Nick Manning, Founder at Encyclomedia International, Non-Executive Chairman of Media Marketing Compliance, and patron of Advertising: Who Cares?, joins TrinityP3 Global Media Business Director Stephen Wright to discuss whether something is rotten in the media agency world.
Reports that various publicly listed holding companies are driving profits through principal-based media trading have the industry split. Often framed in the context of providing advertisers with access to media inventory at a lower cost or providing advertisers with access to a more fluid media funding model, some brands are embracing this as a win for advertisers and agencies alike.
On the other hand, there is a growing voice of dissent, pointing out that the lack of transparency and accountability means that agencies are making significant profits at the expense of media performance and value.
They discuss both sides and explore possible solutions.
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“I’m struggling at this point in time, to see a way in which it can practically be delivered without some serious behavioural changes from clients”.
Transcription:
Darren:
Hi, I am Darren Woolley, founder and CEO of TrinityP3 Marketing Management Consultancy, and welcome to Managing Marketing, a weekly podcast where we discuss the issues and opportunities facing marketing, media, and advertising with industry thought leaders and practitioners.
If you’re enjoying the Managing Marketing Podcast, please either like, review, or share this episode to help spread the words and wisdom from our guests each week.
Now, something is rotten in the media agency world, or is it? Reports that various publicly listed holding companies are driving profits through principal-based media trading has the industry split.
Often framed in the context of providing advertisers with access to media inventory at a lower cost, or providing advertisers with access to a more fluid media funding model, there are those brands who are embracing this as a win for advertisers and agencies alike.
On the other hand, there’s a growing voice of dissent pointing out that the lack of transparency and therefore accountability means that agencies are making significant profits at the expense of media performance and value.
To discuss both sides and explore solutions, please welcome to the Managing Marketing Podcast, Media Agency co-founder, ex-agency CEO, founder of Encyclomedia Media International, Non-Executive Chairman of Media Marketing Compliance, and patron of Advertising: Who cares? Nick Manning.
Welcome, Nick.
Nick:
Hello, nice to join you.
Darren:
Well, thank you for getting up early on first night of the week.
And we’ve also, got joining me as our global media business director, Stephen Wright. Welcome, Stephen.
Stephen:
Thank you, Darren. And welcome, Nick. Great to be chatting with you.
Nick:
It’s great to be talking to you too. I’m looking forward to this.
Darren:
I think a great starting place is from our perspective, 2015, we started hearing about value banks. These banks of inventory that agencies were collecting from media owners that they could then use for various things such as topping up a media buy or on selling to other people.
But I’d like to explore from your perspective, Nick, is that significantly different from what we’re seeing today with principal media trading?
Nick:
Well, the methodologies have varied over the years, and you can track this back to the mid ‘90s and in fact, you can almost sort of say where Ground Zero was in Europe at that time.
And it’s gradually spread around the world, and it’s taken different forms in different territories, and at different times depending on the media market and the way that it works. I’ve been following this now, for 15 years.
And it has morphed and it’s changed, and it normally changes because the advertisers get wiser, shall we say, about what’s happening on their business. And has been a number of studies, as you know, carried out by the various advertiser associations during the last 15 years.
So, in fact, the AANA have done their own. The ANA, obviously quite famously, in which I was very heavily involved. And ISBA in the UK.
And so, what tends to happen is that as various of these kinds of schemes get exposed as it were, things then tend to move on contractually and in media practice.
And also, of course, the media market has changed dramatically since 2015. Programmatic has got much larger, new channels have come along. So, the areas where these practices can happen have expanded in all sorts of ways during that time.
But essentially, Darren, what we’re talking about is non-transparent media trading and it comes in various forms, and it’s been growing like crazy over the last 15 years or so. And what you just referred to is really one type of it.
Darren:
Yeah, Stephen.
Stephen:
Yeah, and I think that’s part of the issue, Nick, because it is confusing, it’s wrapped up as principal-based trading but it blurs into all types of trading.
And I think that that’s part of the issue with regard to the industry getting to grips with it, is because it’s so hard to understand exactly what it means, how it’s conducted. And it does vary by market as well. And I think that’s why the clients are not calling things out as much as you would expect.
Nick:
Yeah. I think obviously, the clients do the best they can, I think, is probably a kind way of putting it, a charitable way of putting it. But this thing moves the whole time.
