Close-Up: Are billings a good gauge of success?
campaignlive.co.uk, Friday, 25 March 2011 12:00AM
Stephen Woodford argues the case for revenue as a much better measure of creative agency health.
UK media billings are an increasingly irrelevant way to measure creative agency health. They are clearly spot-on for media agencies. But for a creative agency business that is becoming more integrated and international in its scope, they are out of step with the business realities.
When Rupert Howell was IPA president, he tried hard to shift the business away from this measure, as he felt it was anachronistic (and his term was ten years ago). This foundered on the agencies' unwillingness to disclose the "real" information about revenue; in itself, an indication of what they really think is important. Since then, Sarbanes-Oxley rules make this impossible for US-listed companies.
Though Claire Beale's Perspective piece (Campaign, 11 March) makes clear that these are only a partial view of agency health, I think it would be wise to temper the billings comparisons with the revenue realities.
So The Red Brick Road has larger media billings than TBWA, Publicis, Grey and DDB. Yet the smallest of these global brands has revenues 80 per cent higher than TRBR, according to figures published in Campaign (3 December 2010). DDB's revenue is more than four times TRBR's and almost the same as that for Abbott Mead Vickers BBDO, which has three times our UK media billings.
Hats off to Gratterpalm, the Leeds-based agency cited as a comparison point for DDB, but it is about one sixth our size in revenue terms. The anomalies make it clear that there is only one comparison that matters. The real business is about revenue and, as every year goes by, Howell looks more and more visionary.
You kindly point out that the DDB figures exclude our recently won Virgin Media business. Including those media billings will no doubt push us back up the league in 2011, but that again does not reflect the reality of that appointment by Virgin.
The really exciting thing from our joint perspectives is that Virgin has consolidated its three old agencies - advertising, direct and digital - into one new one, to gain the opportunities that better integration can deliver. That is what translates into real business growth in 2011 and beyond.
So, a plea on behalf of the more integrated, digital and internationally centric agencies such as ours. When UK media billings are considered and commented on, last-reported revenues should be used to put these into a proper commercial perspective.
Stephen Woodford is the chief executive of DDB UK.
Got a view? E-mail us at firstname.lastname@example.org
AGENCY HEAD - Sarah Golding, managing partner, CHI & Partners
"Billings are a far from ideal measurement tool. But is revenue the best substitute? Some client categories, such as financial and booze, pay handsomely. Others, such as retail or utilities, are often more conservative. And COI and charities have a different pay structure altogether. What's more, revenue reporting is no more of a precise science than billings.
"Revenue could well be the most meaningful comparative figure available. But the industry would be brave and possibly foolish to make the switch, because reporting actual earnings is vulgar. No-one likes talking about money.
"I can't imagine how a table of agency income would scan. Would any agency want to be near the top? Our industry wants to be seen as creatively driven, not financially motivated. And what would clients make of it? The richer the agency looks, the more the client and its procurement team would drive an increasingly hard bargain."
AGENCY HEAD - Neil Christie, managing director, Wieden & Kennedy London
"The media billings league table is like the wings of an emu. It is a vestigial relic whose function has been lost in the evolution of the business.
"In the era when dinosaurs roamed the advertising earth, agencies' revenue was derived from commission levied on UK media spend. You raked off your 17.5 per cent in the morning and spent the afternoon smoking cigars and drinking fine wines.
"Nowadays, we're paid in fees. Those fees may relate to global campaigns, integrated work, design, branded content, retail - any number of things totally unrelated to UK media spend.
"It could be argued that in these times of 'owned' and 'earned' media, a good agency should be aiming to help its clients drive down their media spend by developing ideas that live beyond bought media channels."
AGENCY HEAD - Guy Hayward, UK group chief executive, JWT
"This league table measures each agency on traditional advertising spend on TV, radio, print and outdoor in the UK only.
"Much of JWT London's work is international. We create advertising in London that goes all over the world. Fifteen per cent of our work is digital. So, only a fraction of our work created here in London is included in this kind of table.
"This league table is rather a throwback to a time when agencies only did traditional advertising in the UK. The world has moved on, and so have agencies. The majority of us do multi-channel output for multiple markets.
"Any chief executive of a UK agency in this hyperconnected, multi-channel, global world who cares about UK billings in traditional media is about to turn the lights out at his agency or get a nice severance cheque. He/she probably thinks Mad Men is a reality TV show."
AGENCY HEAD - Russ Lidstone, chief executive, Euro RSCG London
"Many of our clients rightly continue to use TV to help them achieve their UK marketing objectives, and therefore register against our billings figure.
"However, a significant amount of work across clients such as Pernod Ricard and Credit Suisse would not register in UK billings - simply because most of the work we originate runs internationally.
"Moreover, much of the work that we do for clients locally, and globally, is content disseminated across a variety of channels such as social media, PR, events and digital. Again, these don't register on the billings measure.
"In among the blurred lines of today's global communications landscape, UK media billings are clearly no longer the indicator of agency size or assumed capability that they once were.
"Clients and prospects are now more interested in our broader 'one P&L' capability and delivery than they are in our billings."
This article was first published on campaignlive.co.uk
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