The Holding Companies Will Be Launching Sales Rep Firms Within 2 Years

Here's a crazy idea to think about: What if the large agency holding companies start to get into the publisher rep business?  Hear me out on this before you pass judgment; it's not as crazy as it first sounds.

The agency holding companies have a model that requires continued growth -- and the fact is, the agency business is shrinking.  You can see earnings releases from the big five that will contradict what I'm saying, but if you slice and dice the numbers you'll see that as a whole, revenue generated by all agencies in the U.S. put together is probably going down.  Some companies are winning due to consolidation, but margins are getting squeezed, especially when it comes to media.



Hence, the birth and fast adoption of DSPs and the automated buying tools that many agency holding companies are investing in.  The biggest success in this area for the agency world is Cadreon, which seems to be continuing a fast pace of growth.   The agencies are finding a way to commoditize that portion of the online ad business based on data and standardized units.  There are also a number of companies that are creating "network" solutions for non-standard units, so the trend here is to automate, decrease the staff, and increase the margin against this portion of the business.   It all makes sense.

Not all online media can be commoditized, which leaves some large, stand-alone, well-branded publishers who will continue to staff a sales team and service the agencies. But what if the agencies began to pitch the publishers with a model that was based on guaranteed inventory, decreased staffing costs and increased profitability?  That is a formula that many of these publishers, many of which are having profitability issues of their own, would listen to.

If I were the CEO of one of the holding companies, I'd begin to build a business plan that created a rep management service to consolidate the sales efforts and cross-media (including online and offline) for vertical categories of publisher -- one that would guarantee revenue to publishers in exchange for them taking their sales teams off the streets. In doing so, the holding companies would decrease the costs of those publishers, lock in the premium inventory they need for their clients, and become a one-stop-shop for all media (targeted and untargeted) for their clients.  They could still sell the media to their competitors at market prices, probably making money on the deals, and they would sell the media to their own clients, making money on the difference between their upfront buys and the selling price to their clients.

It may sound like a conflict of interest, but if you dive a little deeper, you can find that the holding companies are already getting into this business little by little and it makes sense.  Their job is to get their clients' messages into the hands, eyes and ears of the target audience.  If they happen to represent that media or buy it separately, there's minimal difference.  In many cases the holding companies already do deals for kickbacks and commissions on the flip side, so why not just bring it out into the open.  They have to make money somehow, right?  Additionally they already own the DSPs - and, in some cases the networks where the money is being placed -- so the conflict already exists, and many people don't seem to mind too much.

The rep firm model has taken a nose-dive in recent years, but if you consider that it still works for premium, cross-platform inventory that is not well-serviced through a commodity trading desk, then you can see where the opportunity lies.  And for publishers, who are combating rising costs to sell their inventory in a cluttered market, this represents a solution that, though unconventional, still satisfies their needs. 

Think about it.  The holding companies are going to reinvent the business at some point.  It may not be overnight, but if they can control the flow of media dollars on both sides of the equation, then they can set prices and maintain profits.  It's not a monopoly because anyone can get into the market if they can be competitive, but it is an interesting idea.  What do you think?  Tell me on the Spin Board!

8 comments about "The Holding Companies Will Be Launching Sales Rep Firms Within 2 Years ".
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  1. David Carlick from Carlick, January 26, 2011 at 12:38 p.m.

    Of course, agencies started as rep firms, representing 'networks' of aggregated newspaper inventory, in the 1800s and into the early 1900s. They settled on a standard commission (15%) and then entrepreneurial ones started throwing in the creative for free. (I believe J.Walter Thompson was the first.)

  2. Steve Pinto from BuzzLogic, January 26, 2011 at 12:59 p.m.

    So in the long term it's the holding companies with the top 10k sites across the internet and then networks like Gorillanation vacuuming up the rest of the long tail small businesses? Good and bad right? More efficiency but less opportunity to break in and make an impact. " It's not a monopoly because anyone can get into the market if they can be competitive" Competing with the major holding companies may not be the easiest if they scale that large.

  3. Thomas Deierlein from TD Foundation, January 26, 2011 at 1:18 p.m.

    24/7 RealMedia and WPP...