And the agencies are extremely good at these things. They do it day in, day out, they have specialists doing it. So, there’s a bit of cat and mouse has to go on, but it changes so much.
And if you look at a media agency contract now, and I know that you do, it used to be 10 pages long if you were lucky, actually. We’re now, running into 50, 60 pages of sub clauses, schedules, you name it, not just covering the financials which are obviously are crucial, but also data.
And so, there’s a lot of talk about transparency. And up until now, most people, when they talk about transparency, you’re talking about financial transparency. But we need to look at data and financial transparency especially as now, a lot of principal-based media schemes aren’t just about the money. They’re also, about data as well.
And all of the big groups are now, wrapping up data assets in with the financial machinery, if you like, of principal-based media. And you know who these digital units are within the big groups.
And so, when we talk about principal-based media, it’s actually often presented as a combo of media and data together, which makes life even harder for clients to understand what’s going on.
Darren:
Yeah. The way it’s presented by a lot of the holding companies is quite attractive though. We were running a media pitch in north America earlier this year. And in the negotiations, one of the holding companies (I’ll name them, Publicis) came to the party and said, “Here, sign this agreement, this outside of the contract, and we can offer you substantially cheaper media buying than you would get under the current contract.”
And I have to say, both the marketers and procurement were very keen on that promise without even considering in many ways, the risks associated with it.
I mean, you say data’s part of it, and I get that from the point of view of the complexity of it. But a lot of this is being driven, isn’t it, by this desire by marketers and their procurement teams to seem to want to buy media at the lowest possible price.
Nick:
Well, ultimately, that’s what-
Stephen:
I think-
Nick:
Sorry, Stephen. But that’s what procurement tend to want and need. And we’ve talked about this in the past, but if you’re a procurement person, your main role in life is to reduce cost. And therefore, any means you have of doing that.
Or actually, I’m going to rephrase it, reduce ostensible cost because in media it’s quite easy to compare oranges and apples and lemons and call them all fruit, but they’re very different.
So, in some ways, everything you are talking about there, Darren, makes sense in terms of the way it’s presented. The trouble is that the complexity lies underneath the hood when you actually get down into it.
And on the surface, it can appear very attractive. But there are various pitfalls that need to be negotiated in that. And specialist knowledge is often lacking.
Stephen:
Nick, procurement where you reside in the UK are particularly aggressive. And in terms of acceptance of these hidden non-transparent fees, how accepting have they been? How prepared are they to just not understand how much they’re actually paying their agency partner and therefore the value they’re getting?
Nick:
Well, the UK is unusual in some respects, but I think the main issue we have globally is what goes on in the US because what goes on in the US tends to affect everybody else.
Partly because it’s the world’s largest advertising market, but also, it’s where so many international contracts are negotiated by the multinational companies. And that has implications for Australia, for the UK, and in fact everywhere else for that matter.
So, the issue is more to do with what goes on in the US and the US is a very specific market and principal-based trading. And even the term that principal-based trading really only relates back to the US market because they distinguish between principles to a contract and agents of the client in a way that we don’t hear, and I don’t think you do there either.
So, this really comes back down to what goes on in the US and then its implications for the rest of the world. And the truth is that in the US, quite a lot of companies, US-based multinationals have been quite seduced by what appears to be an offer which is almost too good to be true.
And we’ve seen pitches recently where in many instances the agency is offering to have no fee at all for a period of time because they know that they can … and they’ve being transparently untransparent about this. They are saying, “We will work for no fee as long as you sign up to these schemes.”
And it’s positioned as a win-win. In other words, the client’s better off because they get lower media pricing and access to certain data assets and the agency gets to earn some more money. And the people who are funding all of that tend to be the media vendors and other people.
So, it is very strictive on the surface. And most pitches right now, especially the big global ones, revolve around this central issue. And there’s been a number of big global pitches where principal-based trading has been the main difference between winning and losing. That’s how important it is.
Stephen:
We’ve seen the first of those no fee deals in Australia more recently for some of the larger companies. So, those behaviors are creeping in here but I’m not sure how that ever allows a client to understand the value they’re getting because hidden in amongst it all, in amongst very large and substantial media spends is the fee being extracted by the agency. Darren?
Darren:
Yeah, because, Steve, one of the problems is that procurement particularly holds onto this concept of working and non-working capital. And buying media is seen as working and everything associated with it. The agency fees and everything else is non-working.
