Agency consolidation—one in four top advertisers plan to centralize partnerships

Get ready for more consolidation: A new study from MediaSense and the World Federation of Advertisers found that brands are increasingly interested in centralizing their agency partnerships. One in four of the more than 70 multinational marketing organizations surveyed for the report said they plan to consolidate media, creative, data and technology agencies within the next three years, and 37% said they are looking for simplification through working with fewer partners. Check out the latest Ad Age events and award programs The “Future of Media Agency Models” report outlines how major multinational brands are looking to evolve their agency models. Ninety-two percent rated integration of their media buying as a key priority for the future. The findings support a growing trend that agency models are swinging from the divided, specialized shops of recent years back to the fully integrated models of the 1980s and 1990s, said Ryan Kangisser, managing partner at MediaSense. With the complexity of the agency ecosystem, a growing number of brands are looking for integration to better connect with consumers, including using data and technology, according to the report. “There feels like there’s a clear direction of travel, which has really been accelerated by the last three years of growth in e-commerce, influencer and social coming together,” Kangisser said. “Now with all that wonderful data and technology driving that, there’s much more momentum to make integration happen.” Also read: Why ad agencies are launching entertainment units The holding company model lends well to the desired consolidation; some 77% of the survey’s respondents currently operate within this model. Through both acquisitions and building their own capabilities, holding companies have added specialties in areas such as gaming, influencer and retail media and are able to handle both global and local client needs, essentially making them one-stop shops for brands. “Specialists remain important around those emerging channels like e-commerce, retail and influencer, but when are we going to see a major multinational appoint an S4 Capital or Stagwell to a major full service scope of work?” Kangisser asked, noting that the role of specialists is “precarious” unless they can seamlessly integrate with the wider agency model. Martin Sorrell, founder and executive chairman of S4 Capital, disagreed and said the survey is “mixing apples and oranges.” “A purely digital, data-driven (powering AI), faster, better, more efficient, unitary model resonates with clients,” he told Ad Age. “Just look at the last five years relative like-for-like revenue growth,” for both the industry and S4, he said. “We’re focused on the faster growth two-thirds of the $900 billion media market.” Beth Sidhu, chief brand and communications officer at Stagwell, also responded to Kangisser’s comment. “Specialist? No. Challenger? Yes. Stagwell is a full-service marketing group with global clients including Lenovo. Clients are choosing to consolidate with Stagwell because they’re looking for new models.” These findings don’t mean that advertisers are looking to use only one media agency, Kangisser said. A quarter of those surveyed work with two or more holding companies. Even so, only 11% of respondents said their current agency model fits their future needs. Slow response times to business trends are a big hurdle for these larger agencies. Of the client respondents, 92% said that speed and agility are important—yet only 31% are satisfied with how their current agency delivers in this area. “We consolidated media, creative and PR with one holding company but in effect it is still like working with three separate agencies, and I feel that their internal politics are more difficult to work with than when we had three separate agencies,” one WFA member said in the report. Ad Age Agency Report 2023 Revenue, listings and analysis for agencies and agency companies Read more here Some brands are responding by bringing their media buying in-house, according to the report. It found that 27% of respondents have brought parts of their paid media buying in-house and 16% now handle more than 25% of their paid media budget in-house. Look back: In-house agencies grow in popularity The MediaSense/WFA survey also found 97% of brands recognized that talent remains a top priority when perfecting the agency model, but that, of course, comes with high salaries. The report highlighted changing the agency remuneration model as one solution, arguing that commission-based or fixed time and materials-based models limit flexibility and fluidity when bringing in talent. Fifty-two percent of respondents agreed that there is room for improvement in their compensation model. That means leadership from both advertisers and agencies to cooperate, said Kangisser. “There’s a need to recognize that good people cost money,” he said. “And there’s a desire to move towards more outcome-based pricing, which would arguably help to fund talent based on the contribution to the business, but it will take a big shift from agencies and clients to get there.” More news: Ad Age’s latest Agency Salary Guide Ad Age A-List & Creativity Awards Final deadline approaching for annual program Enter here

Agency consolidation—one in four top advertisers plan to centralize partnerships

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