Nick Manning: The post-coronavirus agency world may look very different
Crises, like wars, tend to accelerate the pace of change - and this one will have a profound effect on our entire industry
The current COVID-19 crisis makes it hard to justify writing about such relatively trivial matters such as advertising, but we should think ahead and constructively assess how our industry will restore itself once life resumes in its ‘new normal’ state.
Crises, like wars, tend to accelerate the pace of change and this one will have a profound effect on our entire industry. Clearly there will be a severe downturn in the short- to mid-term. All industries will be affected in some form and advertising, seen by some as a discretionary discipline, may be affected more than others.
We have had crises before but never anything of this scale; this month marks 40 years since I joined the media agency world as a trainee TV buyer and I thought I’d seen everything.
When I joined Chris Ingram Associates in 1980 the independent media agencies were in their infancy. Forty years later they have long sustained the major holding companies’ profitability and more recently the new independents have been in rude health domestically. Media agencies are a critically important element of our industry and are populated by brilliant people, but their business model remains stubbornly stuck in the past and has been in need of renewal for a long time.
So how might the crisis affect the industry and lead to new thinking?
And, specifically, how should the media agencies adapt to suit the new landscape?
We all know that brands should ideally be supported through extremely tough times, but the reality is that some simply cannot justify continuing to spend as normal. The appetite for advertising is low when public sentiment is rightly distracted by more fundamental matters. Supply-chains are hugely disrupted and companies may not want to spend while having to reduce their staff numbers.
Meanwhile, we’ve already become used to brands being built and sustained in other ways. This crisis is showing that some are actively demonstrating their social value (eg Tesco and other retail outlets changing opening hours for vulnerable and NHS workers, hotels offering capacity) while others are either mute or actively courting people’s wrath.
Do ‘larger-than-life’ characters such as Tim Martin, Peter Green and Mike Ashley think that they can emerge from this without serious harm to their businesses?
Should EasyJet really pay out a £175 million dividend just before asking for a government bail-out, whatever its obligations are?
Should Kraft Heinz really be announcing a global media agency review when the media agencies are grappling with human and operational nightmares?
‘Brand purpose’ is starting to become a true point-of-difference when tangible, authentic and empathetic.
People can spot the real thing a mile off. They will remember those companies and brands who stepped up during this crisis, and those who did not. Those companies who look after their people will gain in the long term both as employers and in public favourability. Customer, brand and employee experience will all gain in importance.
The crisis will reinforce the trend towards brands being cultivated in many different ways, and a new breed of agency is needed with the skill-sets to nurture brands across the range of options, including brand communications and customer, employee and brand experience, especially as budgets for paid-for advertising come under pressure.
Vertical integration will happen, and some players are already moving in that direction. We will see more mergers of agencies within the big groups to address this need.
The new-breed agencies will also work happily with clients on hybrid in- and out-of-house models according to the client’s requirements, as advertisers increasingly realise that control is vital. Those who resist will limit their options.
Yes, ‘advertising’ is part of this, but industry definitions will need to expand to escape the constraints of separation between disciplines. Advertising, customer and employee care and brand experience will merge into one.
And, inevitably, strategy and messaging will be at the heart of any such approach. It’s more than ‘touchpoints’; it’s about culture and how brands add utility and value to people’s lives in multiple ways. A creative heritage allied to operational expertise will come to the fore.
What does this mean for the media agencies?
For some time now the network media agencies have maintained the profits of the holding companies, and never more so than after the 2008 global economic crash. As holding company income nose-dived, some of the big media agencies were able to exercise their muscle with the media trading supply-chain and replace lost client earnings with other sources of income, via rebates, tech taxes and arbitrage, among others.
More recently they have been able to launch new services that are less reliant on trading mechanics, but many still derive the majority of their income from media buying , and this trend has been consolidated as high-margin digital spend has grown.
As growth for the major holding companies has stalled (with minimal uplift in 2019), the contribution from the media agencies has become ever more significant, and therefore the trading-led focus has intensified. This has had a knock-on effect, and has arguably accelerated the trend towards client in-housing of media.
While clients are looking for better, faster, cheaper integrated content and channel solutions they will look inwardly if they don’t find what they need elsewhere. This tendency will intensify post-Coronavirus, as will the dialogue between advertisers and media-owners over cross-media measurement, an area where media agencies are in danger of becoming spectators.
Unlike 2008 the network media agencies will not be able to leverage their scale to drive higher margins. The shift towards media transparency since 2016 and the changes in media spend profile in digital have closed off many avenues and the system cannot yield significant further trading income benefits.
Data is less of an advantage in the market than scale of spend, and does not add as much margin as media trading when clients take control of their tech stacks.
The solution, as ever, is for media agencies, whether networks or independents, to add most value where they use their experience and expertise to understand people’s media usage, identify target groups and reach them in effective, inventive, relevant and cost-efficient ways.
This was true in 1980 and is even more so now with the data and technology we have, and in a world of infinite media choice these skills are vital. Media strategy and planning have to be restored to their primary position and new revenue streams should be developed accordingly, not dependent on media spend.
As the scale of spend declines post-crisis, and before it hopefully recovers, media agencies have to wean themselves off a majority trading-led revenue model towards a more value-led income profile that rewards effectiveness and the true contribution that the media agencies bring.
This is, needless to say, a huge task after decades of the reverse trend, but it is existentially important. The ‘FTE plus overhead model’ is also not the solution; outputs have to predominate over inputs.
And, crucially, media agencies should work hand-in-glove with the new breed of agencies emerging to provide the wider range of services that help build brands. This crisis provides an inflection point for change, and fortune will favour the brave who take the lead. This may be the only opportunity to do so.
Nick Manning is the co-founder of Manning Gottlieb OMD and was CSO at Ebiquity for over a decade. He now owns a mentoring business, Encyclomedia, offering strategic advice to companies in the media and advertising industry. He writes for Mediatel each month.