I mean, just who would spend any money on something that’s called non-working? It’s a misnomer, but it drives a mentality and a behavior which says, “If you are going to do this for free, that’s great value to me, because you’ve just eliminated my non-working spend.” I mean, it really is a hangover from the deep, dark days of below the line advertising. Yes, Nick.
Nick:
Yeah. And that is exactly what happens. And procurement people are able to go into the CFO’s office and say, “I’ve been able to negotiate this with no fee.” It means that we’ve got no non-working funds, which is as you say, a misnomer.
And so, it’s a very attractive sell, and you can see why it’s proven to be very popular particularly in the US where principal-based trading is different to how it is everywhere else.
But there’s lots of reasons why advertisers should resist this. And many do, but there are lots of issues as we all know about this. And unfortunately, in this crazy world that we live in where money talks and everything else walks, it does look very attractive at a financial level.
And to a certain extent, clients are prepared to put aside their misgivings about this in the interests of chasing what appear to be efficiencies, even though in principle and in practice, they ought to be resisting it. The deal’s too good to be true.
And of course, what happens is that because agency group A offers one of these, then the so does B, C, D, and E. And before you know it, you’re heading into a bit of a spiral on these matters.
And as we all know from the analyst calls, principal-based trading is now, seen by the industry as an essential part of propping up the holding company model. This comes up in every single time, and IPG in particular have been criticized for low growth or no growth because of their slowness in adopting a principal-based model.
So, they’re going to have to chase the tail now, and they’re going to have to try and catch up with Publicis and Omnicom and others. And the only way that they can really do that is to build very quickly a principal-based proposition in the marketplace, which is bloody hard to do, by the way.
So, I mean, well, the groups are now, reliant upon this revenue stream. And I sort of did a LinkedIn post the other day. There was a commentary from Madison and Wall, which showed what has been happening to creative agency revenues in recent times, and they’ve been dropping like a stone.
And so, the media agencies have been charged really with making up the difference. And principal-based trading is one of the key ways that they’ve done it.
By the way, it’s not just principal-based trading. It’s a whole monopoly of non-transparent trading practices, which includes obviously programmatic revenues, unbuild media, that yada, yada, yada. There’s a whole bunch of these things. This is the biggest and fastest growing.
Stephen:
And I think you’re absolutely right in terms of the media agencies being used as cash cows. But I think the worst part of that is the fact that the funds aren’t being plowed back into investing into better and stronger media products.
The groups are taping and they’re using them to shore up. They’re less profitable creative agencies. So, I think the media agencies haven’t been able to push back and get those funds reinvested in their product.
Nick:
Yeah. So, Stephen, not just product, people too. And I can’t vouch for Australia but starting salaries in the UK for people coming out of colleges and schools into the media agencies in the UK roughly — well, they are almost exactly the same as they were in 2008, ‘9.
And during that time the cost of living has gone up by massive amounts, but the salaries certainly haven’t. And as a result, fewer people are coming into advertising because they can go to other places and get better remuneration.
Stephen:
And I think that’s certainly the same here. Perhaps not quite as far back as 2008, ‘9 here, but certainly transparent fees are plateaued. If anything, are going down at the same time as salaries have gone up, and overheads and costs have gone up for business.
So, there has been this migration into non-transparent earnings from media. It’s just difficult to know the extent to which it is. I mean, that’s one of the things I’d like to try and get an understanding of from you today. I mean-
Nick:
It’s … yeah, sorry.
Stephen:
Now, you’ve talked about 30 to 90% markups and you’ve talked about that perhaps being across 10 or 20% of the revenue. So, if you extrapolate those numbers, that would suggest that media agencies are earning on the low end, sort of between 6 and 10% extra revenue; at the higher end, perhaps 20%.
Now, if those numbers are correct, in Australia, you could take an average feed around 10% across all business. So, they’re almost doubling their revenue from their media business in doing this. Does that sound like the sort of numbers that you’ve seen in other markets and overseas?
Nick:
Very much so, yes. I mean, of course, the whole point about this is that there’s no way of knowing because principal-based trading is deliberately excluded from any kind of audit trail. So, it’s impossible for anybody to know.
In some ways, this is one of the key points, which is what principal-based trading does, is it puts control fairly and squarely back in the agency’s hands. Not just on trading and discounts and all that, but also, the media strategic and planning process as well. It’s very hard to know whether you’re getting the right plan, let alone the right discounts, et cetera.
