The Rise of Media Muscle. Again

With clients responding to the recession by valuing savings over strategy, where does this commoditisation of media leave media agencies?

If you spend some time among the more morbid inhabitants of media agencies, then you'd come away with the assumption that the game is up. After years of talking big, evolving product offerings and expressing a desperate desire to "move upstream", it seems that the dreams of the media agency chief executive have been shattered on a concrete bed of reality.

All that the typical advertiser wants, with the recession bearing down on them with more weight than Sir Martin Sorrell's bath, is their media agency to buy space as cheaply as possible and to shave 20 per cent off their bill. There's an argument doing the rounds that we are witnessing a return to basic "pile it high, buy it cheap" media buying with no frills attached. And that clients are only willing to pay the bare minimum for this.

But is this the case, and, if so, have media agencies been living in a fantasy land wearing their bells and whistles while clients have never really viewed media as anything more than a commodity trade?

In some quarters, a blame game is already emerging, with agencies pointing the finger at avaricious clients, who know the price of everything but the value of nothing, for this state of affairs. One media agency boss says: "I talk to clients and I'm afraid to say that they regard the commoditisation of media as extremely good news."

This drive towards commoditisation, it could be argued, is being exaggerated by the recession. And clients are taking advantage, the more bitter agency directors say. They point to recent events in the US, where the likes of General Motors are shifting their payment terms to 120 days (rather than the standard 30) as evidence that the media buyer is now totally downtrodden and, other than resigning the business, has little choice but to expose itself to huge amounts of risk.

On the other hand, there are times when media agencies seem unwilling to break away from the traditional volume-driven model. For instance, reports suggest the current Nokia global media review has been driven, at least in part, by the incumbent MediaCom's unwillingness to accept revised terms that seek to balance commission with an element of payment linked to Nokia's business performance.

And it's difficult to blame advertisers for taking advantage when media agencies seem willing to commit to savage terms to win or keep new business. Anecdotes surround the market of agencies willing to guarantee buying prices to large potential clients that will be cheaper than the average buying price across their other clients.

Critics of this behaviour suggest such agencies are coming to resemble "Ponzi" schemes, which involve delivering excellent media value during new business or contract negotiations but at a cost to long-standing, loyal clients of the agency. If clients all cashed in their chips at once, the whole house of cards could come tumbling down.

This is unlikely to happen, but if agencies are willing to play this game, can they really complain when clients attempt to beat them down on cost? And recent large pitches suggest that this trend is moving to new levels. The pan-European Renault-Nissan review, for instance, saw OMD capture the consolidated business in a pitch against Carat. The process was thorough and well run, but some suggest OMD offered terms that would bring it little immediate return other than building its market share and shoring up its relationship with a client that has a big US account with the same group.

Agencies argue that an obsession with scale, measured in terms of billings, is also feeding a drive towards commoditisation. The recent publication of Nielsen rankings for UK media agencies has stirred up some debate. Jed Glanvill, the chief executive of Mindshare, says: "We have become obsessed with billings. This accentuates the problem right now as the finance and procurement function goes around asking us for even more and more. None of us wants to be seen to be losing a big-billings client, even if we are forced to make it unprofitable."

He adds: "We make ever increasing promises of cheaper media, which is bad for media owners, and cheaper and cheaper fees, which just means that you get weaker teams on the account. So this recession is most likely to accelerate the drive to commoditised, one-size-fits-all media, precisely at a point that good media thinking and ideas have become the key differentiator between success and failure."

Glanvill expresses some hope that this "good media thinking" can still play an important role. And, certainly at local level, there is evidence that agencies such as PHD and Vizeum are investing in structures that will deliver stronger work for clients while being based around a greater element of fee alongside media commission.

Paul Phillips, the managing director of the AAR, says: "An agency like PHD starts with the point of view that through smart media it can deliver greater impact for clients' business. It's easier for procurement departments to buy agencies on more quantified metrics, but there is definitely an opportunity for agencies that can demonstrate long-term added value through strategic thinking."

Phillips also takes issue with the argument that a drive from advertisers towards greater efficiency and accountability necessarily means commoditisation. Quite the opposite: in some instances, it can mean the media agency moving upstream in the client's mind if it can demonstrate through its systems and research the real value that an advertiser is deriving from its media plan and alter it accordingly. "Maybe the ability to measure the here and now is a move upstream," Phillips argues.

Paul Evans, the media and integrated marketing planning manager at Kimberly-Clark, also believes that an emphasis on value is not necessarily negative for media agencies. He says: "The media industry has focused an increasing amount of energy on defining and delivering 'value' through improved costs and terms - this has been driven equally by clients, agencies and auditing partners. The present recessionary environment potentially intensifies these conditions, as we all seek to optimise our trading positions and attributable ROI to each media."

He adds: "Ultimately, the smart clients and agencies will recognise that the media value equation exists beyond simply buying better and cheaper 'space'. Even in this tough climate, strong client/agency relationships, brave strategies, creative thinking and powerful ideas will be the genuine definition of media value and this is the kind of service worth paying for."

