If Media Costs Are Down, How Come Agency Fees Are Up?

Interesting to see today the two sides of what agencies reveal they are currently going through in eConsultancy's Top 100 Digital Agencies 2015 report. On the one hand, three in four are "very optimistic" for the year ahead -- and it's little wonder, as fee income has increased by 25% over the past year. 

At the same time, however, agencies are reporting that clients are beginning to ask more searching questions and believe they are up against the twin threat of Google and Facebook -- and other tech companies -- that are offering a direct route to market as well as agencies taking roles in-house. To be honest, they are pretty much twin sides of the same coin. Faced with the so-called consumerisation of IT, brands can now have incredibly powerful data-handling tools in their own hands linked to ad networks and social media sites directly without the previously compulsory step of going through an agency.

Agencies are clearly right to feel threatened by this. They clearly have the best minds in the business and will usually have access to the best tools and data insights, which can be fed into sophisticated media platforms. But the point is that brands are on the verge of having access to these too. This capability will make it easier and easier for advertisers to go their own way. Of course, not all will. We all have the ability to service our own cars or clean our own windows, but we will typically get an expert in to do it for us. Increasingly, however, advertisers will question the need for agencies. They may well decide the creative geniuses are needed, and perhaps the clever planners and the smart guys who make sense of the data and link marketing to sales. But here's the big question -- do they need so many agencies? Couldn't some of this be done in-house with the right tools and expertise?

The twin-sided story that struck me recently about agencies arose from a discussion with a pal who has worked with the huge guys in London and is now launching his own company. To be clear, his company is there to help brands self-serve or at least cut down on their reliance on so many agencies. So he clearly has a dog in this proverbial fight. His question, which I couldn't answer, feeds into the findings of eConsultancy's annual report. If, as they say they are, agencies are trimming back their media costs, how come they're all making loads more money? If eConsultancy is right, the average fee level has risen 25%.

To be clear, I don't know what the answer is. My pal is betting his shirt, though, that brands suspect agencies are trimming media but then hiding extra costs elsewhere and thus some will shy away from a conversation around transparency. If that is the case, advertisers may be more more inclined to invest in the tools and skills themselves. If that happens, being able to offer a self-service advertising platform would be a pretty good place to be.

We'll have to see how this plays out, but if I were a brand I would be very interested to hear what my media agency has to say when asked the question of how they have managed to trim media costs but are still reporting higher fees. There could be a very simple, reasonable explanation of more budget going into buying more media, and so -- even though the cost per unit is down -- the overall fee is higher. That is perfectly plausible.

However, if the answer is that fees are being made around advertising technology, perhaps operated by third parties, then I suspect that many would investigate those tools, just in case they can take more control themselves.

Only an advertiser and agency can come up with the answer that applies to their relationship. The question is certainly one worth asking.

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