Off the Fence... Are media shops killing their business model?

After a series of media accounts reportedly awarded based on razor-thin margins, are agencies at risk of undermining their own businesses?

by | 09/01/2009


Mark Patterson CEO, GroupM Asia-Pacific	Henry Tajer President, APAC, Universal McCann	Vishnu Mohan CEO, Asia-Pacific, Havas Media	Philip Talbot CEO, Asia-Pacific, ZenithOptimedia
YES	YES	YES	NO
“Some of what I would term the ‘challenger’ media agencies are clearly chasing headlines, pandering to the internal and investment community who read those headlines, and are accelerating the demise of their core business model. This necessitates the development of other revenue streams with even more pace and investment. The conundrum is that the investment is obviously driven by profits from the core business. What this also does is lower the bar and the so-called market norms that some ill-informed clients, procurement people and consultants then use as benchmarks. This is further fuelled by the media ‘consultant’ and media audit community (who happily cold-call clients with 20 per cent media value improvement guarantees). Fortunately, there are enough savvy clients who recognise the need to partner with their media agencies over time, invest and pay fairly for top talent, who can then deliver the real value in transparent media pricing, insightful strategies, great ideas and flawless execution across any platform a brand requires.”	“The answer to this question is: some yes and some no. Those that are doing silly things with compensation ultimately find themselves in a lose-lose situation where they are losing money, and their product quality is tumbling with it. The media agency sector is no different to any business anywhere in the world. Those that invest in their business to drive their product quality and relevance ultimately grow their profits. The prognosis for agencies that do not value their own services is pretty obvious, and in time those agencies will struggle to stay in business. We have a responsibility to our people, clients and shareholders to manage our businesses in a commercially astute manner. I don’t think we should be apologetic for that. Looking on the bright side, we are using this dynamic in the market to focus attention on our diversification, the emerging areas of communications services that, coupled with excellent core capabilities, drive real value to our clients.”	“The words ‘partner’ and ‘consultant’ are found more often in agency credentials than in advertiser lingo. Over the years, we have bastardised our own industry and allowed these relationships to be taken away. The 15 per cent era saw the integrated agencies invest heavily in creative and strategic talent while erstwhile backroom functions like media took the back seat. The greed for market share at any cost coupled with survival needs for others saw agencies go into an undercutting spree, letting the procurement guys have the last laugh. The effect was a de-glamorisation of the industry, with the real talent staying away from it. The end result was value erosion. The need for resurgence is paramount, but for that we need to work with governments and within industry bodies to create a minimum service fee. If ‘goods’ can have a maximum price tag on their packaging, surely services can have a minimum tag. Agencies can then focus on bringing in talent, raising value and engaging with CEOs and chief marketing officers.”	“Rumours that some pitches are won based on unrealistic terms of business have been around since I first started in the industry over 20 years ago. Now, although I am sure that there have been examples of uneconomic pricing, I would argue it can’t be common practice or media agencies would have failed financially ages ago. Instead, media agencies have strengthened, continually evolving to provide clarity in the ever-changing media/consumer landscape. The key to a healthy client relationship is a clear understanding and agreement on the service level each client requires and an open conversation about the cost of that service. If you undercharge for your service, you won’t be able to meet client expectations and you will have a heavily overworked staff who will vote with their feet. Not a recipe for success. Good media agencies are constantly adapting their business model. In doing so, we are proving ourselves to be more valuable to the industry as we deliver better accountability to our clients.”