  4. R.J. Lewis from e-Healthcare Solutions, LLC, January 26, 2011 at 1:23 p.m.

    This is a bad idea. Just as DSP's are a bad idea. They create a major and serious conflict of interest that clients (in the long run) will not tolerate. Rep firms represent the best interest of the publisher. Agencies, act as an agent representing the best interest of the advertiser. There is tension, that represents a balance of audience value-proposition and free-market pricing pressure in the relationship when it operating smoothly. Agencies negotiate rates down, publisher's push to communicate the value of their audience to maintain rates. What publisher would hire the agency who (w/out a counter-balance) would be content to give their inventory away?

    Additionally, will WPP really sell to Omnicom in a fair manner? What about the reverse? Wont' they always insist on charging their own clients less (or on charging their competitors clients more)? A Rep firm is free to work with the whole market - and agency has too many conflicts to be a rep firm while doing the right thing by the client.

    There is also a core business principle of capitalism violated here, that focus on doing a specific thing very well produces the best outcome. Why doesn't Pizza Hut produce beer, chairs, build building, and own a bank? They use all those services... and they are free to pursue them, but is it the best most efficient capital allocation, or can firms that focus explicitly on those offerings, and bring scale to the table in those offerings, do them better?

  5. R.J. Lewis from e-Healthcare Solutions, LLC, January 26, 2011 at 1:30 p.m.

    One more point... we are a rep firm / network. (so take my comments in context). We've often thought about offering some of the services that agencies offer (creative development, SEM management, etc...). Each time we have that discussion the question comes up:
    How will our agency customers respond to this? Will they view us as a competitor? Or are we better off making a referral to a customer who specializes in these services? Will they continue to business with us?

    If premium publishers continue to sell on their own, and WPP starts an Rep firm, will WPP still be able to buy (and on favorable terms) from all the publishers who they don't represent? Or will premium publishers view them as a competitor, and hence charge a greater premium or simply refuse to do business with them, and instead, sell more directly to client and/or recommend to clients they switch agencies due to the conflicts.

    Each party has its role in the ecosystem. The agency business will change - Google alone is on a mission to eliminate agencies altogether and let advertisers buy direct... and agencies are playing right along. Maybe agencies should build a better search platform too.

  6. Bruce Braun from Bridge Digital Marketing, Inc., January 26, 2011 at 1:34 p.m.

    Interesting take but one that is highly unlikely.

    Major publishers are mostly part of public companies that are faced with the same issues as the holding companies: increasing their business every year. I doubt you will find ANY holding company that will be willing to guarantee a publisher, let alone, groups of publishers an annual spending level that increases YTY. How could they? The spends of their clients will fluctuate, as will the audience delivery of the publishers.

    What happens at say a Disney when their movies tank in a given year and Iger calls ESPN and bumps their sales number to off-set the movie shortfalls? Not possible in your model. Media conglomerates need to be able to manage their collections of businesses. They will never give up that control.

    Further, your suggested system would not guarantee the cost of servicing the agencies will go down. Most likely it would go up because the agencies will try to shift even more responsibility to the publisher as a way to cut their own costs.

    I've yet to see any publisher of worth or value be willing to cede control of their sales destiny to a third party. Google thought they could do it in print and radio, two silos that have been in decline and fell flat on their Google asses. The only takers were third-tier players who were desperate. Remember D-Marc?

    The only people at a publisher who would like your suggestion would be the bean-counters salivating at the opportunity to dump highly paid sales people and support staff.

  7. Steve Smith from Discovery, January 26, 2011 at 6:41 p.m.

    This is the exact opposite direction of successful publishing. What makes more sense is the elimination of Ad Networks amongst top 200 Publishers. Ad networks have undermined the financials of the business and those that are winning, Facebook & Twitter, are doing so by eliminating Ad Networks from their business model. This leaves a premium sales effort and self administered option. The Publishers need to re-organize and take back their business.

  8. Bill Jenkins from EmergingMedia, January 27, 2011 at 7:45 p.m.

    Cory, digital is an anything-can-happen world, most of us agree.
    But why all the "hear me out" and "wait a minute" language in your post? It sounds like you don't even believe this idea yourself.

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