But going back to your point, Stephen, absolutely, we know that the media agencies are making a lot more money out of this than the advertisers are.
And I did some back of packets calculations on this in an article I wrote, which showed that I think that advertisers might get at best, a 2% discount advantage by doing this. And I’m talking only about media discounts, nothing else.
Whereas we know pretty much that agencies are doing much better than that. And if they weren’t, they wouldn’t be pushing it so hard in analyst calls an in the way that they approach clients. We’ve seen presentations from agencies to clients, which are very aggressive in promoting this.
So, your calculations are almost certainly right. And the conversations I have with people within the media agency groups, some of the data that coming out is pretty eye water … I mean, these are private conversations, obviously, but they’re pretty eye watering numbers coming out of the dedicated principal-based trading entities within the big groups. So, it’s a cash cow.
Darren:
Because we’ve got agencies, particularly in Australia that have tried to maintain transparency, and they’re finding themselves not winning in pictures because they end up being 10 to 15% more expensive, not only in media rates, but also, (and we know how it easy it is to manipulate rates) in their non-working fees.
So, how do you break that nexus that while people are wanting to buy on the lowest possible price, and you can make it look like it by being non-transparent, how do we actually get back to … because I can’t imagine a procurement person that I know accepting paying 15% more when another agency’s doing it for 10% less.
Stephen:
Yeah. Nick, what is the end objective? I mean, you’ve obviously been campaigning and you’ve got Who Cares? And we’ve been avidly reading everything you produced.
But I’m struggling at this point in time to see a way in which it can practically be delivered without some serious behavioral changes from clients in terms of accepting the fact that they have to pay higher transparent fees.
Because all of the agencies that are trading with principal-based trading non-transparent, are earning significantly more. If an agency group were to say tomorrow, “We are going to trade transparently now,” they wouldn’t be able to survive without increasing, let’s say, a 10% fee to 17, 18% fee to match what they were earning or what others would be earning.
So, how do we move forward and actually elicit change with the large holding groups? Or can we?
Nick:
Well, you’ve hit the nail right on the head in terms of the problem that we have as an industry. And it’s one of those kind of, you shouldn’t start from here type of situations, but we are here. And it does take change within a number of bodies actually.
The clients themselves need to lead this process because they are the founds of everything. And you may not have seen this, but when we did our launch for Advertising: Who Cares? on September the 12th in London we had a presentation from Michael Farmer, you will know all about Michael, you’ll know that he does an enormous amount of work in this area.
And he tracked the performance of the big mostly CPG advertisers. We’re not talking here about the tech industry, we’re talking about the big branded goods companies.
And he tracked their revenue performance as in their income performance versus their share prices. And he showed that in real terms, there’s been hardly any growth in the revenue of those companies tracking back for several years now.
The share prices have all gone up because of share buybacks and other manipulation that’s been possible to be made. And he made the point that the CEOs of most of the big advertisers are incentivized on stock price, not on anything else, not on revenue growth.
And he tracks this through time, and their revenue has not grown very much at all. They’re not driving top line growth. And anything that they are driving tends to come from price increases in what they’re selling as opposed to marketing and advertising.
What they’ve done over that time is they’ve actually disinvested in marketing and advertising in some respects, although that some, there’s evidence to show that isn’t necessarily true.
But what they’ve done is they’ve essentially put the keys to marketing advertising in the hands of procurement and said, “Could you please make this as efficient as you possibly can,” as opposed to being as effective as you possibly can. And they are two very different things.
And so, what we would like to do in terms of the Advertising: Who Cares? Movement, is to put the focus back on driving growth, driving effectiveness and doing so in a way that is far more consumer friendly, that doesn’t abuse people’s attention and engagement in privacy and so on and so forth.
So, we want to get back to a situation where advertising does what it’s supposed to do, which is to drive top line growth for businesses, but also, help promote other causes as well.
So, to your point, absolutely, it would take a sea change in advertiser behavior and attitudes in order for this to happen. That isn’t going to happen overnight, and it may be one of the world’s most difficult tasks.
But it should start there. It should start with the corporations, and it should start with the corporations realizing that advertising when correctly done is a significant driver of growth, and not just something that you can cheese pair down to lowest common denominators.
I mean, that’s a simple answer to your question. But we genuinely believe that advertising has a massive role to play, both in terms of driving that business growth and awareness and attitudes of certain other things like causes.
