Media Agency Survey: Key Trends and Implications for Holdcos

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Last week, MediaSense and the World Federation of Advertisers published the results of a survey focused on “the future of media agency models.”  As a leading agency pitch consultant and the primary trade association for global marketers, the two entities are well-positioned to field a survey of this nature.  The remainder of this note focuses on my takes on key issues addressed in the survey in context of prior analyses.

Media agencies are disproportionately important to the overall agency industry.   Representing nearly 40% of WPP’s revenues, a third of Publicis and around 20% of each of Omnicom and IPG, these businesses have generally been growing by mid- or high single digit levels when the rest of the business was flat or growing by low single digits in aggregate.  Put differently, they can be responsible for more than all of the growth that agency holding companies produce, and as they are likely much more profitable than overall averages for the holdcos, they represent an outsized share of profits, too.

Consequently, surveys of this nature, based as they are on the types of marketers who are often members of the WFA, and whose membership base should align well with the agency holdcos’ biggest clients are important to contemplate.  To be specific, the responses came from “70 major multinational marketing organizations” representing $50 billion of global advertising through an online survey.

Here are some data points and observations I thought were particularly important or provided incremental insights:

Media agency assignments depend increasingly (even now) on global presence and scale for the largest marketers; consolidation generally continues with some choosing specialists more often.  Perhaps unsurprisingly, 47% of respondents said their agency model is a consolidation around a single “Established” holding company (i.e. WPP, Publicis, Omnicom, Interpublic, Dentsu and Vivendi’s Havas) and 25% around two of them, with 5% using a bespoke Holdco solution.  However, there were no instances of advertisers working exclusively with a Challenger holding company (i.e. BrandTech, Dept, S4, Stagwell) among the sample’s respondents.  The report noted that “there may be geographic or capability limitations, which prevent global brands from going ‘all in’ (with challengers) at this stage.”   Illustrating the direction of the sector’s travel, 35% conveyed that over the past two years “they have consolidated into fewer partners while 16% have said they are looking for “greater flexibility” between partners.  There will undoubtedly be overlap between those two groups of respondents and the 15% of marketers who said they have favored greater use of specialist partners.

Media separatism (from creative) remains a real divide: creative agency networks don’t necessarily need to be integrated with media for the largest marketers.  59% of respondents’ media agency models are evidently completely independent from respondents’ creative network choices (i.e. the marketer doesn’t consider integration between a creative agency network and a media agency network).  Although a large number of marketers do align their creative and media within the same group of holding companies, they are in the minority.

Significant cost-savings opportunities remain around centralization of servicing (vs. localization – where the brands’ businesses are based) along with offshoring, partially encouraged by growing global concentration of media companies.  Only “7% of respondents claim to have media agency services fully centralized (with all services delivered via a single hub). However, “of the advertisers who have changed their service model over the past two years, 32% have moved to centralize more of their model (compared with 10% towards localization), and 14% having explored near/offshoring to drive operational efficiencies.”  As an increasingly important factor which I’ve written about in the past, “continued growth and influence of global platforms and publishers (i.e. the dominant and still-growing share of the same global sellers of advertising in almost every country around the world) will lead to greater centralization of agency services with limited need for local execution.”  More specifically, “53% agreed that the continued growth and influence of global platforms and publishers will lead to greater centralization of agency services with limited need for local execution.”   Although this trend is unsurprising, it does seem surprising that offshoring didn’t take off sooner.   As I noted in 2016 in talking about Publicis’ acquisition of Sapient, it seemed likely that at least part of the transaction was intended to facilitate offshoring for American and European-based clients.

In-housing (whether partial or complete) was significant among the respondents, but rather than a threat, in-housing can also represent growth opportunities for media agencies.  29% of respondents have said they have internalized or in-sourced more.  Although it’s possible to both consolidate agency work AND in-source, a Venn diagram of respondents on these questions would be very interesting to contemplate.   Interestingly, for the subset of those who have insourced “core agency services,”38% said they have done so with performance media, 38% with content development, 35% with analytics and insights, 32% with social media, 24% with creative ideation, 23% with e-commerce, 16% with influencer marketing, 15% with planning and 15% with traditional paid media.   Although many might interpret in-sourcing on this scale as a “threat” to agencies, this could alternately represent an opportunity, at least so long as there is a meaningful advantage for an agency to offer a service in terms of costs to operate or the benefits of scaled expertise.  Consider, for example, a report from IPG’s Magna and Roku last week related to optimal frequency which, show how, if managed well, the use of agencies can lead to meaningful cost savings.  This is because a marketer is unlikely to identify best practices in an evolving space as well on their own, unless they are themselves as large as the largest agencies.  Interestingly, for the 26% of respondents who indicated they in-house and use specialist agencies, 38% indicated they used specialist e-commerce and retail media agencies, 30% used social media agencies, 27% data and analytics, 26% in-house support, 23% search, 22% content, and 15% for each of traditional media buying and planning.   Interestingly, and validating the niche that agencies fill, when asked “As you now think about the media agency model for the future, how would you rate the importance of these elements?” access to talent is the one capability with the highest percentage of marketers agreeing with the capability’s importance, at 97%.  This is ultimately the core advantage that holdcos should be able to offer in the long-run, at least if they make wise choices in how they manage their talent.

Marketers are not terribly happy about the future fitness of agencies, but are marketers willing to pay enough for what they want?  24% of respondents said their agency model is ‘unfit for future purpose’ but it’s unclear if those are marketers who in-house or use specialists vs those who have consolidated, for example.  When asked how they wanted to evolve their agency model, 45% want more flexibility in their service model – i.e. the ability to be centralized or decentralized, or shift resources to and from the markets where they operate to offshore settings.  They also want more simplification, defined here as “fewer partners, better integrated.”  Only 23% said they want more consolidation of creative, media data and technology disciplines into one partner, so presumably what simplification means to one marketer has a different meaning to another.  Similarly, there are wide gaps between the numbers of marketers claiming a function is important and those who claim to be satisfied with those capabilities. Not evidently asked directly in any of the questions included in this study: is a given marketer willing to pay more for what they want, or is the marketer counting on the agency providing those services at the same or lower costs?   If so, spending on services may continue while dissatisfaction will, too.  And marketers are unlikely to shift all of their resources in house, at least so long as the offerings from agencies are better by comparison in most of the fields they operate in.