CUTTING OUT THE MIDDLE MAN
By John Tylee, campaignlive.co.uk, Thursday, 26 July 2007 08:00AM
LONDON - Hungry for more control, a growing number of advertisers are sidestepping their agencies in order to manage production themselves. 'Decoupling' is plainly a trend that cannot be ignored.
However, adland has good reason to be anxious about the May event, where the client world was taught the bene-fits of sidestepping their agencies. It marked another significant milestone on the journey by clients to assert more control over the production of their advertising and the possible relegation of some agencies to bit-part status.
With an alarming 40 per cent of ISBA members now bypassing ad agencies and managing their pre-print and press activities directly, there is much appetite to go further.
Indeed, such was the interest, that about 80 senior clients - four times the number who usually turn up for an ISBA session - attended the meeting, which had to decamp to a larger venue near the organisation's headquarters in London's Portland Place.
The high turnout reflects a growing eagerness among some clients to extend such direct control - and its related cost savings - into TV production and, perhaps, into online and mobile marketing as well.
What most amazes some at the meeting is how long it has taken agencies to clock the incendiary nature of its agenda. "Nobody in agencies seems to have grasped the implications of this," one says. "Decoupling will be one of the biggest issues the industry has to tackle over the next few months."
As long ago as 1999, Dell, the US computer giant, began its association with the Copenhagen-based AdPeople, which handles its print, direct mail, catalogue and online work, much of it through its studio in Bangladesh. The agency claims to have reduced Dell's costs by half over the past five years.
Closer to home, Royal Bank of Scotland is one of a number of major UK clients to have a direct contract for all its print and point-of-sale work with a repro specialist.
Now, a significant number of advertisers have either assumed command of their TV production or are thinking of doing so. DSG International, the Dixons parent, has been decoupling for more than two years. As one production industry source puts it: "This is an itch clients just have to scratch."
John Clare, DSG's chief executive and the ISBA president, warned at this year's ISBA conference: "If you're in an agency, don't expect to continue to make as much money out of commercial production - much of that will be done by customers themselves."
Recent events suggest Clare's prophecy is already coming to pass. The TV launch campaign for Perfect Fit, Mars Petcare's range of cat and dog food, was produced by the production company Draw Pictures without any agency involvement.
Look also at what's happening at Maximuscle, the fitness supplements company chaired by Paul Hick, the former Lee Cooper chief executive and Waterford Wedgwood managing director and an ISBA council member.
Maximuscle products are stocked by Tesco, Asda, Boots and Argos, but there is no agency to promote them. All creative work - from above-the-line advertising to catalogues - is produced by a four-person in-house team under the supervision of David Barker, the former KHBB creative director and Barker & Ralston founding partner. Total Media handles media planning and buying.
The company is looking to work directly with a production company when it moves on to TV next year. "We're probably saving a six-figure sum by working this way, but that's not why we're doing it," Hick explains. "We're just investing our marketing budget more effectively."
This may be just the start. The boss of one commercials production company claims to have been approached amid great secrecy by two large advertisers who want to work directly with it. "I don't think they've told their agencies yet," he says. "But I imagine they'll have to do so pretty soon."
The IPA acknowledges that attempting to stop what's happening would be as futile as trying to squeeze the toothpaste back in to the tube. Executives believe that managing the process in a manner that is both professional and protects agency margins is the best that can be hoped for.
Whether or not this can be achieved may hinge on the success of a meeting called for the autumn by ISBA, the IPA and the Chartered Institute of Purchasing Supply, representing procurement specialists, in an effort to achieve consensus on the issue.
The idea is that all parties should fully understand the pros and cons of decoupling. Speakers are likely to include Peter Buchanan, COI's deputy chief executive. "COI has a long history of having direct control over its production without alienating its creative agencies," an industry source says. "We'd all like to know how it's done."
Although decoupling has risen up the agenda of late, the issue is far from new. Its origins can be traced back to the summer of 1988, when the then Saatchi & Saatchi group set the industry on a new course by merging the media departments of all its agencies into a centralised media buying shop called Zenith.
Amid all the hype about the trend-setting move, another coincidental development went almost unnoticed - the pooling of all the Saatchis studio operations into a single unit supplying a 24-hour service to clients. Smaller agencies quickly followed suit by establishing joint studio ventures.
All well and good. But it wasn't long before clients began asking some searching questions. "They wanted to know why they were having to pay a margin both to the agency and to its wholly or partly owned studio subsidiary," a former Saatchis senior executive recalls. "As a result, pre-print and press production business started going out to tender."
Agencies lost little sleep over this. Not only were they unenthusiastic about having to do such un-sexy work, but they were reluctant to make the necessary capital investment.
Fast-forward to this year, and the picture looks rather different. For clients, the 90s preoccupation with driving sales has given way to increasing top-line growth. And the fact a multinational such as Unilever now spends about 10 per cent of its £3 billion ad budget on production has put the need by clients to police costs into sharp focus.
In many cases, agencies have found it hard to be the financial disciplinarians that their clients expect. At the same time, protecting margins has become all the more difficult, with almost every client contract now demanding that all discounts negotiated with suppliers be passed on to them.
"The loss of production income has already had a huge effect on profitability," the director of a top-ten agency claims. "So much so that making ads has become the least profitable activity for all marketing services groups."