But done well, it can be a massive driver of growth. At the moment, it tends to be a more of an efficiency drive than an effectiveness drive.
Stephen:
Yeah. Obviously, the ANA have done a lot of work in pointing out what’s going on. Is there now, a secondary movement in the US to try and educate clients about ways in which we can move forward in a more positive and more transparent light? Or has it just sort of stored at that ANA report which came out last year?
Nick:
Well, I have been involved with the ANA studies. I mean, very involved in the 2016, ‘17 one. In fact, I was the lead author for the recommendations document that came out at that point. I also, got heavily involved in their programmatic study, and co-wrote the RFP that went out to do that.
And I’ve been sitting in round tables in New York and other places in the US for years, and we all say to each other, “Maybe this time, maybe this time.” And it never happened, and it hasn’t happened. And we know the reasons why. We’ve been talking about a number of them during this call. There are others as well.
The truth is that all of the attempts to address these issues, including the AANA where you are, it’s all failed in many ways. And I don’t have any pride or happiness in saying that.
Darren:
Nick, I feel having watched the AANA, the ANA, and ISBA, that the industry bodies feel like they’re always playing catch up. It’s always, their response is to close the door after the horse is bolted. In response to the original lack of transparency, they bought out contracts that were virtually inoperable because of the level of disclosure that was required.
And in the face of that, we had clients saying to us, “Look, we want enough transparency and disclosure that we actually understand what’s going on. We don’t need this level of disclosure to be able to operate on a day-to-day basis.”
Nick:
Yeah. But I mean, when I talk about the trade bodies failing, it isn’t because of want of effort on their part. It’s in the end, you can take the proverbial horse to water, but you can’t make it drink. And unless the members of the AANA, ANA, and ISBA, et cetera, actually pick up these recommendations and run with them, then nothing much will happen.
But if you take the programmatic study that came out December ‘23 it should have been a bombshell report, except it only told us kind of what we already knew.
But it was ignored completely by everybody, especially the big agency groups. None of them even acknowledged it or said anything about it. There was the proverbial … what was the expression we used earlier on? Roaring silence or whatever.
The advertisers themselves don’t seem to have embraced it, I think partly because if their agency groups won’t, then they can’t. And as for the big platforms, of course, absolutely not interested in any of that. The adtech industry absolutely not interested in that, because that’s their lunch we’re talking about.
And so, these attempts to create transparency cannot succeed unless they’re embraced by the whole industry. And it’s not in the interest of the supply side of the equation to embrace them.
And sadly, included in the supply side these days, are the mediators themselves. They are no longer demand side. They’ve become sellers of media back to their clients. And they also, take more money from the sales side than they do from their clients.
So, these days you if you’re a media agency group, you earn more money from other means than you do from your clients themselves. So, who’s the boss in that instance?
So, I mean, just one example I’ve quoted recently is that if you as an agency know that Facebook are going to give you $20,000 for every member of staff who goes on the Facebook training scheme, and you send everybody in your agency on the Facebook training scheme, multiply that by $20,000, you’ve got a really significant revenue stream.
And that’s not an exaggeration. I mean, they will send anybody they can right down to the janitor because it’s $20,000 a pop. That’s one example, and that’s been going on for years and years and years.
So, who’s the boss these days? If you’re earning more money from the supply side than you are from the demand side, then you know where your bread is buttered. And that’s why we end up in the situation where we are.
Darren:
Yeah. I always like to remind clients that buying media through your agency is a bit like a menage a trois, and you have to be careful you’re not the one that’s getting screwed, even though you could be the one paying for it all.
Nick:
Well, but that’s not how it should be, obviously, because the media agency is appointed. I mean, you guys oversee media pitches all the time. And you go through an enormous number of hoops. God knows what else. RFIs, RFPs, presentations, chemistry meetings, you name it.
And you’d like to think at the end of all of that process. And cost will play a part in that, of course, but it should be a relationship built around trust.
Same way that if you appoint somebody to handle your own personal finances, you want to think that they’re going to do the best by you the whole time and not earn unseen fees from other places.
And trust can only be built when you have a strong relationship built about a real understanding of the two-way benefits that each party is getting. And don’t forget that advertisers, when they take on an agency, they bring them into the camp.
They tell them all sorts of confidential things. They share all their business plans with them. The trust is kind of one way at the moment in a situation where you’ve got all these non-transparent practices.
