This article previews the 2015 Media360Summit, taking place this Thursday in Hong Kong.
Not so long ago, the media industry was apparently in a state of turmoil, with media agencies struggling amid declining margins and clients moving budgets away from traditional channels. But after some significant structural shifts, agencies are now sounding a more optimistic note.
“The key change over the last year is that we have reached inflection point in terms of the share of digital spend in the whole of advertising spend,” explains Gowthaman Ragothaman, chief operating officer at Mindshare. “We are at a stage now where it is not a ‘nice to do’ thing but a ‘must do’ thing. It could be ignored up until last year, but this year it became a very important discussion.”
Darragh Hardy, chief business development officer at MediaCom APAC, echoes that sentiment. “There will continue to be a movement into digital, and so within agencies there will be a diversification in terms of the service we provide,” he says. “Clients want a more holistic approach to solving their problems now — it’s broadening the relationship with the client beyond just traditional media relationships.”
New investment areas have made agencies consider some core elements of the marketing mindset.
“We are aggressively building up our tools and capabilities in the areas of content marketing, programmatic, our data management platform, e-commerce, social and mobile media,” says Prashant Kumar, president of world markets at Mediabrands. “People now live in moments and not segments, and data can be used to identify these moments and their correlated behaviours in relation to the product, discover the drivers and barriers in those moments, and craft content based on those insights.”
Ranganathan Somanathan, chief operating officer of Starcom MediaVest Group Southeast Asia, says the firm also took a proactive approach to the situation. “We had a business target to improve our revenue funnel,” he explains. “Our revenue funnel a couple of years back was not reflecting consumer behaviour, especially in terms of digital behaviour. As agencies, we were trailing the consumers.”
For many, this shift is starting to pay off. Kumar says that digital diversified services are now bringing in 21 per cent of Mediabrands’ revenue, while other diversified services are bringing in 17 per cent to their revenue pool. And at SMG, digital revenues grew between 100 per cent and 400 per cent in Southeast Asian markets, led by strong growth in Indonesia and Thailand.
“It’s actually putting a lot of pressure on the way we are organised,” Somanathan says. “In the marketing ecosystem, we are sending people through a funnel of awareness and purchase, and we do that by creating a message. Historically we create the message for a collective and deliver it in a collective manner. What has happened over the last 12 to 18 months is that we transitioned to creating for a collective, but delivering to individuals. And now, we are rapidly moving to a space where we are designing for the individual and delivering to the individual.”
Investment in diversified digital services has disrupted not only the way media agencies operate, but their place in the agency world. “It’s transformational for all of us, not just media agencies but all creative agencies,” says Kristian Barnes, regional CEO of Vizeum. “Everyone is facing this turbulence around what it is we offer and how we offer it.”
Along with moving into new areas around mobile, search, content marketing and digital sources, Barnes says clients are demanding a range of wider business services and data analysis.
“At the end of the day, a business is often selling a product or a service and the most important thing to them is the quantity and quality of what they sell. While you want to understand the brand position, to your shareholders it’s the impact to your business that’s important. That’s the future for media agencies: to become more like business advisers.”
Of course, the nature of digital means it is hard to ever truly finish the task of reorganising a business strategy. “My sense is that we will be in a constant state of ongoing,” says Somanathan. “There will be some consistencies in our view and approach — the mindset shifts have happened — but the techniques and tactics to get there will be constantly evolving.”
In China, the biggest advertising market in Asia, total internet advertising revenue was US$13.44 billion in 2013, with search taking the majority of internet advertising revenue. Paid search internet advertising revenue is forecast by accounting giant PwC to grow at an annualised rate of 16.4 per cent to $11.34 billion in 2018, while mobile internet advertising revenue is forecast to account for 17 per cent of total internet advertising revenue by 2018.
Internet advertising spend in China is predicted to be over three times the size of TV advertising spend in 2018 — the amount spent on internet advertising has already overtaken TV advertising spend. For creative agencies, there are huge opportunities.
“The next big thing I think — it’s loosely said and often abused — is big data,” says Ragothaman.
“And on the back of that, we have to move beyond the standard demographic definition of targeting consumers. It’s no longer about male, female, income, occupation — the definitions we use in traditional media. It’s about what consumers like, the differences, the context, engagement. To my mind, this is something media agencies will have to invest in to stay ahead of the game.”
PwC’s Global entertainment and media outlook 2014-2018 report predicts that by 2018, non-digital media will continue to account for the largest share of global spending, and TV will still be the biggest advertising medium. But digital revenues and internet advertising will have dramatically narrowed the gap, and although the US will still be the world’s biggest entertainment and media market in three years’ time, China will be hot on its heels.
Globally, digital revenues have risen from 14 per cent of total advertising revenue in 2009 to 25 per cent in 2013. As PwC puts it, “we are approaching a major tipping point in the advertising universe”.
But attracting the right talent remains a challenge. “You’re always going to need the people we’ve got currently; the planners, the buyers, the people who talk to the clients and keep it running — but you’re going to need the technology experts too,” says Barnes. “And for them you’re competing against technology companies, the Googles, the Facebooks, and the startups — particularly here in Asia.”
Plus, not all agencies are yet seeing digital growth help replace declining traditional revenues.
“Stepping into an area doesn’t necessarily mean it’s an immediately profitable area, but that it’s an important area in terms of broadening the relationship and meeting clients needs,” says Hardy.
Somanathan also stresses the lag between investment effort and the point when “monetisation kicks in”. “If business leaders have an analogue mindset to the digital ecosystem, the temptation is to bail out and go back to the status quo. But that’s not the way we make ourselves and our clients future-proof and win with the consumers. So if you want to stay relevant we need to embrace the digital mindset.”
Ragothaman counsels resilience in the face of this frustrating wait for the effort to pay-off. “It’s that classic thing; you’re trying to change the wheels of the car while it’s moving. You cannot take your foot off the accelerator but you also know you have to invest for the future,” he says. “I just hope that those who’ve made the investment have the gumption to continue with their convictions, to hang on for two more years, by which time, the world will be a completely different place.”
For those who hold firm, there is room for these new digital areas to grow. Of the $241 billion growth in total entertainment and media consumer and advertising revenue from 2013 to 2018, PwC predicts $157 billion will come from digital sources, meaning 65 per cent of global entertainment and media growth will be from digital.
“We are extremely bullish about the next year’s growth in Asia,” says Kumar. “Yes, it is seeing softening economic prospects in the region, but Asia-Pacific will continue to be one of the strongest regional drivers of global advertising spend. But more importantly, it is in a state of metamorphosis and it is clear that the golden age for our industry lies ahead.”