• by Richard Whitman , Columnist, September 14, 2016

Things do not appear to be looking good on the agency client budget front.

 A recent Q2 survey of ad agencies conducted by STRATA found that agency budgets and hiring remain flat as they see looming headwinds.

Agencies report almost half (49%) of clients are making "considerable" or "minor" budget cuts, while 31% of budgets will remain flat. A quarter of agencies say business will decrease in the second half of the year, the highest percentage seen in the survey since Q1 2013. Reflecting budget concerns, only 33% of agencies report they are hiring new staff, a 21% decrease from last quarter, while 56% will keep staff levels steady.

However, the percentage of agencies anticipating the need to reduce staff rose by 84% compared to the prior quarter, a 131% increase when compared to 2Q15.

Concerns over client spend spiked by 82% as compared to the same time last year, as 20% of agencies listed it as their biggest challenge this quarter. The leading concern for a majority of agencies (26%) was
attracting clients, followed by media mix (21%).

There is a bright spot though. And it's right where you'd expect it to be. Social media ad spend has increased. The percentage of agencies spending less than 5% of their budgets on social media dropped to the lowest amount in the history of the STRATA survey to 27% of agencies. In total, 69% of agencies are devoting between 6-25% of their budgets on paid social.

Twitter remains fourth place in the survey for the second straight quarter, as 49% of agencies are using the platform in their ad campaign, a 13% drop from last quarter. Instagram fell 10%, but has the interest of 57% of agencies to remain in third place, following YouTube (78%) and Facebook (97%).

Of the findings, STRATA VP of Revenue Judd Rubin said, "It is somewhat surprising to see this level of pessimism among ad agencies as we head into the heart of the presidential election and holiday shopping season. A bright spot is the continued growth of social media ad spend, which may be partly due to both continued strides in that space and the fact that agencies are looking for more affordable ways to spend their clients' budgets."

Of course programmatic ad buying is capturing a larger share of ad spend as 12% of agencies plan on executing 40-60% of their buying programmatically, a 90% increase from a year ago. Another 28% of
agencies intend to carry out between 10-20% of business programmatically. As well, video advertising continues to dominate as more feel confident in its ROI. The survey found 68% of agencies are using
video, both traditional and streaming, as their primary tool. Seventy-seven percent of agencies are focused on online/streaming video, the largest amount in survey history. Digital video now also
leads the digital category, surpassing social as the leading area of focus within the digital category with 70% of agencies utilizing digital video, up 25% from a year ago, compared to 67% for social.

In terms of ROI, 59% feel fairly confident they are getting a good value for their money with their recent online video ad purchases, a 21% increase over the previous quarter. Thirty-four percent of agencies said they trust programmatic buying to properly or accurately execute their online/streaming video orders, up 41% from last quarter.

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