Stephen:
Nick, I mean, the whole mechanism of principal-based trading, could it be delivered transparently? Could an agency group operate in the marketplace getting the same sort of deals and value, but share those findings, share all those numbers with their clients.
And then agree with their clients the amount that they get paid and that they take out of it, and the client gets back. Is there any reason why that can’t take place?
The groups that say it has to be non-transparent, always say it’s because the media owners want the secrecy and the non-transparency. But discussions I’ve had locally would indicate that that’s not necessarily the case.
Nick:
I think you phrased that very well. It is not necessarily the case. And one of the things that I object to with principal-based trading is that it does introduce this concept of a two-track system, whereby if you’re a client of Agency X and you say no principal-based trading, it means theoretically you are not getting everything that the same clients of agency X get if they agree to it.
So, you have a two-track system, you have second and first-class clients and that’s really quite problematic as well.
So, going back to your point, and again, you’ve hit the nail on the head here, is that if it’s true that it’s a win-win situation, and that ultimately the advertiser is better off and so is the agency, that somebody has to pay for that along the way. And if it’s the media vendor who does, well, then the spoils of that could and should be transparent.
Otherwise, you don’t know whether it’s true or not, and you don’t know whether you are better off or the agency’s better off.
So, going back to what I said earlier on, the advertiser is probably two percentage points better off in terms of pure discount. The agency could be making according to your numbers, which I don’t disagree with, three times or four times that.
And that’s just asymmetrical. And it’s not a basis of a long, strong relationship.
And by the way, also before I lose the point, you’ve got to remember when it comes down to contracts and governance, to actually agree to do all these things, you’ve got to get into several pages worth of extra contractual clauses regarding how much money’s going to be spent in this way, who’s going to approve it, how it gets planned and bought, and all sorts of other things, which I won’t bore with you with right now.
But I can tell you that in two thirds of the cases after the event, a lot of those contracts are simply not adhered to. I mean, there’s so many instances where they fall apart.
So, sorry, finishing the point, but you agree in Chicago, but out in India, for example they don’t necessarily know all of that nor do they in Sydney, nor do they in Buenos Aires. The process falls apart quite quickly. So, the term caveat emptor is stamped all over this.
Darren:
The other problem we are seeing, Nick, is that because of all the discussion around particularly principal media trading that clients we’ve fought very hard to try and have sustainable term agency fees and with good margins.
Except clients are turning to us and saying, “Well, why bother when they’ll just make it from the supply side anyway?” So, it’s undermining even the opportunity of continuing to pay agencies in the appropriate way for their services, because clients are starting to believe that this is the new way of doing business.
Nick:
Well, on that point, and all of this is true, (and this might be good for TrinityP3, I don’t know) but you could end up in a situation, and we are I think getting there already to say, “Okay, this year, let’s say for 2025, I’m going to put my business out, and I’m going to see who’s going to offer me the best terms.”
But because of the way things are working, that might not be right for 2026. So, you could end up in extremists, you could end up with pitching your business every bloody year, just based on the best possible discounts and other bells and whistles in the marketplace, instead of building a long-term trusted relationship.
And everything we’re seeing in the market right now, even down to, by the way, the creative work that the agencies produce, long-termism is a good thing; short-termism is definitely not. And the idea of building a long-term trusted relationship where you are proper business partners appears not to be in vogue at the moment.
But you can’t have those relationships without having an absolute basis of confidentiality and trust and not having a belief that your agency is going to do the right thing by you all the time.
So, I don’t know how you approach pitches, but I would imagine that you would advocate that they should be longer term, they should be trusting, they should be transparent, and they should be built around strong contractual and governance foundations. What’s wrong with any of that?
Darren:
Yeah, exactly.
Stephen:
Absolutely nothing.
Darren:
We’re seeing two trends that I’d be interested to see your thoughts on what’s driving this. The first is a number of clients taking their particularly for want of a better word, digital, social programmatic, and other media, SEO in-house.
And the other one is the increased combining of creative and media agencies back together. The sort of rebundling. I think Harold Mitchell said that toothpaste would never be put back into the tube, but we’re starting to see that in a number of occasions.
Do you think some of the challenges we’ve been talking here are driving either or both of those trends?
