Commentary

Would You Want To Be A Media Agency CEO In 2015?

Last week I spent time with a number of senior media agency execs from several different markets, and discovered that their challenge is daunting.

The current media agency income model heavily relies on fees. These fees are typically calculated on the basis of full-time equivalent shares of people working on a piece of business, plus overhead and other costs of running an account. There’s often a pay-for-performance or other incentives included to drive the agency to deliver.

This model is being challenged by fast and furious changes in the media world:

The media-buying process is increasingly automated. This is good news for agency bosses, who will be able to reduce headcount (if you’re a media buyer: brush up your resume and skills beyond Excel!). The bad news is, many other parties, some of whom are not agencies at all, are offering competing technology solutions. Think of marketers buying white-label programmatic and RTB solutions to manage RTB/programmatic in-house. Or think of BrightRroll and TubeMogul. Any technology company is a potential competitor.

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The other part of the bad news is that agencies (and competitors as outlined) will not be able to drive the same kinds of revenues and profits from algorithm-driven media buying as with traditional media buying. There’s already a race to the bottom going on in programmatic, and the end is not yet in sight. Just think of the print media industry, generating an ever-growing share of digital ad sales, but with revenues generally so much lower that they will never, ever compensate for losses in traditional ad sales. Agencies might be facing the same problem over the next few years.

The obvious answer for agencies is to prop up the front end of the process with, for example, strategic advice that focuses on integrated communication strategies. Big data and analytics play a key role here.

But the truth is that many agencies do not (yet) have the kinds of people and systems in place to deliver these types of services. There's also the pesky problem (as discovered through WFA research) that marketers believe that they’re the best people to do this type of planning -- while, yes, agencies believe they are  the best-suited for the task. Neither marketer nor agency believe that the other party can do it. So there is a bit of a credibility gap here.

The other challenge is that agencies would have to attract top analytics and math talent, a group of people in short supply and high demand. Agencies will be competing with the financial world and the tech world, both of whom pay (according to research from last year) two to three times the starter salary of a media agency.

And here, too, there are more competitors positioning themselves at the front end of strategic marketing. Creative agencies frequently sell a proposition of a big idea coupled with integrated strategy, a claim that is gaining a lot of credibility. Bain, Accenture and other consultants claim the strategic space, too.

So there you have it. The profitability of media buying at traditional media agencies is being challenged by lower revenues and broader competition. The front end is not necessarily a given as replacement for that lost revenue. What would you do?

6 comments about "Would You Want To Be A Media Agency CEO In 2015?".
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  1. Rick Miller from Networked Insights, January 26, 2015 at 1:37 p.m.

    Maarten, I can tell you from experience that in-house marketing departments also lack the math and analytics talent -- especially as applied in an advertising context (not CRM). So the agencies have some time to build here. But the smarter move may be to partner with an analytics company that provides the tools & data to play at the front end of the pan while retaining some of the strategic planning/big idea responsibilities.

    May not be as heady as the old days, but keeps them in some form of a power position.

  2. Henry Blaufox from Dragon360, January 26, 2015 at 4:29 p.m.

    In house can handle the programmatic buying related work with assistance from inside and outside technology experts. But ghey are likely to come up short on media planning, so they have the best idea what to buy in the first place; and then delivering the goods - the actual ad in any medium. That creative work, and media planning, should stay with the agency partner.

  3. Parkash Ahuja from RBG Marketing, Inc., January 26, 2015 at 5:48 p.m.

    It is important to add a value in terms of the success of our clients. Partnering in strategic planning is as important as the process of implementation. If we are doing our job right, our clients would rely upon our expertise and that to me is the best place we can be. At the end of the day, everything will fall at its right place if we do everything right for our clients.

  4. Morten Pedersen from GLUE2020, January 27, 2015 at 5:35 a.m.

    Maarten, good article as always. A few things to consider maybe:

    1/ Media agencies and their holding’s dependence on client-related revenue has diminished considerably in the last decade,

    2/ Profit from automated trading is actually higher than traditional (otherwise, agencies probably wouldn’t sell it),

    3/ Big management consultancies are still far behind the agency world when it comes to mixing art and science – but you’re right, competition is now coming from all sides…

    I think we should all take a moment to applaud the tremendous things that media agencies (and their CEOs) have accomplished during the biggest economic turmoil many of us has seen.

  5. Michael Melone from Purebred Digital Consulting, January 27, 2015 at 12:06 p.m.

    Maarten I think that your viewpoint is spot on. The key in the evolving industry begins with educating decision-makers on what to look for in their programmatic partner(s). Each programmatic provider has their own "secret sauce" and some of them seem to have an automated back-end and reality have a few stats guys/gals making recommendations to the account teams.

    Making sure that Media agency CEOs and their strategy/activation teams are trained to see good and bad opportunities is critical. This approach will have short and long-term benefits for customers and agencies.

  6. Kamran Asghar from Crossmedia, January 28, 2015 at 9:20 p.m.

    This should be titled "Do You Want to be a BIG Media Agency CEO?" Couldn't be a better time to lead or start a new media agency model.

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