WPP Results Show Why Agencies Are Merging, Not Dying

The media agency model has received more premature obituaries than email marketing, and that's quite a few. Today it's tempting to dust off the old arguments and give them another airing, given that WPP is flatlining and merging agencies like an overactive wedding planner.

Billings are down 5%, like-for-like, and Sir Martin Sorrell has referred to 2017 as "not a pretty year" where margins and revenue are just flatlining. But does this spell the end for a model or an individual company that is still making a post-tax profit of GBP1.9bn? It's unlikely.

There is a lot of truth in the arguments made about media agencies. There have been massive transparency issues. There are rebates that agencies feel their budgets earn, but they don't always see returned and might lead an agency to place budget where the sweetest kickbacks are. There has been a woeful lack of attention given to viewability and brand safety. It's easy to forget the two YouTube brand safety boycotts of last year resulted from an investigation at The Times, not a sharp-eyed media exec.

Then there are the potentially damning insights that, as an Adobe study found, nearly two in three brands anticipate taking their programmatic spending in-house within five years. 

The pent-up feeling that the model could do more for the people who throw money in at the top of the funnel and the sentiment they could just do it for themselves have been palpable for the past year or so. 

Little wonder, then, that so many big names are calling media reviews. HSBC, Shell, Asda, Sky, Mars and Coca-Cola are all, according to The Drum, reevaluating their media accounts just a couple of months into 2018. 

I remember looking at this before. A couple of years ago we had a massive raft of media accounts being renewed. The inconvenient truth for those writing off media agencies is, they largely just changed hands. They didn't go off-grid or set up on themselves, they simply moved shop. The individual agency relationship ended, but the business model was not replaced.

Since then we've had 2017 as the year of the transparency debate and that appears to be bringing in change. Fundamentally, though, there are a couple of reasons why big brands are likely to stick with the big agencies.

The big guys get the best deals on media. It's probably the original reason for picking a big agency but it still holds true that their purchasing power can get brands a better deal.

The big media agencies are where the smart people are, the best buyers and planners and strategists don't pop out of a programmatic platform for you, they're developed over years of experience. And all the tools that a company believes it can use on its own, a media agency can use for it. 

What will most brands choose, the heavy lifting of setting up on their own, or employing the experts who get the best deals on media?

Sure, some will do their own thing and that doesn't mean they won't come back to the agency model at some stage. The majority, I believe, will stick with a media agency.

But here's the rub. Brands are realising they do need as many agencies doing as much stuff for them. Both P&G and Unilever are leading a charge here to halve their rosters across the world and assets are being made to work longer for harder. 

The model will survive, but there won't be quite as much need for so much of it from so many different people! So expect to see WPP et al merging agencies, and on the human side, announcements that merged agency heads are off looking to explore new opportunities. 

2 comments about "WPP Results Show Why Agencies Are Merging, Not Dying".
Check to receive email when comments are posted.
  1. Michael Hubbard from Media Two Interactive, March 2, 2018 at 8:44 a.m.

    While I don't disagree there's been a lot of consolidation on the media agency side, and I agree that I think that trend will continue despite a number of marketers bringing the technology in house - I think the issue is more along the lines of your perception of agencies, and unfortunately, it's a common perception from a lot of the larger marketers.  "The big guys get the best deals on media."  and "The big media agencies are where the smart people are".   

    While there are benefits to larger agencies, such as scale, braintrust, etc - those two statements are ignorant at best.  While the buying power has been somewhat neutralized through the advent of the exchanges, the reality is, the buying power lies in the hands of the marketer - not the agency.  Don't believe me?  Call up Google and see if they don't have a team assigned to EVERY large marketer out there.  My point being, if you moved P&G's billings to a small shop like mine - that doesn't mean I have any more buying power than I did previously - I just now manage the clients buying power.  

    More importantly, as I've interviewed hundreds of large agency talent over my 20 years in the digital media space, I can tell you that your assertion that they're smarter couldn't be further from the truth.  While there is great talent at every large agency I'm sure, the fact that they are silo'd completely neutralizes their talent.  I can't tell you how many media buyers I've spoken with who have NEVER had a client facing conversation.  If you really believe that the game of telephone is effective - then I guess there's no point in having this debate.  But I truly believe that a media agency that allows it's people to buy (direct and programmatic), analyze, run search, negotiate with vendors, speak to the client as well as run ad opps as the smarter of the two people.  They fully understand start to finish the impact of their strategy - and more importantly, they can get stuff done for the client.  It might be a pretty big reason people are doing reviews at higher rates...  Not because they want to take media in house, but because they don't have any other choice but to take it in house.   Again, I understand why a P&G won't ever come calling to a 10-person media shop for their AOR, but I do believe if more CMO's had the time, they'd choose to manage 10 small media agencies over one large one - and probably get a lot more accomplished.  Obviously, I'm pretty biased on this conversation, but a little surprised that a publication like MediaPost still thinks in this manner.

  2. Ed Papazian from Media Dynamics Inc, March 2, 2018 at 9:34 a.m.

    While both sides of this debate raise valid points, my company serves agencies of all sizes and, to Michael's point, there is a good deal of siloing at the largest shops which inhibits the full use of whatever smarts the individual may have. As a result, the migration of large agency talent to smaller shops continues  in both the media and creative functions---in the latter case with many "creatives" setting up their own agencies. However, when it comes to media buying, particularly the large corporate TV AOR buys, Michael is also right, there's little chance that a small shop can compete with the biggies who not only have the skills but the information and special relationships with the sellers on their side. So a well thought out mix of large and more specialized small players---each used for what they do best----may be the right call in many cases.

Next story loading loading..