Nick:
Well, they really are. And I don’t know if you saw the e-marketer data that was doing the rounds last week. And it was probably exaggerated, but it showed that the share of the total business that is now accounted for by the big holding companies is in free fall.
And it’s partly due to the growth of the independent agencies. And you have a very healthy independent sector in Australia. In fact, you’ve probably got one of the most healthy independent sectors in the entire world.
But it’s also, down to the long tail of advertisers, many of whom are substantial businesses who can do all of this themselves by using the SaaS tools that are provided by the big platforms. And they are not just media tools. I mean, they are creative and media tools.
And so, if you are able to create and distribute advertising messages much more easily via these tools and AI will play a role in that, of course, then why would you not do that? And you can start by doing that in digital channels, because of course, they make it easy for you.
You’ve got your Google log-on app, you’ve got your Meta apps, you’ve got an Amazon app, a TikTok app. It’s made it very easy and straightforward, even if you can question the outputs.
So, why wouldn’t advertisers do more of this themselves? Why wouldn’t the industry move towards a much more self-service model?
And it is, which of course is the thing that’s placing pressure upon the holding companies. They’re losing share in the marketplace. So, they’re having to turn to things like non-transparent practices, like such as principal-based trading in order to compensate for their loss of market share.
So, we’re talking about an evolution in the marketplace here from the old model that was held up by holding companies for the last 25 years towards one that is going to be much less so in the future.
Stephen:
Yeah. You mentioned data being merged into principal-based trading and data is a mechanism that the holding groups are increasingly using as a lock in mechanism for clients because once you get locked into the holding groups data systems, then it’s very hard to extract yourself quickly out of that.
Nick:
Yeah. And so, that’s now, quite a big discriminator in pitches, as I’m sure you’re aware. But what we’re seeing now, is that in these big global pitches, you might, for example, find one of the big groups saying, “We’ve got all these data assets. We’ve invested in them a lot of money over the years. We’ve now, got lots of first party data. We can tell you a lot about your consumers.”
It is very, very seductive. But of course, they can’t do that for everybody, and they certainly can’t do that everywhere.
So, if you look at all the big groups, they’ve all got some sort of additional data capabilities now. So, Publicis have got Epsilon and Sapient, and Dentsu have got Merkel, and Omnicom have got Omni and so on. IPG to a certain extent are struggling because they haven’t got such a strong proposition in that area.
So, those are now, again, front and center of these pitches as and wrapped up and bundled together in principal-based trading.
The trouble is though again, it puts the control back in the agency’s hands to say, “We can do all of this for you without necessarily you being able to know whether it’s real or not.” But also, they can’t do it everywhere. Maybe they can do some of it in the US, but when it comes down to doing it in Australia or doing it elsewhere, those assets don’t necessarily exist.
So, again, procurement people in particular have to be really careful they don’t buy a dream that is not deliverable elsewhere, because if you can’t deliver all elsewhere, in the end, you just go for pure old discount. We’re going to be 4% better off, so that’s better than not.
Darren:
Nick, when I started my business back in 2000, a number of procurement people over the years have told me that media is the oldest commodity market around. And in those early days, I used to point out to them that almost all media that existed then had limitations about the volume it could produce.
There was only so many ads on television in the hour, that there were only so many pages of a newspaper or magazine. There were only so many outdoor sites, and likewise with radio. So, it was actually a limited commodity that within that there were different qualities of environment.
But yeah, Augustine Food keeps producing these numbers that there are now, more ads than there could be possible people on earth watching the internet every minute of every day.
But do we live in a new media market where there isn’t any need for worrying about supply because they can basically create as much media as demand suggest. They can create-
Nick:
Isn’t that the paradox we’ve got though, Darren, because we now, have enormous number of media channels more than ever before more on their way, no doubt. Things like retail video and so on. We’ve got in terms of ad formats galore.
So, the matrix of content and channel is enormous. I mean, it’s almost unmanageable, really. So, you would think that planning the best combination of content and channel would be the most important thing in our universe right now, after all these years.
But it’s actually gone in the other direction. It’s gone from being incredibly sophisticated about the right combination of channels and content to I can buy you cheaper media. And that is just a ridiculous paradox.
It is crazy that here we are all these years later with this kind of fantastic toolbox available to us strategically and in planning terms. And it all comes down to, yeah, but I can get your discount another 2% on this and that and the other.
