Are the big six ad agencies heading for extinction?
Revenues have been sluggish among the big six holding companies, with Publicis Group reporting a 2.7% fall in revenue that immediately led to a 13% share price reduction and a 4% drop at WPP. Often seen as bellwethers of the economy, do the failing fortunes of the world's biggest agencies indicate a new recession or is there something more fundamental happening in adland? Is it time for the industry to rethink the traditional agency business model, which has been dominated by large holding groups and remained essentially unchanged during the last 30 years of great transformation in the world?
Giants & Titans on question whether agencies need to evolve and adapt or consider whether they risk facing extinction.
Dave Reed, co-founder and director of Birmingham’s highest rated creative agency, Giants & Titans, discusses the key issues and describes how his boutique agency is securing more big brand creative work, while the bigger players struggle to adapt.
Latest figures from the Office of National Statistics (ONS) reveal that we’re teetering on the precipice of a recession, with Brexit and the ongoing China-US trade war taking their toll on the UK economy. Yet despite this it was the creative sector, in the guise of TV and film production, which provided a much-needed boost in the three months to August. Ad agencies on the other hand are reporting falling and faltering results.
Where TV and film has adapted to a changed world, with traditional terrestrial channels being overtaken by the digital goliaths of Netflix, NOW TV and Amazon Prime, the traditional agency business model of large, slow-moving holding companies has remained largely the same. Media buying agencies in particular, which have up until now relied on preferential rates due to large spend, are struggling to justify their existence in a digital world where no matter who you are the cost of an advert remains the same and the quality of creative and how it’s delivered determines the reach.
Big brands are increasingly waking up to the fact that they don’t need an agency that can match their size but one that can match and exceed their ambitions. Where once there was a belief in the stability of some of the big beasts, clients now find that there is so much transition within behemoth organisations who struggle to retain staff that they often find they have a new account team every six to 12 months.
Speed of response tends to be one of the biggest bugbears of brands. Most larger agencies are seemingly unable to cope with what Brad Jakeman, former president of PepsiCo, referred to as the transition from the need for four pieces of content per year to 4,000. Where Pepsi opted to build an in-house agency, which then took the brunt of the criticism of the brand’s ill-fated Kendall Jenner advert, others are using boutique agencies like ourselves who can problem-solve and create in much shorter cycles.
For smaller independents there isn’t the need to cover huge overheads or maintain strong returns for investors. Often clients are shocked by our willingness to provide the simplest and easiest solution rather than the most expensive. Whereas a media buyer will inevitably revert back to type, suggesting a high-cost traditional media campaign and a social agency will always opt for a social activation, independent creative shops like Giants & Titans are able to benefit from and access a broad range of skills and experience which means that they don’t deliver the same old predictable answer to clients. This old-school obsession with revenue gain and petty money grabbing is painting agencies in an increasingly bad light leading to a significant increase in in-housing.
A great example of this difference in action is our support for Kaspersky Motorsport. Having developed some social assets it soon became apparent that we just were not going to be able to generate the cut-through we needed and get the most effective content without being at the numerous events the brand appeared at. Following a quick call to the client we found ourselves track-side developing the content that mattered most to the fans. As a result, Kaspersky was in pole position at races such as the iconic 24 Hours of Spa and Darya Marina and the communications manager at Kaspersky Motorsport, described working with us as “the experience of a lifetime.” A larger agency either wouldn’t have raised the issue at all in a quest to maintain margins or would have instigated a process of revised budget sheets and proposals. By the time these were signed off the season would have already been over.
This campaign agility is only possible due to the fact that for independents like us, directors and owners can remain close to the action and can adapt all facets of a client’s account to their needs whether account management, campaign delivery or evaluation. We really can act as a partner to our clients in a way that isn’t possible with larger agencies, who are reliant on ass-covering techniques like timesheets, contact reports and those other unnecessary, time-intensive administrative processes that are needed when the agency leadership is so many steps removed from delivery.
The latest ONS statistics have given the UK a small reprieve in what may be an inevitable recessionary period. Rather than attributing all of their fortunes to the tumultuous global economy in their next set of results however it may be time for the holding companies to consider whether they can evolve and adapt in the same way as TV and film production, or whether, like the big beasts of the prehistoric age, they aren’t simply heading towards extinction.
Dave Reed, co-founder and director at Giants & Titans.
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