours, make less money and try to generate returns based on eroding budgets? Or do we look for new ways to create value and, in doing so, bring about a reinvention of the agency’s role in the marketplace?
I contrast what has already happened in the music industry over the past decade to what is happening in advertising today. As the idea of owning music becomes obsolete, so the value of record sales vanishes, music lovers become less ‘loyal’, tastes broaden and streaming services ultimately compete on lowest price to market.
Musicians everywhere have lost a primary source of revenue and those on the cusp are looking for new ways to commercialise their art. For 30 Seconds To Mars, a record two-year, 309 concert tour; for Jay-Z, a US$5m brand endorsement with Samsung to exclusively launch his new album prior to official release; and, for Britney Spears, a two-year residency in Las Vegas. Smart movers, all looking for new ways to cash in.
Probable vs desirable outcomes
Having recently sat in a presentation by a futurist who spoke about a ‘probable’ future vs a ‘desirable’ future, I started playing out the likely scenario for the advertising industry based upon the macro trends I see at present.
In a business model distilled to the selling of human hours, downward budget pressures force agencies to cut margins or decrease time allocated to projects.
Ongoing margin cuts are not sustainable in the long term and, in my experience, the scope of work for many marketers is remaining static but agency fees and total budgets are diminishing year-on-year. Hence, agencies spend less time on projects and produce more tactical, less-incisive work.
This may well lead to strained client/agency relationships and increased agency churn as talented but disempowered creatives seek greener pastures.
As these factors accelerate, advertising becomes wholly commoditised as a supplier relationship and ultimately, driven by best value, clients begin to lose faith in the advertising product of agencies and choose to either pitch on a project basis to hedge risk, or bring creative in-house, resulting in a further drain on the agency talent pool.
It all looks pretty dire.
The one thing I believe commercial marketers cannot reproduce, and hence hold in high regard, is the kind of creativity generated inside agencies. Sure, many marketers are creative in their own right, but I’d argue that this is skewed toward trade and brand specialisations — corporate cultures, structures and environments are not geared to foster highly creative outputs.
Today’s creativity is best-demonstrated through ground-breaking innovation, delivered through technology and empowered by the breadth of insight afforded to agencies through their exposure across a broad client portfolio.
So the question burning a hole in the brains of many global advertising leaders is: what is the commercial model of the future that may generate fair value but also offer sustainable advantage?
For us all, the most-desirable future is that of partnering with clients to foster ground-breaking innovation that drives their businesses forward.
This needs brand understanding, as well as solid strategic grounding, which current conditions cannot sustain unless there is acceleration in remuneration modelling. The rules of engagement need a rethink and, while brands are the ultimate beneficiaries of our artistry, they have a role to play in creating the structures to sustain it.
Ebb and flow
Just as with any natural or economic cycle, too much pressure in one direction always ultimately results in a release.
With the enhancement of marketing procurement, the role of third-party cost consultants, pitch intermediaries and the increased emphasis on full cost-transparency (as far as disclosure of staff salaries), I feel we’re coming to a point where the mounting power exerted upon agencies will force some form of counter-action.
What is sorely lacking today is a common voice or meeting of top industry minds to coordinate this action. While we exist in a highly competitive, dog-eat-dog industry, it’s hardly worth being the last person standing when there is little left to gain. If you’d like to weigh-in on this conversation, mail me your thoughts at firstname.lastname@example.org or tweet @thomasfels and I’ll report back to the collective. It may just be the tipping point that shifts the momentum we’re facing.
With a decade of local and international experience in leading brand consulting, design, shopper marketing and integrated advertising roles, Tom Fels (@thomasfels) has gained a deeply relevant understanding of the dynamics of agencies. His skills are put to work daily as group managing director of Publicis Machine. He contributes the monthly “Ad Exec” column to MarkLives.
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