The insanity of the media buying remuneration & operating models
Quite simply: the digital/media agency model is messed up.
the agency model is deeply out of tune with where the market is going. This is particularly true from an operating model perspective, where content (creative) production and media buying are managed by separate agencies (even if they are part of the same larger agency group/conglomerate – think WPP, Publicis, Omnicom, etc.).
Let’s begin by taking a look at the basics of the commercial relationship…
Mind the (trust) gap
The trust gap between brands and agencies is widening by the day. In recent years, the key points of discussion (and disappointment) fuelling this gap have been mainly:
Murky media-buying fee structures. Counterintuitive and multi-layered fee structures make it difficult for the client to understand exactly what they are paying for. Anyone would think that it has been designed to confuse…
Ad deliverability issues and ad fraud. When looking at large ad spenders, only a few cents on the dollar are actually delivered on target. It’s an issue that seems to be out of control and many agencies are not putting enough real effort into minimising it because of a foundational conflict of interest…
“What conflict of interests” you ask? Well, there’s the following…
The insanity of the media buying agency remuneration model
It’s incredible to think that, nowadays, a large part of the media agencies’ remuneration is still calculated as a percentage of the media THEY buy on behalf of clients. This is clearly a relic of old school offline media buying – when agencies needed to monetize (and correctly so) the relationships built over the years with media owners to win space for their clients.
A conflict of interest? Yes, it certainly is.
A deal based on FTE, with targeted performance incentives would be way more beneficial to clients, but will agencies consider them? Only some do, and it’s mostly the small/medium-sized ones that don’t have to justify the mammoth-sized overheads built up over time.
And there’s more. Another subtle, but no less deadly issue of the broken agency model…
Lack of accountability on campaign performance (Content vs Media)
We live in a market where the consumer is in full control. However, on the agency market side, the concept of “content Vs. media” still dominates over “content + media”.
The fact that media buying and content/creative production don’t truly live under the same roof is probably the biggest missed opportunity in this space today. So much more value would be created for both sides if media buying and content production were deeply integrated through data intelligence. It is still extremely rare that this is the case. As a result, there is a lack of accountability on the agency-side.
Raise your hand if you’ve ever experienced the following:
- A campaign performed below expectations (or worse).
- Once the campaign is reaching its end, you want to do a post-mortem analysis.
- The media buying agency and the creative/content agency start pointing fingers at each other (mostly behind the scenes), each blaming the other for the poor performance (i.e. poor content vs poor media targeting/buying).
- You inevitably find yourself caught in limbo between the two sides, and you are completely unequipped (no matter how much of your hired talent is in the room) to determine the root cause.
So, as a client, you are left in a position where it is impossible to judge what has really happened and why, and which side is right. Therefore, you feel cheated – unable to reach the real and valuable outcomes that such analysis should afford. This is highly inefficient for everyone involved, and mostly obviously for the client.
The race to the edge of the cliff
As reported across the media it has been a bad year for the holding companies that own the largest advertising groups – with a sharp downturn in share values for WPP, Publicis and Omnicom.
Hedge funds are even amassing huge bets of $3bn against the leading global advertising firms – including Publicis, Omnicom and Interpublic – resulting in WPP’s value plummeting by 10% since the start of 2018.
The agency model is clearly racing to the edge of the cliff. Fast. Large groups and agencies are struggling to pivot the operating models of their larger owners to fix the trust gap. Instead, they seem focused on milking the situation for as much and as long as possible focused on short-term objectives.
The good news for clients is that a new breed of small agency players – just like the classic ‘start-ups versus incumbents’ paradigm in other industries – are moving much faster in this kind of transition and slowly starting to eat the big guys’ lunch.
So where does that leave the big guys? Are they going to be the new Kodak or Blockbuster? Well, unless they thoroughly transform their structure, extinction is definitely an option. In fact, it’s just around the corner. Let’s wait and see.