Another hope for the media agency improving its relationship with the client has come with media fragmentation and the sense that some of the old rules of engagement in advertising have changed and that hierarchies should change accordingly. This gave birth to the argument that the media agency, as the master of the media channel, should sit at the top of the communications process, if not at the chairman's table.

This saw the rise of independent "media neutral" businesses such as Naked Communications and then a period when media agencies sought to reclaim some of the lost ground. The problem always being: are clients willing to pay for this sort of thinking?

Giving rise to a further question: why should they listen to media agency people attempting to talk coherently about strategy when five or so agencies from other disciplines are also trying to do the same? However, that doesn't mean that media agencies are giving up. Last year, WPP's Mindshare announced a global restructure that saw a focus on content and ideas delivery via a new division called Invention. It subsequently acquired the UK-based planning agency Michaelides & Bednash to spearhead this.

Glanvill says: "Mindshare sees its future as being central to the marketing services function. To do this, it needs to change the game and create a new breed of agency with media, technology, content, creative ideas and data core to its offer. The reorganisation we put in place last year set out to achieve this and we will use the recession as added impetus to accelerate this plan."

Yet it seems difficult for media agencies to reinvent the model. There is an argument that, much as with the TV trading model, you wouldn't invent the current media agency if you were starting from scratch: that instead you'd separate out the volume, trading-led business from the more strategic. However, even the more progressive agency leaders admit that the two are now indelibly linked. As one puts it: "It's a business based around cash so you can't do the strategy without putting petrol in the tank."

Though areas such as search marketing are inevitably traded on a commodity basis, digital media in a broader sense is providing an opportunity for agencies to build stronger relationships with clients through the levels of data and insight they are acquiring on the back of digital campaigns. Publicis Groupe's launch of VivaKi, which involves linking the digital creative network Digitas with its media networks, also provides an example of how digital is moving beyond a mere commodity trade. Similarly, IPG's Mediabrands unit claims that it now sees media, and especially investment in the digital side of its agencies, as "a strategic resource, not just a blunt mass-buying instrument".

What is emerging is not a completely bleak picture of media agencies being sucked into a spiralling vortex of diminishing returns but of a two-gear model where large media agencies have to move towards trading on a commodity basis while also evolving a fee-based structure that rewards them for their ideas and thinking.

As one agency chief executive puts it: "Things are balanced on a knife edge. On one side is increasing commoditisation, on the other a more interesting business model that embraces social media and where the solution is not always an ad."

Marrying the two is no easy task but agencies must do this if they are to survive and remain relevant to clients.



- BT January 2008

The telecoms company reappoints the Publicis agencies Starcom and Zed Media after a hard-fought pitch for its £65 million account. WPP's Group M pushed it all the way. Steve Huddleston, BT's head of media, confessed at the time that he was surprised how far the rival media agencies would go to win the business: "As a result of significant consolidation (among media agencies), we saw very quickly that there would be additional value to be had even beyond where I thought we'd get to."

- Renault-Nissan November 2008

The Renault-Nissan Purchasing Organisation appoints Nissan's agency OMD (over Renault's agency Carat) to handle its consolidated £642 million account across Europe. "Both an important save and important win," Randall Weisenburger, the executive vice-president of Omnicom, said. Though OMD is thought to have taken the business on close to zero margin, the win safeguarded its existing global Nissan business (including the $400 million US account) while adding significant turnover in the shape of Renault's media spend through its European tills.

- Kellogg December 2008

A push by Mindshare for a consolidation of the Kellogg account across Europe seemed to backfire when Kellogg, following a pitch, instead consolidated the estimated EUR300 million account into rival Carat (resulting in Mindshare losing the £75 million UK account). Greg Economos, the vice-president, marketing and innovation of Kellogg Europe, complimented the Aegis network on its "efficiencies, service and effectiveness".


- Nationwide March 2008

When the building society opted to review its £20 million media account after 12 years with Mediaedge:cia, MPG emerged as the winner, apparently because of a strong digital capability. Suki Thompson, the managing director of Oystercatchers, which managed the pitch, revealed: "MPG was kind of the outsider, but impressed on strategy and digital capability ... Buying was an important factor, but Nationwide is set on innovation and is now working with MPG on what it should be doing in the future."

- Cadbury July 2008

PHD captures the £30 million Cadbury UK business from Starcom MediaVest Group as part of a wider pan-European review. Though Cadbury is certainly aware of its clout as a big spender, other factors also seem to be at play as PHD focuses on some innovative online and content ideas for brands including Creme Egg and Dairy Milk. At the time of the win, Philippa Brown, the chief executive of PHD UK, said: "We felt we were the right fit from the start. Cadbury wants to do things differently in the media space and so do we, as we are traditionally a pioneering agency."

- Orange September 2008

While Group M's buying clout was surely a factor in Mediaedge:cia's successful capture of the £76 million Orange business from Initiative, Orange said, right from the start, that it was after more than savings. Justin Billingsley, the UK brand marketing director, said: "We are confident that our decision will drive better media integration and that our media planning and buying will be as innovative as our creative execution."