$46.8B Record U.S. agency revenue in 2015
"Right now, to some of you, it may not feel like the industry you all love. There's an unusual amount of public discourse and headlines that threaten to diminish our industry. … Let's hold up the mirror and have a frank discussion about what's working and what's not working."
Nancy Hill, CEO of the 4A's, defended the ad industry and highlighted a number of positives at the annual Transformation conference, but she also kicked things off with that frank statement on the status of the industry and the perceptions that surround it, setting the precedent for a conversation on gender diversity and talent, fair compensation and new technology challenges.
While the conversation around gender diversity at times dominated the conference, it did give way to a larger conversation about talent throughout the week as skills change and competition for new, expensive, tech-savvy talent intensifies.
A number of panels talked about bettering agency culture to stop the flight of people from advertising to other sectors. According to LinkedIn data cited during one session, the advertising industry has a 25% "deficit" as talent flees to greener pastures. There was a lot of talk about purpose and perks and keeping Millennials happy, but very little given to the prickly issue of competitive salaries, especially when going head to head with companies like Facebook, which offers entry-level engineers about $120,000 a year, according to Carolyn Everson, VP of global marketing solutions, who spoke at the event. Despite the benefits and the culture that makes "people want to stay," the company's headquarters in Silicon Valley still houses a Sun Microsystems sign from the days when the now defunct tech giant resided in the space. "It was an amazing company at one point," she said. It's there to serve as a reminder that "we don't ever settle for status quo. Don't get complacent."
As more dollars move to digital media and marketing initiatives, talent is only one issue the industry needs to deal with. New challenges, such as ad blocking, enjoyed ample stage time at the conference. The industry faces $20 billion in the amount of revenue loss potential, said Donnie Williams, chief digital officer at Horizon Media. "As an organization, I think the end goal is better user experience, not because we want to create more revenue, but we want to create more powerful advertising," he said. "Folks like Forbes and the Washington Post are doing research to determine what folks find intrusive."
Jeff Burkett, senior director of product strategy for The Washington Post, during a panel discussion on the last day, noted that agencies shared some of the responsibility. "The perspective from agencies … was that it was mostly the publishers' problem -- publishers were at fault for ad blocking. I can opine that that's absolutely false. What we're also seeing is that we were being forced by the agency, in order to get them to buy, to serve obtrusive formats that we as a publisher would prefer not to."
Agencies have to think beyond advertising to get around ad blocking, said Rishad Tobaccowala, chief strategist of Publicis Groupe, during a separate session. "Millennials are more brand conscious than anybody," he said. "However, whoever said you have to advertise to build a brand? And that's the big issue."
That transparency thing
Ms. Hill in her opening statements seemed to reference the continuing battle over transparency between the 4A's, the trade association for ad agencies, and its counterpart among marketers, the Association of National Advertisers. Ms. Hill said whatever the perception, the reality is that most agencies are "enjoying trusting client relationships."
"A little over a year ago, the conversation around transparency and the relationship of transparency between a client and media agency, really started to heat up. And I would suggest it heated up around the wrong particular set of words -- rebates," said Kathleen Brookbanks, chief operating officer at Omnicom media agency OMD, during a separate session. She was referring to a speech by former media agency exec John Mandel alleging that media agencies had been collecting rebates. The speech ignited a continuing battle over transparency between the 4A's and ANA, as well as a joint task force to investigate the issue, but collaboration fizzled when the two disagreed over language in a set of guidelines and principles and the ANA kicked off its own investigation by hiring independent consultancies.
WPP Chief Executive Martin Sorrell was more blunt on the topic: "Rebates do not exist in the U.S.," he said.
And rather than a broad investigation targeting the entire industry, clients should be discussing these things with agencies. "We're quite willing to talk to any client that has any concerns with arrangements at any agency," he added. "If they have any concerns, they should take that up with us.
Part of what's creating tension, said Ms. Brookbanks, is the return to buying practices that haven't been talked about in a long time, such as the agency buying media as a principle and then reselling it to the client, as opposed to buying it as an agent on behalf of the client.
"The transparency piece around it we all agreed on was that clients should know those models exist and have an opportunity to opt in with the full understanding of the benefits of those opportunities," she said. "What they don't see is the underlying cost structure because we're doing so as principle. Those are models that had existed and hadn't been talked about in long time. But the world has become more complex and these offerings have significant benefits to the client."
Giving it away
Some shops claim that they need to launch new revenue streams, and change the way they go to market for clients, as those same clients squeeze them on fees. Many speakers used the 4A's platform to express their frustration with clients asking them to give away services for free.
"We have to stop the insanity of devaluing our product and giving it away for free," said Horizon CEO Bill Koenigsberg just after Ms. Hill's opener.
Carat U.S. CEO Doug Ray agreed that there's an issue, but not necessarily a solution. "I'd love to say 'Let's put our hands together and we're not going to be giving things away, sharing our pricing templates and turning [information] over to auditing firms that [helps them] understand the position of where all companies are.' When push comes to shove, you can link arms and say, 'We're going to do this,' but there's always this outlier who will do anything to win business," he said. "We've somewhat done this to ourselves."