Others suggest agencies must take some of the blame. "They are good at many things," a senior manager with both agency and production company experience observes. "But managing costs isn't one of them."
To make matters worse, advertisers wanting to keep expenditure under control are not short of people willing to help them. They range from procurement staff to reprographics houses such as TAG Worldwide, which has thrived on the kind of business agencies either wouldn't or couldn't do, and has now extended it's activities from print into TV post-production. Significantly, Steve Parish, TAG's chief executive, was one of the speakers at the ISBA decoupling event.
Other developments have also fuelled the trend. One is the emergence of micro-networks such as Bartle Bogle Hegarty, Wieden & Kennedy and Mother. The more successful these operations have become in winning and handling big global accounts, the more appealing the decoupling concept is becoming to clients.
Another is the downsizing of agency TV departments, leaving clients at the mercy of quite junior staff, and the high cost of TV production in the UK. This has led to many more commercials being shot abroad and cash-strapped British production companies ready to take work wherever they can find it, including directly from clients.
Senior figures within the production industry claim that what is happening isn't the result of concerted efforts by advertisers to cut costs, but a fundamental shift in the market. Many companies now have ex-agency creatives on board, who can provide the creative input being asked of them.
Moreover, they add, production companies have the expertise to translate their ideas across a multitude of media channels beyond the reach of many traditional agencies. Some even suggest the time may not be far off when production companies actually write TV scripts.
Justin Cernis, the managing director of the production company Great Guns, spent 23 years in agency management. He predicts that decoupling will extend into broadcast production, but that real change may be slow given its complex and collaborative nature.
"The key question is whether this is simply a cost-saving exercise driven by procurement or a fundamental shift in how clients intend to do business and use agencies in future," he says. "That's the real debate."
Equally debatable is whether or not this will lead to major communication groups getting in on the action by acquiring production companies.
WPP, which is rumoured to be stalking TAG, has such a company in Australia. Called Plush, it is jointly owned by WPP's Singleton Ogilvy & Mat-her, Young & Rubicam and JWT. Sir Martin Sorrell, WPP's chief executive, would like to replicate this arrangement elsewhere. However, this may not be as easy to repeat outside Australia, where O&M, Y&R and JWT have almost cornered the market.
Others are certainly wary. Publicis Groupe runs an in-house production operation called WAM in an attempt to keep costs down. However, Maurice Levy, the Publicis Groupe chairman, says he has been spurning approaches by producers since the mid-80s.
"Other agencies will not like to use a company owned by a competitor," he warns. "Also, we should be very careful that, in order to save a little money, we don't prevent a director expressing himself to his full potential."
For its part, ISBA is adopting a neutral stance about advert-isers extending decoupling into commercials production. Mike Hughes, ISBA's director-general, is warning members not to rush into it without fully understanding the pros and cons.
"We're not trying to present decoupling as the only answer, because it won't be right for all clients, not least because it adds a degree of complexity to their lives," he insists. "It's all part of our quest for openness and transparency and finding out where savings can be made."
Nor, he adds, should it be seen merely as a means to cut costs. "Decoupling shouldn't be abused, and I'm certainly not hearing that clients are trying to do that. They're talking as much about quality as they are about cost. And while production companies might be capable of producing formulaic ads, they're never going to be the place where you get your big idea."
A consultant who has been researching the commercials production market agrees. "An agency's core skill is its strategic thinking," he says. "That's something no production company can match."
This should provide some comfort for creative shops - but not much. The influence of communication strategy specialists such as Naked at senior client level begs the question of whether media agencies will not only develop strategy, but go directly to production companies to implement it, sidestepping agency creatives in the process. The answer is a definite maybe.
"If we feel we have the internal competence to meet a client's creative needs, we'll do so," Jon Wilkins, a partner at Naked, says. "They are concerned about cost savings, but they're more frustrated about the elongated processes involved in getting the work done. The fact is that the old system is breaking down. Everybody is behaving in a way that best suits them. In the case of clients, that means dealing directly with the talent wherever it's to be found."
Some industry onlookers believe that Aegis is best placed within the media camp to move into creative agency territory. "All the other big media companies are tied into a major communications group, but Aegis remains independent and is building a formidable array of communication services," one points out. "It may take another five years before it becomes the creative agency for the 21st cen-tury - but it will."
Whether or not media specialists will start moving into creative agency territory is a more open question. "There's been a lot of pub talk about media agencies providing creative services for clients, but that's all it is," a media agency chief declares.
"Don't underestimate how difficult this would be for us. We're used to running a controllable business. Creative agencies aren't like that, and there's a skill in managing them."
ZenithOptmedia established a unit called Newcast at the beginning of the year to develop non-traditional creative ideas. But Derek Morris, the Zenith chairman and chief strategy officer, denies this is a precursor of things to come.
"It might be possible that within the next five years we'll see a media group deciding it needs a sales promotion agency, but it would be very unwise to bring it in-house," he warns. "Some media companies may take on some low-level activity. But will there ever be a day when Zenith works with Frank Budgen? Not in my lifetime."
Meanwhile, creative agencies are being urged to regard decoupling's extension as a wake-up call. "They need to stop paying lip service to creativity and start investing in it," a former agency group boss argues.
"The next ten years will belong to the talented and the fleet-of-foot."
This article was first published on campaignlive.co.uk
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