And by the way, I’m not going to tell you how much more money I’m making out of all of this. You’re going to have to just accept that the plan you see in front of you is the best plan, even though you might suspect that it’s not because I’m going to earn more money out of one thing than I’m out of the other. It doesn’t make any sense at all. And this is the reality of where we are.
Darren:
Nick, I’m feeling like you’re saying, “Wink, wink, nudge, nudge. Say no more.” Isn’t that a great English tradition?
Nick:
Yes, it is.
Darren:
Steve.
Stephen:
Yeah. Look, I think the only potential fly in the ointment are the independent market mix models which are now, the client signs up to direct and are advising clients on where they should be spending their money. Which isn’t always going to be telling them the same places as the agencies to meet their deals.
So, in terms of clients getting back control, I think market mix modeling is critical for that because clients have lost, they’ve seeded control to the black box all the agencies have in terms of what the computer says and where their money should go. And market mixed modeling-
Nick:
Yeah. I think that’s absolutely right. And I know you’ve got some very interesting startups and other companies in Australia, like Nutanix for example, getting bit heavily into this. And certainly, you are right, that is part of the solution.
Although you’ve still got the issue of market mix modeling not being particularly sensitive when it comes to some of the more responsive channels. That’s always been a problem with modeling is it’s great on the longer-term stuff and not so good on the day-to-day.
And then you’re up against Google Analytics and what Amazon’s telling you and what … so, it is definitely part of the solution.
But also, a big part of the solution is human capital. I mean, if you’re a good media strategist and planner, you want lots of data, you want lots of stuff coming in all day. But what you really want is somebody who can sit back from all of that and go, “I know what drives the business for this client based on data, but also, based on good old fashioned human intelligence.”
And what we’ve seen in the UK market, maybe not elsewhere, is that there’s been a loss of human capital in the marketplace from people who are able to do that job and do it well. That’s been cost led as well.
So, you’ve got people, and I talk to quite a lot of people who have got lots of experience and expertise who say to me, “I need to get out, or I’m being pushed out because I’m not the right kind of person and I’m 55 years old or whatever.”
And Michael Farmer talks a lot about juniorization. And I have clients who say the same thing to me quite a lot as well, which is, we’re just not getting the caliber and seniority of the people that we used to get. Who can make those judgements based on data.
Stephen:
Yeah. Absolutely, Nick. I mean, what I see in this marketplace is AI polarizing media agency requirements into technologies and good drivers of the technology.
But on the other end, in really creative media thinkers who can find new places to take your brand, because AI is walking backwards into the future, can only interpret what already exists in terms of what is efficient.
And those people who come up with high-end award-winning planning campaigns will be increasingly of high value to agencies and clients because they’ll be the ones that break through the increasing clutter where the algorithms are directing everyone within your category. So, I think that’s-
Nick:
Yeah, I guess when you do media reviews and you’re presented to by agencies, I would imagine that most often people go, “I’ll go with that agency because they’ve got the best team.” Or there might be one individual in that team who just stuns people, who’s just so good. And that’s normally what happens.
And then you’ve got to get the hygiene right in terms of media pricing, and tech, and data and all that. But in the end, we need the best people doing this job and navigating clients through the channel and content maze, as it were. Sherpas through a maze. You don’t have Sherpa in mazes, but you know what I mean.
But those people are thinner on the ground and are becoming more so. The danger is that you end up just relying upon AI led content and channel mixes without any of that judgment.
And then you are really into a zero-sum game, but you’re basically just going, “What was our response rate today? What was our click through rate? How many search inquiries did we get yet?” And that just becomes marketing.
So, to a certain extent with Advertising: Who Cares? what we’re trying to say is don’t lose sight of the need for high level creative thinking, high level media thinking, as well as tech and data and everything else.
And going back to your point about integration, high level tech and creative and media thinking from a single team, doesn’t have to be a single agency at all.
Darren:
Yeah, create a single team.
Nick:
The best campaigns I ever got involved with, where we had everybody sitting around the same table from different agencies all working together. Why not carry on doing that? It doesn’t have to be the same company.
Darren:
Nick Manning, time has got away from us. I do want to share one last quote, my favorite George Box, the statistician, “All models are flawed, some are useful.” I think we should all remember that whenever we’re talking about AI modelling.
And also Stephen Wright. Thank you very much for this incredible conversation.
Stephen:
Thank you, Nick.
Nick:
It’s been great pleasure. And I know we could go on, but we shouldn’t.